Daily Rules, Proposed Rules, and Notices of the Federal Government
The Securities and Exchange Commission (“Commission”) is adopting amendments to rules 485
The principal elements of the rule amendments we are adopting today are as follows:
• Open-end management investment companies (“mutual funds”)
• An interactive data file submitted with a registration statement must be filed as a post-effective amendment under rule 485(b) under the Securities Act
• Risk/return summary information in interactive data format must be provided as an exhibit identified in General Instruction C.3.(g).(iv) of Form N-1A.
• The rules do not alter the requirements to provide risk/return summary information with the traditional format filings.
• A mutual fund required to provide risk/return summary information in interactive data format to the Commission also is required to post that information in interactive data format on its Web site not later than the end of the calendar day it submitted or was required to submit the interactive data
• If a mutual fund does not submit or post interactive data as required, the fund's ability to file post-effective amendments to its registration statement under rule 485(b) under the Securities Act will be automatically suspended until the fund submits and posts the interactive data as required.
• Mutual funds providing risk/return summary information in interactive data format are required to use the most recent list of tags released by XBRL U.S.
• New rule 406T of Regulation S-T
○ Subject to the anti-fraud provisions of Section 17(a)(1) of the Securities Act, Section 10(b) of and rule 10b-5 under the Securities Exchange Act of 1934 (“Exchange Act”), and Section 206(1) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), except as provided below;
Deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act or Section 34(b) of the Investment Company Act, and otherwise is not subject to liability under these sections;
○ Deemed filed for purposes of (and, as a result, benefit from) rule 103 of Regulation S-T;
○ Subject to liability for a failure to comply with rule 405 of Regulation S-T,
■ Makes a good faith attempt to comply with rule 405; and
■ after the electronic filer becomes aware that the interactive data file fails to comply with rule 405, promptly amends the interactive data file to comply with rule 405.
• These liability provisions will apply only until October 31, 2014, and, thereafter, an interactive data file will be subject to the same liability provisions as the related official filing.
• The voluntary program is being modified to allow for participation by mutual funds with respect to risk/return summary information up until January 1, 2011, but continue to permit investment companies to participate with respect to financial statement information thereafter. As a result, the voluntary program will continue after the compliance date of these rule amendments for the financial statements of investment companies that are registered under the Investment Company Act, business development companies,
• Registered investment companies, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X are permitted to submit exhibits under the voluntary program containing a tagged schedule of portfolio holdings without having to submit other financial information in interactive data format.
We intend to monitor implementation and, if necessary, make appropriate adjustments to the adopted amendments.
Over the last several decades, developments in technology and electronic data communication have facilitated greater transparency in the form of easier access to, and analysis of, financial reporting and disclosures. Technological developments also have significantly decreased the time and cost of filing disclosure documents with us. Most notably, in 1993 we began to require electronic filing on our Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).
We continue to update our filing standards and systems as technologies improve, consistent with our goal to promote efficient and transparent capital markets. Most recently, we unveiled the Interactive Data Electronic Applications database (“IDEA”), which will initially supplement and eventually replace EDGAR, and which is designed to take full advantage of interactive technology in order to provide investors with better and more useful financial disclosures.
In addition, we also implemented a voluntary filer program, started in 2005,
In 2007, we extended the program to enable mutual funds voluntarily to submit in interactive data format supplemental information contained in the risk/return summary section of their prospectuses.
Since the establishment of the voluntary program for mutual fund risk/return summary information, the Commission has continued its evaluation of interactive data, including interactive data submitted by mutual funds. The Commission's evaluation of interactive data has included the hosting of three roundtables on the topic of interactive data reporting,
Additionally, prior to launching the risk/return viewer, Commission staff reviewed all of the interactive data files submitted to the Commission to help ensure the accuracy of the interactive risk/return summary data displayed on the Commission's Web site, and the staff communicated with the filers in order to identify and correct any technical issues with the submissions.
In a companion release, we recently adopted rules requiring companies, other than investment companies that are registered under the Investment Company Act, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X, to submit financial information to the Commission in interactive data format.
Companies filing electronically are required to file their registration statements and periodic reports in ASCII or HTML format.
Electronic formats such as HTML, XML, and XBRL are open standards
XBRL was derived from the XML standard. It was developed and continues to be supported by XBRL International, a consortium of approximately 550 organizations representing many elements of the financial reporting community worldwide in more than 20 jurisdictions, national and regional.
Risk/return summary information in interactive format requires a standard list of tags. These tags are similar to definitions in an ordinary dictionary, and they cover a variety of concepts that can be read and understood by software applications. For the risk/return summary, a mutual fund will use the most recent list of tags for risk/return summary information released by XBRL U.S.
A mutual fund may issue multiple “series” of shares, each of which is preferred over all other series in respect of assets specifically allocated to that series. Rule 18f-2 under the Investment Company Act [17 CFR 270.18f-2]. Each series is, in effect, a separate investment portfolio.
A mutual fund may issue more than one class of shares that represent interests in the same portfolio of securities with each class, among other things, having a different arrangement for shareholder services or the distribution of securities, or both. Rule 18f-3 under the Investment Company Act [17 CFR 270.18f-3].
