With Edgar, SEC Streamlines Operations

The federal government is littered with IT modernization projects that cost too much, took too long and delivered too little. When Richard Heroux joined the Securities and Exchange Commission to head up modernizing its electronic disclosure system known as Edgar, he was determined to learn from that legacy of failure. Armed with a master’s degree thesis that plumbs the depths of federal modernization mistakes, Heroux applied his research to the SEC’s three-year, $22.5 million project.

Heroux’s academic work paid off. The revamped Edgar system was successfully deployed on time, on budget and met its stated goals. In use since 2001, the modernized Edgar (short for electronic data gathering, analysis and retrieval) is a Web-based system that increases efficiency, streamlines bureaucracy and reduces the burdens of regulatory compliance. It has improved the financial disclosure filings system for a varied and sundry group of constituents both inside and outside the SEC, and is now the recipient of an Enterprise Value Award. Gregor Bailar, executive vice president and CIO of Capital One in Falls Church, Va., and an Enterprise Value Awards judge, cites Edgar for “literally redefining the interface among the investor, the actual stock share issuer and the SEC.”

Broad Mission

As the regulatory agency that oversees capital markets in the United States, the SEC’s main mission is to protect investors by ensuring the integrity of the securities industry. With Edgar, the SEC is now better equipped to carry out that mission. Edgar automates both the collection and dissemination of the financial data that public companies and their affiliated executives and officers are required to file with the SEC. By making that data available to investors via the Internet within 78 seconds of receipt, Edgar gives investors a foundation for making more informed decisions. William G. Heninger, an assistant professor of information systems in the School of Accountancy and Information Systems at Brigham Young University in Provo, Utah, has studied Edgar’s effect on the market. “When the filings hit [electronically], there was a significant change in stock prices,” says Heninger, something that didn’t happen with the SEC’s previous paper-based disclosure system. He says that Edgar has also created a level of fairness that was not available before: “Edgar put detailed information out into the hands of the average everyday investor.” Previously, such information was the exclusive domain of investment companies, pension fund managers and other investment professionals. In short, Edgar?by furnishing investors with timely and actionable financial information online?enables the SEC to increase both the fairness and efficiency of capital markets. At a time when investor confidence is battered and the SEC’s leadership has garnered criticism, Edgar offers hope that e-government can work.

Edgar’s value is not limited to investors, however. Before modernization, Edgar was a client/server-based system that didn’t provide detailed information about each filing and its disposition or allow filers a way to easily prepare documents that they could use in other media such as print or online. Today, SEC examiners and analysts use the new Edgar to speed their reviews, better track their assignments and generally reduce their administrative tasks. And the SEC’s filing community?composed of companies, their executives and officers, financial printers, filing agents, lawyers and accountants?relies on Edgar to take the sting out of submitting compliance forms such as 10-Ks, 10-Qs and S-1s. Edgar’s easy-to-use electronic submission templates allow filers to repurpose data and build submissions piecemeal, and use the documents for other outlets such as annual reports or their own websites.

Multiple Constituencies

The SEC’s Office of Information Technology’s humble home in an Alexandria, Va., industrial park belies the scope of the Edgar project. Today, Edgar is a workhorse of a system, each year processing 16 million pages of text from more than 200,000 filing entities and storing 1,200GB of data. Its modular design includes a website for filers, internal servers that automate workflow, a common enterprise data warehouse and an integrated accounting package that accurately processes fees. Through venues including www.sec.gov, the SEC provides access to regulatory data for millions of investors around the world. For subscribers?the third-party vendors that buy and sell Edgar data?annual subscription costs have plummeted from $278,000 to $44,000 due to lower maintenance costs and cheaper, more powerful hardware. The lower costs have expanded the number of subscribers that analyze and resell Edgar data from eight in 1997 to more than two dozen today. Edgar has also enabled a whole new industry of third-party disseminators to spring up.

Edgar first started as a pilot project in 1984. The paper-based process the SEC relied on for years to collect the legally required regulatory data didn’t lend itself to easy distribution, storage or access. In 1992, the SEC launched the first electronic version of Edgar, a client/server-based system filers used voluntarily. By 1995, filers had the option of sending documents to the SEC via dial-up, magnetic tape or diskette. Although those were improvements, Edgar had its limitations. SEC forms were available electronically, but Edgar was a limited, character-based system that did not allow such useful things as footnotes or reader-friendly graphics; forms filed electronically?without bullet points or boldface?had all the elegance of a DOS program. Nearly half of the filers hired financial printing companies to electronically submit documents to the SEC and then reformat the data to produce more reader-friendly versions. Operationally, Edgar was generally reliable, yet the centralized nature of the system spelled trouble for uptime.

In 1996, a few factors converged that made modernizing Edgar a top priority of then SEC Chairman Arthur Levitt. By then, filing electronically was mandatory, client/ server technology was showing its age, and the Internet was picking up steam. The SEC solicited input from financial printing companies, the National Academy of Science and investment industry experts before issuing an RFP for a new Edgar in 1997. There were several goals to the modernization, not the least of which was to take advantage of new technologies such as the Internet, XML and PKI. Specifically, the SEC wanted to ease filer burdens, improve the quality of documents and cut its own operational and maintenance costs.

