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At long last, meet EDGAR!

Are you prepared for electronic filing? You better be, because the SEC's EDGAR project is up and running. Here are some last-minute tips for the uninitiated.

At long last, EDGAR, the Securities and Exchange Commission's electronic filing project, is a reality. As a CFO who has filed documents electronically since the inception of the Electronic Data Gathering, Analysis and Retrieval system, I can confirm that electronic filing will not initially make our work easier--in fact, the learning curve can be a bit steep--and it won't reduce filing costs. However, it does become mandatory for many filers beginning in 1993.

Some companies will elect to "EDGARize" and file in-house; others will use a filing agent. The majority are likely to make that determination on a case-by-case basis, depending on the complexity of the filing and then factoring in time pressure, staff availability, competing priorities, and their systems readiness. Whichever approach you take, as a financial executive with SEC compliance obligations, you'll have to familiarize yourself with the concepts and, to some extent, with the mechanics of electronic filing.

Why EDGAR? The SEC simply must dig itself out from under an ever-growing mountain of paper filings--a conservative estimate is 10 million pages per year--that is slowly clogging the regulatory gears and making the Commission's oversight task increasingly difficult to perform.

EDGAR will accept electronically, via modem or physical delivery of diskettes or tape, all required SEC filings, absorb the periodic crush of 10-Qs and 10-Ks, protect the confidentiality of nonpublic portions of filings, and rapidly release the balance to the public via electronic data bases. EDGAR is arguably the biggest change in the way the SEC conducts its business since its formation, and yet Corporate America is largely unprepared for electronic filing.

WHERE DO WE STAND?

The SEC's July 23 "EDGAR Notice of Proposed Rulemaking" was the wake-up call. The proposal included the filer phase-in schedule, which calls for those presently filing as volunteers to be mandated electronic fliers beginning in April 1993, with three waves of new filers in July, October and December 1993, so that more than 2,500 corporations and 800 investment management companies will be in the system by January 1994. Congress ordered this "significant test group" to successfully file for six months before the next groups are phased in, in batches of 1,500 to 2,250 issuers each quarter, until the process is completed in 1996.

For the first year, this significant test group will have to file a hard-copy backup to each electronic filing. This backup copy will be due several days after the official filing. This is a new requirement for participants in the pilot program, who have not been required to file a paper copy for several years.

Ultimately, the more than 11,000 companies that file annual reports with the SEC will file electronically, as will investment management companies, public utility holding companies, and others making filings for EDGAR registrants, e.g., a law firm filing a Form 13-D on behalf of a client that has acquired 5 percent of a company that files electronically.

The Commission is scheduled to adopt interim EDGAR rules in February, with new EDGAR Filer Manuals and version 3.0 of the EDGARlink software available in late March. The target date for starting the test filings with version 5.0 is April 12 as this article goes to press, and April 26 is the date on which EDGAR pilot filers will begin mandatory filings. However, in the past, the EDGAR project schedule has frequently changed. The narrow two-week period to test version 3.0 is something that companies doing their own filings must take into consideration.

The EDGAR rules proposal and phase-in schedule are available in the SECs public reference room, from the service bureaus that provide copies of SEC-related data and, in all likelihood, from those who provide you with legal, accounting and financial printing services.

The SEC will notify corporate filers by mail 90 days before their phase-in date and will supply free copies of the EDGARlink software and the EDGAR Filer Manual. But, as one who has been involved with EDGAR since 1984, I urge you not to wait until just before mandatory phase-in to gain a full understanding of the program. If you delay, you may miss out on the assistance currently available to you from a very able and willing SEC filer support group. As the implementation date approaches, the staff will be receiving more and more requests.

As a registrant and a financial printer, Bowne's experience with EDGAR is extensive. Bowne was the first registrant to sign up as a pilot EDGAR flier in 1984 and has EDGAR-filed its own compliance documents ever since, Bowne also made the first operational EDGAR filing on July 15, 1992.

We've had another unique perspective on EDGAR in that Bowne serves on the team selected by the SEC to build the operational EDGAR system. The EDGAR contract team includes BDM International, Inc., the prime contractor; Bowne, in its capacity as a large-scale filing agent, to review the EDGAR Filer Manual and test the electronic filer interface with the SEC; CompuServe Incorporated, to provide an electronic mail link between filers and the SEC, as well as an alternate filing mechanism; Disclosure Inc., the current operator of the SEC's document dissemination system; and Mead Data Central, supplier of the Nexis and Lexis data bases, to develop EDGAR's electronic public dissemination component.

