SEC eliminates paper financial filings-at last

The final and largest group of companies began transmitting
financial records live this month for the Securities and Exchange Commission's electronic
filing system.


The addition of what SEC calls the corporate finance group, or CF-10 for short,
increased by almost one-quarter the number of companies using Electronic Data Gathering,
Analysis and Retrieval system. This month's ramp-up was the tenth and largest since SEC
began bringing users onto EDGAR in 1993.


The final ramp-up came just a week before the May 15 deadline for many corporate
quarterly reports. All total, 6,691 of the reports were submitted electronically, just
slightly less than the 7,000 anticipated.


SEC chief information office Michael E. Bartell said the week was "very
busy," but that SEC officials were pleased with the system's performance.


Completion of the transition to EDGAR means every publicly traded U.S. corporation now
must file its mandatory SEC reports on line.


But it comes as EDGAR's future sits under a cloud of uncertainty. The SEC has been
working on a request for proposals for the system's next generation [GCN, April
29, Page 18]. It appears increasingly unlikely, however, that the SEC will have a new
system in place by the time the current EDGAR contract, held by BDM International Inc. of
McLean, Va., expires at year's end.


Though SEC officials would not comment publicly, they acknowledged that they do not
expect the bidding process to be completed within the next six months. The BDM contract
has a four-month extension provision, giving SEC a small additional window of time.


But some issues related to the EDGAR follow-on might prove beyond SEC's control. The
House is considering a bill that would mandate the privatization of EDGAR.


Rep. Jack Fields (R-Texas) sponsored H.R. 3005, which would require SEC to turnover all
EDGAR operations to a contractor. The bill follows a report issued by Fields this spring
criticizing the program and suggesting that it be transferred to the private sector.
Fields' bill is awaiting a floor vote by the House after being approved by the House
Commerce Committee.


SEC officials have said they must consider what privatization means precisely. But
Bartell said that much of EDGAR work already is handled by contractors. SEC must retain
authority for controlling the financial data and analyzing it, he said.


Whatever the outcome of the House bill, for now all corporations must file their
financial data with SEC electronically.


"Unless you're a foreign issuer [of securities], you're an EDGAR filer,"
James R. Budge, special counsel in SEC's Office of Disclosure Policy, said at a filer
conference in Washington last month.


The final group of EDGAR filers, CF-10, is larger than the preceding groups brought on
line because companies that could not make earlier deadlines were added to CF-10. The
3,000 filers include mostly small organizations that have been filing reports on paper
until now.


Sylvia J. Reis, assistant director for EDGAR policy in SEC's Corporation Finance
Division, said the commission will accept few excuses from companies seeking to avoid
using the on-line system. "Short of being in Chapter 11 [el1] there's little else
that is going to get an exemption from EDGAR," she said.


Other than the number of filers involved and the heavy load on some portions of SEC's
telecommunications infrastructure, particularly the access nodes, adding the CF-10 filings
did not unduly strain SEC systems, Bartell said.


To accommodate the added load, SEC soon will double the size of the modem bank
providing dial-up access. The commission now has about 100 modems from Microcom Inc. in
Norwood, Mass.


"It's the same stuff we've been doing--just more of it," Bartell said. There
were few problems, however.


"From a systems point of view, we just watched the meter spinning and stood in
amazement," said Dave Copenhafer, EDGAR's project manager. EDGAR registered some 700
filings between 3 p.m. and 4 p.m. on May 15.


One problem was heavy use of SEC's telephone support lines, which during some peak
times were so jammed callers had to wait as long as 30 minutes.


The problem was exacerbated by the number of last-minute filers. Copenhafer said some
filers were even calling to get passwords on the day before the May 15 deadline.


Adding additional help desk staff seems unlikely and is a resource issue, Copenhafer
said, because there are so few callers during non-peak periods that technical support
personnel would have to be reassigned to other jobs during the downtime.


Adding the CF-10 companies did pose one major challenge because most of the new
companies are small and had little or no on-line experience. "A lot of the smaller
firms generally have the most trouble because they don't have the large data processing
departments to help them get connected," Bartell said.


The technical trouble spots for these companies are sometimes basic. A month before the
May 6 deadline, CF-10 filers were phoning the SEC with questions on how to install a PC
modem, for instance.


Although SEC offers several ways for filers to upload data to EDGAR, such as on disk or
on magnetic tape, the most common method is via dial-up modem.


"My advice is don't do it on disk," Budge said. "Direct transmission is
definitely the way to go. It keeps your hands in it, and the commission's hands out of
it."


To prepare filings and transmit them to EDGAR, all filers get a free software package
called EDGARLink that BDM International created for the commission.


The EDGAR system at SEC is built around a cluster of fault-tolerant 600-series
minicomputers from Stratus Computer Inc. of Marlborough, Mass., designed for near-zero
downtime and data security.


The EDGAR applications are written in C and run under Stratus' VOS operating system.
But this summer SEC will convert the system to FTX, Stratus' version of Unix.


EDGAR data is stored in a Sybase Inc. relational database management system hosted on
Sparccenter 2000E servers from Sun Microsystems Inc.


When transmitting a file to EDGAR, a user must run the data through EDGARLink, which
converts the data to an ASCII format and creates a header detailing the submission type,
the filer and necessary coding. EDGARLink also builds separate document headers to
accompany the text in a filing and provides the capability for inserting tables.


Once a company transmits its data to EDGAR, the system provides a receipt
notification--either an acceptance or error notice--via the CompuServe commercial on-line
service.


EDGAR has been easy for most users to learn, SEC officials said. Thus far, 96 percent
of first-time EDGAR users have succeeded in filing. That number could drop slightly as a
result of this filing period, but only by a percentage point or two, Copenhafer said.



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