Close Look at the SEC’s Automation of Form ID
David T. Copenhafer
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system approaches its 20-year anniversary in September 2004,
the SEC has removed one of the remaining vestiges of paper
processing. As of April 26, 2004, anyone needing EDGAR access
codes was required to apply for those codes using a new, web-based
Form ID application process.
catalyst for the move away from paper applications to an
electronic system can be found in section 403 of the Sarbanes-Oxley
Act, which requires electronic filing of all section 16
ownership reports (Forms 3, 4, and 5). Section 16, like
Form ID, had escaped the electronic filing requirement since
EDGAR’s beginnings, but for somewhat different reasons.
Because most section 16 reports are filed by individuals,
the SEC was especially reluctant to impose an electronic
filing burden on a large number of system users who may
lack the requisite computer skills or access to filing assistance.
electronic filing of section 16 forms became law on June
30, 2003, and with that change came approximately 100,000
new EDGAR filers, all of whom needed EDGAR access codes.
The crush of activity as June 30 approached almost overwhelmed
the SEC staff assigned to enter data, generate EDGAR codes,
and return codes to applicants.
addition, officers and directors turn over at a surprisingly
steady pace, and each new officer needs new EDGAR codes.
The SEC recognized the time for something different had
Latest Change: Electronic Form ID
the Form ID from a paper process to an electronic one is
not something that the SEC could treat lightly. EDGAR access
codes are the key to ensuring the integrity of the entire
electronic disclosure system. Investors must have total
faith that every filing submitted into the EDGAR system
and posted to the many websites devoted to making these
filings accessible to a worldwide investor community comes
from the issuer whose name is on the cover of the document.
Spoofing EDGAR with a phony merger filing, for example,
would create major havoc.
electronic Form ID process initiated by the SEC shows signs
of the strain to balance powerful but competing objectives,
with the net result being that applicants are not really
relieved from the burdens of paper. In fact, for the Form
ID applicant, the paper chase is more complex and costly
under the new system than it was under the old system.
the new process, the applicant does all the data entry,
thereby saving the SEC resources. But for the applicant
to validate its electronic Form ID, as well as to give the
SEC the assurances it needs to allow an applicant to get
new codes or modify or update existing codes, the work done
electronically must be followed up with notarized authenticating
documentation faxed to the SEC.
aside the snickers that have accompanied many discussions
of sending a notarized document via fax, one quickly realizes
that in some respects the Form ID paper shuffle at the SEC
just became much tougher. In the past, SEC staff could work
through a stack of paper applications in some sort of FIFO
order without worrying about organizing the stack. Work
could be spread quickly among the data-entry staff without
regard to document order.
however, two very separate workflows must physically come
together at a single point. Generally, the electronic component
of the application will arrive first. Applicants have two
days to supply the notarized authenticating documents, but
they could also have sent their authentication material
to the SEC as much as two days prior to completing the electronic
piece. Because SEC staff must match the notarized, authenticating
paper documents with the electronic application, one can
readily see the time-consuming difficulties that might attend
SEC appears to be streamlining its internal procedures,
however. Electronic applications that had been taking a
week to process are now routinely being returned two days
following the submission of the electronic component of
the application. Much of this improvement is apparently
the result of adding more staff to the effort.
applying for EDGAR access codes today will also find that
the new online system is fairly intuitive. Disregarding
the fax requirement, accessing and navigating the new web
interface is not difficult or time-consuming. Filers should
keep two things in mind, however:
The new system requires everyone to create a master EDGAR
code, called a passphrase. This passphrase should be written
down immediately because it never appears in plain text
anywhere on screen or in a printout and is not recoverable
by the SEC. (The SEC’s final Form ID rules are incorrect
on this point: Footnote 28 instructs users to redact their
passphrases if they elect to fax the SEC a signed printout
of the electronic application, but there is, in fact,
nothing to redact.)
The new system includes capabilities that go beyond requesting
codes for a new registrant. Self-administration features
allow filers to recover from the loss, expiration, or
compromise of any EDGAR access code.
if a filer loses or forgets the new passphrase, a shortened
electronic application can be prepared that, combined with
proper authenticating documents, will get the filer back
into the system.
the SEC and the user community seem anxious for a solution.
One way to eliminate the notarized authentication documentation
while assuring the SEC that it is dealing with a trusted
partner at another computer is to use what are known as
“certificates of authority.” Certificates
of authority are nothing new, but moving in this direction
would first require the SEC to radically shift its service
model. The SEC’s current model is aimed at serving
individual section 16 filers who receive no assistance from
either the issuer they are associated with or their personal
law firm or broker-dealer. Although reliable statistics
do not exist, most observers conclude that the great majority
of applicants are not individuals doing everything themselves.
The great majority of those who need EDGAR access codes
are dealing with institutions (law firms, accounting firms,
or financial printers), for which having and maintaining
a certificate of authority for SEC Form ID purposes would
not be a burden.
the handful of individual insiders who would like to handle
the process themselves may need to seek the assistance of
a specialized service provider, but most of them will conclude
that this is a small price to pay for vastly improved service.
the SEC elects to use certificates, it should be understood
that no system for granting and managing all aspects of
EDGAR access codes can be completely hands-free. For example,
company or mutual fund names may still require SEC staff
involvement. Although much of the work of avoiding duplicates
or ensuring that a new name meets the SEC’s naming
standards and conventions (or possibly is even spelled correctly)
can be done with software, getting it 100% correct will
probably require human eyes.
will also have to consider whether to participate in a system
based on certificates of authority. Liability issues alone
should occasion a deep examination. Inadvertently destroying
or changing the wrong issuer’s EDGAR codes would not
be met kindly by the affected issuer. Therefore, while technology
seems to hold great promise in this seemingly simple arena,
everyone involved will need to advance the cause with great
T. Copenhafer is director of EDGAR Services at Bowne
& Co., Inc. (www.bowne.com),
an international financial printing and business solutions