GETTING STARTED

The first step in preparing for electronic filing for any issuer, large or small, is tn create an EDGAR working group tasked to determine timetables, compile a list of current filing procedures, evaluate resources and develop a proposed response to EDGAR. For example, your team may recommend centralizing EDGARizing and electronic filing in one department, at least until the expertise is more widely available within the company.

Who should control the EDGAR working group? It's not critical which department heads up the filing effort as long as every member of the task force understands the time-critical nature of a filing, the absolute need for accuracy, the company's legal obligations to file and the need to involve the responsible executive if the department doesn't accomplish a filing.

The group must have the technical expertise to electronically convert the document into the filing format, to complete an effective review of the electronic document, to execute the transmission and to confirm both receipt and acceptance at the SEC. Your MIS department should offer some support, by taking the time to understand the programs and being available to identify problems and resolve them immediately when a filing doesn't go through. You also should involve your corporate legal and finance departments and the corporate secretary. And the initial meeting might include outside counsel and accountants, too.

If as a registrant you choose to develop the in-house capability to file, you must obtain the necessary hardware and software, register with the SEC, install the software, sign up with CompuServe, and establish an initial online link with the EDGAR system. Let's examine these steps in detail:

* First, obtain the EDGARlink software--which is available for MS-DOS IBM-compatible PCs only--and a copy of the EDGAR Filer Manual, from Disclosure Inc., the official and sole supplier. (You can reach Disclosure Inc. by calling (800) 638-8241. The company accepts credit cards.) The cost, if you buy the disks and manual before your official notification, as recommended, is approximately $20 for both. (Otherwise, as I said earlier, the SEC provides the material free of charge when it notifies you of your phase-in date.)

* Next, call CompuServe, at (800) 848-8199, and ask to sign up for a new EDGAR account. Although you may have an existing CompuServe account, only an EDGAR-specific account can access the EDGAR bulletin board. (This account will also give you access to all of CompuServe's regular services.) You will receive, via mail, CompuServe's EDGAR specific communications software, a temporary user identification number and an interim password that you'll use to sign on.

* The next step is to register with the SEC: Obtain a copy of the SEC's Form ID, by which you can register as an EDGAR flier, filing agent or training agent. You can find the Form lD in the EDGAR Filer Manual, or you can get copies from such interested third parties as financial printers, law firms, or accounting firms.

Fill out the Form ID, inserting your CompuServe user ID number--if you've received it-in the appropriate section, and mail the form to the SEC at the address on the form. (If you haven't received your ID number, you can provide the SEC with the number at a later time. While having the number isn't mandatory, the SEC strongly encourages it.) A set of access codes--a public Central Index Key, or CIK, number and three confidential passwords--will then be mailed to you.

* The remaining steps are technical in nature. You must install the EDGARlink software in a modem-equipped personal computer with 512k RAM. Next, you install the CompuServe Information Manager (CIM) software and make the electronic contacts to initialize the programs. You then make test filings to confirm that you've established all links, your passwords and the ClK number are valid, and you completely understand the filing process.

A BIG DIFFERENCE

The technical procedures for preparing an EDGAR filing are outlined in the 400-page EDGAR Filer Manual. Above and beyond the techniques required to prepare a filing, the most critical issue is the substantive one--that the EDGAR document is the official compliance copy.

Traditionally, Bowne would sign off on the final, hard-copy document, which was often typeset or word-processed for readability. When filed via EDGAR, that traditional document has to be stripped of typeset codes and translated into an electronic format, you have to add appropriate tagging and identification numbers to the file, and then you have to transmit the document. If anything is lost in the translation--any part of the file dropped or numbers lost and then inaccurately restored by a clerk--the data that's filed electronically is nevertheless the official filing.

At Bowne, we're accustomed to going over our hard copy many times, giving it a thorough editing, involving many people in the proofing process. A final proof would receive a very thorough reading before we execute it. Now, we must take that document and, in essence, officially discard it and replace it with an electronic version. We must insure that the people who are doing the conversion are thoroughly trained and apply the same document controls to the electronic version that we traditionally apply to the paper version. All of us have had experience with MIS systems where files have gotten lost, where data have disappeared or where information has crept into the files and no one understands why.

