WHEN it comes to disclosing insider trading on their investor relations websites, companies’ practices vary widely. Most firms give the information little thought, while a few go out of their way to make the information easy for investors to access and digest.
But with the Securities and Exchange Commission (SEC) recently adding free XML-based news feeds to its EDGAR database, there is now an easier, less expensive and almost entirely maintenance-free way for companies to comply with the rules while providing the information to their investors in a mildly more usable way.
Since July 30, 2003, the SEC has required each officer, director and more than 10% shareholders to report their transactions electronically on EDGAR and to provide access to the same filings on their website. The rules stemmed from provisions in the Sarbanes-Oxley Act of 2002, the legislative reaction to the Enron and WorldCom corporate scandals.
Usability of current practices varies widely
To meet the web posting requirements, US companies have adopted several different approaches, each with varying degrees of usefulness. The most common practice is to post insider filings as part of a broader SEC filings module provided by a third-party service provider such as Thomson Financial, Shareholder.com or 10-K Wizard.
Most often, investors can filter the SEC filings by form type to show only insider filings. That’s a handy feature, but in practice it doesn’t add much value, especially when investors cannot tell just by looking at a list who exactly is making those “statements of changes in beneficial ownership of securities.”
This is an important point. Transactions by some insiders are more significant to investors than others. All things being equal, transactions by a CEO, for example, are more significant than those by a business unit head or a director. CEOs presumably know more about their business than anyone else, and so their trading decisions should be the most informed.
With this mind, investors visiting a company’s website should be able to tell just by looking at a list of recent insider filings whose activity is being reported. Unfortunately, that’s wishful thinking because on most IR websites hosted by Thomson Financial — which is about 70% of the market — insider filings are shown in unhelpful lists like the one in the screenshot below. They don’t indicate the name or position of the reporting person, so investors have to review each individual filing to find out.
|With this common presentation of insider filings, investors have to click to view each filing to see who it relates to. While vendors provide better insider filings modules for IR websites, they’re costly.|I should also point out that Thomson and other vendors do sell advanced insider transaction modules for IR websites that are highly useful. And Shareholder.com typically does a better job with its standard SEC filings module than Thomson does because it usually shows insiders’ names in the lists of filings. However, few companies are using the advanced insider reporting modules, presumably because they can’t justify the cost. See comments for why I’m rewriting this paragraph.
I should also point out that Shareholder.com typically does a better job with its standard SEC filings module than Thomson does because it usually shows insiders’ names in the lists of filings. And Thomson and other vendors do sell advanced insider transaction modules for IR websites that are highly useful. However, few companies are using the advanced insider reporting modules, presumably because they can’t justify the cost.
The little-known free option
The fact that most companies pay a service provider to provide them with a barely usable insider filings solution for their websites is curious when you consider that there has always been a free and easy alternative. In fact, anyone reading the SEC’s rules will know that they can easily satisfy the requirements simply by linking to their filings on EDGAR.
EDGAR was actually upgraded specifically for the purpose. Companies can link from their websites to pages on EDGAR that show only insider transaction reports for their company. Even better, because each insider has his or her own Central Index Key (CIK), companies can also link to a list of filings for each of their executives and directors.
Morgan Stanley is one of a handful of companies that uses the SEC’s free filings database rather than a third-party service provider to comply with the rules. It provides access to its filings by linking to them on EDGAR. It does so for Morgan Stanley as a whole and for each insider. Once such a page is set up, it never needs to be updated.
The screen shot below shows you what Morgan Stanley’s current insider transaction page looks like today, and what investors see when they follow the links to EDGAR. In one respect, this is better than the run-of-mill Thomson approach because investors can easily access filings by those insiders they’re most interested in, such as Chairman and CEO John Mack.
|Morgan Stanley currently meets its website posting obligations by linking to its filings on EDGAR for both the company and for individual insiders.|
However, Morgan Stanley’s approach is still not as useful as it could be. It would be nice if there were more direct links to each of the most recent filings for the company and for each insider. That would cut down on the work and time required by investors to do their due diligence.
Making the free option better with the new XML feeds
Providing more direct access to individual filings was actually discussed during the drafting of the SEC’s rules in 2002, but the regulator turned away from that idea because making companies manually post links to each filing, or forcing them to pay a service provider to do so, was considered too much of a burden.
