SEC Proposes to Extend Interactive Data Voluntary Reporting Program on the EDGAR System to Include Mutual Fund Risk/Return Summary Information
[20853]
February 7, 2007
TO: SEC RULES COMMITTEE No. 12-07ACCOUNTING/TREASURERS COMMITTEE No. 2-07
TECHNOLOGY ADVISORY COMMITTEE No. 5-07
SMALL FUNDS COMMITTEE No. 4-07
XBRL WORKING GROUP RE: SEC PROPOSES TO EXTEND INTERACTIVE DATA VOLUNTARY REPORTING PROGRAM ON THE EDGAR SYSTEM TO INCLUDE MUTUAL FUND RISK/RETURN SUMMARY INFORMATION
The Securities and Exchange Commission has proposed rule amendments that would enable investment company registrants to voluntarily submit supplemental tagged information contained in the risk/return summary section of their prospectuses using eXtensible Business Reporting Language (“XBRL”). [1] Registrants electing to participate in the voluntary program would continue to file their financial information in HTML or ASCII format, as currently required. The extension of the voluntary program is intended to enable the SEC to evaluate the usefulness to investors, third party analysts, registrants, the Commission, and the marketplace of tagging mutual fund information.
Comments on the proposed amendments are due no later 30 days after publication in the Federal Register. If you have comments on the proposed amendments, please provide them by Friday, February 16th, to Mara Shreck at 202/326.5923 or mshreck@ici.org, or Frances Stadler at 202/326.5822 or frances@ici.org.
Background
XBRL is an international Internet-based language designed specifically for business information. XBRL provides machine-readable tags corresponding to business information concepts and data included in internal company reports and external reports distributed to stakeholders (e.g., revenue, earnings-per-share, portfolio turnover, investment performance, business and organizational description, income tax disclosures, etc.). Individual industries must reach consensus on tag sets that identify industry-specific concepts. Once agreed upon, tag definitions are made available to all market participants free of charge and without license fees.
In February 2005, the SEC instituted a voluntary XBRL filing program allowing registrants, including mutual funds, to file tagged financial information as an exhibit to certain filings made on the EDGAR system. [2] Unlike with operating companies, however, mutual fund financial statements do not provide the information that investors most commonly rely upon in making investment decisions. To better serve mutual fund investors, the Institute developed a draft XBRL taxonomy covering the information in the risk/return summary required at the beginning of every fund prospectus. The draft taxonomy was released on January 4, 2007, and is undergoing a 45-day public comment period.
Proposed Amendments to the Voluntary Filing Program
The SEC has now proposed amending its voluntary XBRL filing program to permit investment company registrants to include tagged risk/return summary information as supplemental exhibits to amendments of Form N-1A filings, using the ICI’s taxonomy.
Mechanics of the Program
Under the proposed amendments, an investment company registrant would be permitted to file XBRL-tagged risk/return information as an exhibit to a Form N-1A filing or an amendment thereto. The tagged exhibits could be submitted only after the effective date of the filings to which they relate. They could be submitted under Rule 485(b) of the Securities Act, and would need to contain only the new exhibit, a facing page, a signature page, a cover letter explaining the nature of the filing, and a revised exhibit index.
The proposed amendments would require volunteer filers to tag information in a manner that would permit the information for each share class of a fund to be separately identified. [3] The proposed amendments would also permit mutual funds to submit tagged financial highlights or condensed financial information as an exhibit to an amendment to Form N-1A. [4]
Tagged exhibits would be required to reflect the same information contained in the risk/return summary section of the related Form N-1A filing. In addition, any filing with which tagged exhibits are submitted would be required to state that the purpose of submitting the tagged exhibits is to test the related format and technology, and therefore that investors should not rely on the exhibits in making investment decisions.
As with the current voluntary program, filers would be free to submit tagged risk/return summary information regularly or from time to time, and could stop and start as they choose. Participation in the program would not create any continuing obligation for a volunteer filer. A volunteer filer would, however, be required to amend any tagged risk/return summary exhibits that do not comply with the content and format requirements of the rule, e.g., because they do not reflect the same information as the corresponding official filing.
Liability Issues
The current voluntary filing program already contains certain safeguards from liability, so as not to unnecessarily deter filers from participating in the program. The existing safeguards provide that XBRL-tagged exhibits submitted under the program:
- are not deemed “filed” for purposes of the Securities Exchange Act or Section 34(b) of the Investment Company Act;
- are therefore not incorporated by reference into registration statements or prospectuses;
- are not otherwise subject to liability under these sections.
The current program also provides more general relief from liability under the securities laws for information in a tagged exhibit that complies with the content and format requirements of the voluntary program to the extent that the information in the corresponding portion of the official EDGAR filing was not materially false or misleading. All other liability and antifraud provisions of the securities laws still apply.
Unlike the filings currently included in the voluntary program, Form N-1A is a registration form under both the Securities Act and the Investment Company Act, creating the potential for registration statement liability under the Securities Act. The proposed amendments therefore extend the liability protection to include Section 11 of the Securities Act. The rule would also explicitly state that tagged exhibits are not part of any registration statement to which they relate. The SEC also intends to caution users on its website that tagged documents should not be relied upon for making investment decisions.
Software Tools
The Proposing Release acknowledges that commercial products that provide means to view and compare tagged information in a rendered (i.e., human readable) format are available. The SEC is considering whether to provide such software tools on its website for use with risk/return summary information.
Request for Comment
The Proposing Release requests general comments, as well as specific comments on certain issues, including:
- What steps can the SEC take to encourage mutual funds to participate in the expanded voluntary filing program?
- Is additional or different language necessary for the cautionary disclosures to investors? Is the exhibit index to a Form N-1A filing the appropriate place for the cautionary disclosures?
- Are the proposed liability provisions sufficient to protect volunteers and encourage participation in the program? Should they be modified in any way? Would investors have sufficient protection under the proposed amendments?
- Given the narrative format of much risk/return summary information, does tagging of this information raise particular issues with regard to extensions or other facets of data tagging?
- What are the advantages and disadvantages of the Commission providing on its website tools to render the tagged risk/return summary information? What if any liability or other concerns would be raised by the fact that the presentation would be different from the risk/return summary information as presented in a registrant’s official prospectus?
Mara Shreck
Assistant Counsel
endnotes
[1] See Extension of Interactive Data Voluntary Reporting Program on the EDGAR System to Include Mutual Fund Risk/Return Summary Information, SEC Release Nos. 33-8781 and IC-27697 (Feb. 6, 2007) (“Proposing Release”), available at http://www.sec.gov/rules/proposed/2007/33-8781.pdf.
[2] See Institute Memorandum to Accounting/Treasurers Members No. 3-05, Closed-End Investment Company Members No. 20-05, SEC Rules Members No. 23-05 [18515], dated February 8, 2005. See also XBRL Voluntary Financial Reporting Program on the EDGAR System, SEC Release Nos. 33-8529, 34-51129, IC-26747 (Feb. 3, 2005), available at http://www.sec.gov/rules/final/33-8529.htm.
[3] Currently, the voluntary filing program only requires that documents be tagged in a manner that would permit the information for each series of an investment company, and each contract of an insurance company separate account, to be separately identified.
[4] Currently, the voluntary filing program permits mutual funds to submit such information only as an exhibit to Form N-CSR.