Earlier, I mentioned that most filers will make the decision to use an outside filing agent on a case-by-case basis. The documents that might be filed in-house include those containing a limited number of pages, those that will be ready several days prior to the due date, and those that will not, after filing, be aesthetically enhanced for ease of reading. Although the electronic document is the official form, some companies don't want to publish and distribute a monospaced document without the usual stylized appearance.

Therefore, most documents will exist in two formats, and conversion from one to another will take more time as the size of the document increases. Frequently, documents that you finalize at the last hour will require you to maintain two files, the original and the converted copy, for the last few days. This increases the risk of error and increases the time you need for document control.

A word about ASCII conversion: An EDGAR filing is an appropriately tagged and formatted plain-text, or ASCII, document. It's stripped of typesetting or word processing codes such as boldface, italics and underlines. Although most word processing programs include a procedure for conversion to ASCII, at least two of the leading software packages, WordPerfect and Microsoft Word, can leave control codes embedded in the document after ASCII conversion. The EDGARizing process should help identify these non-ASCII characters, and you can use a full-screen text editor included in the package to delete or change them. For example, you can change the code for a long dash (what printers call an "em-dash") to the acceptable alternative of double hyphens.

Another area of significant change with operational EDGAR is the elimination of the PIN, or personal identification number, for signing electronic documents. If a signatory's name appears in typed form, it will be considered signed. This new approach to signatures is sure to be debated in the courts in the years ahead. No one will be sure if the attorney or accountant has ever seen the document upon which the "deemed signature" appears.

During the pilot program, we've made a practice of maintaining a hard copy of all our filings, keeping manually executed signatures in the corporate files. But this brings us back to the chicken-and-egg syndrome of which comes first, the electronic version or the hard copy.

This new rule should also eliminate from the filing the power-of-attorney documents that appeared in many documents. You may still need to obtain a power of attorney from a director or officer but, having it, you'd be authorized to provide the "deemed signature" on the document.

Other areas you need to understand are data tags, financial data schedules and lockbox firfling fee payments:

Data Tags and Financial Data Schedules--For EDGAR to recognize and sort through the data it receives, it uses computer-recognizable markers called SGML tags. The system of Standard Generalized Markup Language, used by the Defense Department to create computerized technical documentation, employs specifically defined symbols, usually angle brackets (|is less than~|is greater than~), to flag specific information. You can find a list of these tags and their definitions in the EDGAR Filer Manual.

Throughout the life of the EDGAR project, experts have discussed establishing standardized financial coding for all reports. However, the SEC staff has indicated that, although financial data schedules to automate the computation of some basic ratios must eventually be a part of operational EDGAR, it would be asking too much of new filers to require them to manually construct these exactingly formatted schedules; therefore, a future software release will assist in this area.

Lockbox Filing Fee Payments--If filing fees are required, you must pay them in advance of the filing to the SEC's lockbox at the Mellon Bank in Pittsburgh. The account number is 910-8739. You can do this by wire transfer or by mailing a money order or a certified, cashier's or personal check. (Note that personal checks aren't accepted for registration statements.) Keep in mind that delays in the receipt of funds can occur due to bank clearance procedures. The SEC must receive confirmation of your payment before it will accept any filing that requires a fee. However, you can maintain a deposit at the bank against which you can charge your individual fees.

WISDOM FROM EXPERIENCE

Our EDGAR experience has been, to say the least, interesting. Of course, having a financial printer in-house has been helpful. It has freed me from the obligation of keeping up with the technological and procedural changes at each phase of the project and from completing test filings just prior to a live filing to insure that we're current. All of this allows my group to remain focused on our primary mission.

Implementing EDGAR is a cost of doing business that we must all share to assure that all regulatory authorities--for EDGAR will ultimately interface with the self-regulatory organizations and state filing authorities as well--can continue to manage their oversight roles, control their paper flow and maintain orderly securities markets in the years to come.

Mr. O'Neil is vice president of finance at Bowne & Co., Inc.
COPYRIGHT 1993 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Corporate Reporting; Electronic Data Gathering, Analysis and Retrieval system of the SEC
Author:O'Neil, James P.
Publication:Financial Executive
Date:Jan 1, 1993
Words:2635
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