But the SEC couldn’t just rip out its client/server system and replace it with a multipurpose website. Each of the SEC’s constituencies had unique and sometimes conflicting needs. Filers wanted the submission process to be as simple as possible, so they didn’t want to get bogged down tagging every piece of data. Disseminators, however, wanted just about everything in a document tagged so that they could easily pull out information, put it in databases and conduct myriad analyses for their customers. As for investors, they wanted quick access to financial documents that looked good through their browsers.

Hard Work Up Front

Heroux joined the SEC in 1997 as a systems analyst and was promoted to Edgar program manager to spearhead the modernization project. A 13-year veteran of the IRS, Heroux used cost overruns, missed schedules and undelivered objectives as his criteria. Heroux studied projects at nine organizations including the Federal Aviation Administration and the Social Security Administration (see “Learning from Mistakes,” at www.cio.com/printlinks).

Heroux had identified lack of management support as a mistake to avoid. In that area, Heroux had a fairly easy job of it. Congress mandated an upgrade and appropriated funds from the Office of Management and Budget, so there was no pushback from the SEC’s top managers. Heroux sought to eliminate ambiguity from every aspect of the project. He outlined system requirements with users during the RFP process; if users wanted certain functionality but couldn’t clearly define their requirements, Heroux put their requests on hold. When the RFP went out for bid, he had each vendor make several presentations as insurance against unpleasant surprises later. On July 1, 1998, the SEC awarded a three-year contract for $22.5 million to TRW (at that time BDM International), marking the start of Edgar’s modernization.

Heroux then set up user task forces to examine such issues as security parameters and user interfaces. Heroux assigned an HTML task force to the politically charged job of developing tags that would meet the needs of Edgar’s diverse users without compromising the integrity of the system. “A few people really got burned out from the extra hours and left during the project,” recalls Heroux.

Throughout the project, Heroux was vigilant on milestones and money, establishing hard and fast expectations up front, both for the project team and the contractors. The Edgar project had four major milestones ranging from three months for the initial implementation of a text management system to two years for building an integrated fee-processing system. Because of Y2K testing, development of the fee-processing system went beyond its slated schedule but fell within the project’s three-year time frame. To hit the deadlines, the Edgar team met often and conducted frequent milestone check-ins, holding closely to the requirements and not allowing the project add-ons that can lead to scope creep. As for the budget, Heroux let TRW know that $22.5 million was all the SEC had to spend. During weekly meetings, “the contractor worked with us to the point where the scope of the project was managed to the dollar,” Heroux says. The oversight worked.

One System for All

From the outset, the modernized Edgar was designed to fulfill the needs of a diverse set of users, an approach that required compromise. For example, the SEC chose to support an HTML-based data format primarily to help filers create multipurpose documents; but filers didn’t want to tag every piece of data. For disseminators, HTML tags worked fine as long as the documents contained no images. So the SEC asked filers to limit their use of images to those that represented important data or to images with corresponding text and required them to tag only the most important data such as financial tables. Disseminators could parse through the text and find data tagged with HTML without having to worry about sifting through images for important data.

For filers, Edgar makes compliance less onerous. Through the new website, filers can download six document templates to build their submissions using GUI-based screens. Filers use pull-down menus and click boxes to compile submissions for nearly 400 SEC compliance forms. The SEC’s XML-based filing format allows filers to submit HTML documents that can be easily repurposed by posting the data on their own website or printing hard copies without reformatting or typesetting. Sixty-four percent of filers handle their own submissions (up from 50 percent premod- ernization), and 97 percent successfully file via Edgar on the first attempt.

For SEC employees, Edgar eases administrative tasks. Submissions that come in through the Web are fed automatically into the receipt and acceptance (R&A) server, where they are processed, validated and time-stamped. Fees are then processed automatically via a system that links Edgar to filers’ accounts at Mellon Bank in Pittsburgh. Within seconds of receipt, data is transmitted to an enterprise data repository where analysts and examiners can access it through an analysis and review (A&R) server, which tracks incoming submissions for review and resource allocation purposes. Employees customize queries to search the data and track their assignments. Finding the number of corporate “poison pills”?provisions designed to make takeovers unpalatable, for example?is as simple as typing the term into a search field. Correspondence can be attached to submissions so that employees can concurrently review a filer’s entire collection of documents.

Edgar’s effect on employees “has been fairly dramatic,” says Ken Fogash, associate executive director of the SEC’s office of filings and information services, and acting associate executive director (chief information officer) of the office of information technology. “With the single repository, employees now have a consistent base of information to share.” Initially, the automated review function caused concern among some employees who feared their jobs?which involve analyzing submitted forms for discrepancies?would become dumbed down. Fogash says that hasn’t happened. “The cases of Enron and WorldCom show that off-balance-sheet activities require greater expertise” to analyze, he says.

For the SEC, the modernized Edgar has trimmed operational costs by $150,000 per month. The system has 500,000 fewer lines of custom code than earlier versions. And four people are dedicated to Edgar, down from 30 employees before modernization.

Edgar’s modular design ensures that the system will grow as demand dictates. Each functional piece of Edgar is replicated throughout the system; if the A&R server goes down, for example, both the R&A server and the enterprise data repository can handle receipt functions.

The ultimate sign of Edgar’s success: Other government agencies at home and abroad consider Edgar an example of e-government at its best. Canada, England, Japan and Korea use Edgar as the model for building their own filing systems. In updating Edgar, the SEC implemented state-of-the-art technology but never lost sight of the needs of a diverse audience.