However, now that the SEC has added news feeds to EDGAR, that’s no longer a problem. Using readily available free tools, Morgan Stanley can now fetch insider filings information from EDGAR’s feeds and display it on its website. Once this is set up, each new filing on EDGAR will automatically appear on the company’s website.
For investors visiting Morgan Stanley’s website, this means they no longer have to go to EDGAR just to see if any new transactions have been reported. They can see that information on Morgan Stanley’s website, and only go to EDGAR if they want to review a specific filing.
Indeed, they don’t even need to visit Morgan Stanley’s website to learn about new insider filings. They can subscribe to the feeds using a modern browser like Microsoft’s free Internet Explorer 7, or they can use one of many free desktop or online feed readers.
The next time that CEO John Mack buys or sells Morgan Stanley stock, investors subscribed to either his or Morgan Stanley’s EDGAR feeds will be notified automatically on their desktops, laptops or handhelds. The company doesn’t have to do anything different than it is doing now and there is zero ongoing cost to the company or its investors for the alerting service.
This is not some pipe dream of mine or something that’s off in the future. It’s a reality right now. Earlier this week, I put together a demo page based on Morgan Stanley’s insider filings page using a free service to convert the EDGAR feeds to HTML for display on a web page. This took me 30 minutes and was basically a matter of copying and pasting information.
I showed my demo to Chris Smith at iBanknet, whose EDGAR widget I wrote about earlier this week. He and colleague Marian Albert quickly saw what I wanted to do and put together a complete working demo that makes more direct use of the EDGAR feeds. You can see how their demo page would look on Morgan Stanley’s page in the mock-up I did below.
Mock-up of Morgan Stanley’s feed-based insider filings pageENLARGE | LIVE DEMO
|By fetching the feeds from EDGAR, investors no longer have to visit the SEC’s website to see the latest filings. Indeed, by subscribing to the feeds for the company or individual insiders, they wouldn’t have to visit Morgan Stanley’s website to stay informed. The information can come to them. This is easy and free to do. See the live demo page from iBanknet.|
To be sure, using the SEC’s new EDGAR feeds to create a free insider filings page on an investor relations website isn’t exactly revolutionary, nor is it a complete solution.
But it is better than most insider filings pages on IR websites today — and it didn’t require more than a little expertise and some lateral thinking. Best of all, there’s no ongoing cost. Once it’s set up, it’s completely hands and pocketbook free.
Such opportunities to use technology in simple, low-cost ways are everywhere on the Web today. Whatever you are spending on a cookie-cutter website from Thomson Financial or another vendor could be going into producing a low-cost, highly flexible and uniquely engaging investor relations website for your company.
You just have to see the opportunities. As other people already are. While I was putting the finishing touches to this article, I received the following email from George at FatPitchFinancials.com, an individual investor who has turned his interest in investing into a couple of thriving websites. Here’s what he had to say:
I thought you might be interested in how I used the SEC EDGAR XML feeds on a recent project for my blog’s sister site, ValueInvestingNews.com.
Value Investing News is a social news site that is powered by a community of value investors. Members submit high quality news stories and tag them with stock tickers. Then each stock ticker gets its own page.
We recently added the SEC EDGAR XML feeds to each of these individual pages with the assistance of the Google AJAX Feed API. For example, at http://www.valueinvestingnews.com/stock-tickers/JNJ , you will see at the top of the right hand column a block that contains links to JNJ’s latest SEC filings. These filing links come directly from EDGAR. There are two other tabs on that block, one for financial statements (10K/10Q) and the last one for ownership filings to compliment the recent filings which exclude ownership filings.
I believe your readers will be interested in the example of how their SEC filings can now be quickly distributed on the web via the new EDGAR XML feeds.
Yes, George, I think the readers of IR Web Report will be very interested indeed.
Update, April 10: What if the SEC exposed the actual information in the insider filings via its feeds. Wouldn’t we then be able to take that data and create summaries on the fly, mash it up with other data, and then post it on companies’ sites or feed to whoever wants it? Instead of, “hey, the CEO just made a filing to the SEC. Go see.” We’d get something like “CEO John Doe sold 50% of this current holdings or 733,000 shares on April 1, 2008 at an average price of $10, and 32 seconds ago the stock was trading @$3.35 on volumes 197% more than the 30 day average.” Just a thought.