The initial risk/return summary list of tags received acknowledgement from XBRL International in June 2007,
There are two levels of XBRL tag recognition: (1) “Acknowledgement” is formal recognition that a list of tags complies with XBRL specifications, including testing by a defined set of validation tools; and (2) “approval” is a formal recognition requiring more detailed quality assurance and testing, including compliance with official XBRL guidelines for the type of tag list under review, creation of a number of instance documents, and an open review period after acknowledgement. For more information regarding the XBRL tag list recognition process, see “Taxonomy Recognition Process” on the XBRL International Web site available at:
Data tags are applied to risk/return summary information by using commercially available software that guides a preparer to tag information in the risk/return summary, such as line item costs in a mutual fund's fee table, with the appropriate tags in the standard list. This involves locating an element in the list of tags that represents the particular disclosure that is to be tagged. Occasionally, because mutual funds have some flexibility in preparing the risk/return summary, particularly the narrative portions, it is possible that a mutual fund may wish to use a non-standard disclosure that is not included in the standard list of tags. In this situation, a fund will create a company-specific element, called an extension. Alternatively, a mutual fund may choose to outsource the tagging process.
Because mutual fund risk/return summary information in interactive data format is intended to be processed by software applications, the unprocessed interactive data is not readable by humans. Thus, viewers are necessary to convert, or “render,” the interactive data file to human readable format. Some viewers, for example, may be compared to Web browsers that are used to read HTML files.
The Commission's Web site currently provides links to viewers that allow the public to read mutual fund and other company disclosures submitted using interactive data. One of these viewers allows users to view and compare mutual fund risk/return summary information, including investment objectives and strategies, costs, risks, and past performance, that is submitted in interactive data format.
The Commission received 16 comment letters on the proposed rule amendments, including comments from trade associations, fund complexes, a data aggregator, technology service providers, and individual investors and professionals.
For the reasons discussed below, we continue to believe that the enormous potential of interactive data for enhancing investors' access to mutual fund information justifies implementation of this initiative. Therefore, we are adopting the proposed amendments with some modifications to address commenters' concerns. The rule amendments are intended to make risk/return summary information easier for investors to analyze and to assist in automating regulatory filings and business information processing.
We are adopting, as proposed, rule amendments that require mutual funds to submit a complete set of their risk/return summary information, set forth in Items 2, 3, and 4 of Form N-1A,
We are adopting these rule amendments because the submission of interactive risk/return summary information at this time is an important next step in increasing the accessibility of this information to mutual fund investors and others. Requiring mutual funds to submit the risk/return summary section of their prospectuses using interactive data format will enable investors, analysts, and the Commission staff to capture and analyze that information more quickly and at less cost than is possible using the same information provided in a static format. Any investor with a computer and an Internet connection will have the ability to acquire and download interactive data that have generally been available only to intermediaries and third-party analysts. The interactive data rule amendments do not change disclosure requirements under the federal securities laws and regulations, but will add a requirement to include risk/return summary information in an interactive data format as an exhibit. Thus, requiring that filers provide risk/return summary information using interactive data will not otherwise alter at all the disclosure or formatting standards of mutual fund prospectuses. These filings will continue to be available as they are today for those who prefer to view the traditional text-based document.
Interactive data can create new ways for investors, analysts, and others to retrieve and use the information. For example, users of risk/return summary information will be able to download cost and performance information directly into spreadsheets, analyze it using commercial off-the-shelf software, or use it within investment models in other software formats. Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of mutual fund cost, performance, and other information across multiple classes of the same fund and across the more than 8,000 mutual funds currently available.
Interactive data also provides an opportunity to automate regulatory filings and business information processing, with the potential to increase the speed, accuracy, and usability of mutual fund disclosure. Such automation may eventually reduce costs. A mutual fund that uses a standardized interactive data format at earlier stages of its reporting cycle may reduce the need for repetitive data entry and, therefore, the likelihood of human error. In this way, interactive data may improve the quality of information while reducing its cost. Also, to the extent investors currently are required to pay for access to mutual fund risk/return summary information that has been extracted and reformatted into an interactive data format by third-party sources, the availability of interactive data in Commission filings may allow investors to avoid additional costs associated with third-party sources.
As noted above, although most commenters generally supported the concept of interactive disclosure of risk/return summary information,
While we are sensitive to these commenters' concerns, they do not warrant delay in this important initiative, particularly given recent progress related to these comments. First, the Commission recently adopted amendments to Form N-1A related to the Summary Prospectus Initiative and the ETF Initiative.
In the Summary Prospectus Initiative, we requested comment on whether the proposed linking requirements for documents posted on an Internet Web site should be modified.
Finally, the Commission has been exploring, via the voluntary program, the use of interactive data for several years, including the submission of tagged financial information and risk/return summary information. Twenty-five mutual funds have submitted over 40 exhibits tagged with interactive data, giving the Commission experience in adapting to the technology. In addition, over 100 operating companies have submitted financial statements tagged in interactive data format. Each submission has enabled issuers to gain experience with submitting tagged documents and enabled the Commission to refine its technology infrastructure to accept and efficiently render these interactive exhibits. Moreover, given the extended compliance date discussed below, mutual funds will have almost two years to resolve technical issues and may continue participating in the voluntary program in the interim to gain more experience submitting interactive data.
In addition to the recommendations to delay this initiative, some commenters expressed concern that limiting the interactive data filing requirement to only risk/return summary information could lead investors to place undue emphasis on this information,
Several commenters questioned whether XBRL is the appropriate standard format for interactive data disclosure, asserting that it is not sufficiently developed at this time.
While we acknowledge that XBRL is an evolving technology, we believe it is the appropriate interactive data format with which to supplement ASCII and HTML. Our experience with the voluntary program, including feedback from company, accounting, and software communities, points to XBRL as the appropriate open standard for the purposes of this rule.
Several other factors support our views regarding XBRL's broad and growing acceptance, internationally as well as in the U.S. For example, the Advisory Committee on Improvements to Financial Reporting (“CIFiR”)
CIFiR conducted open meetings on March 13-14, 2008 and May 2, 2008, in which it heard reactions from an invited panel of participants to CIFiR's proposal regarding required filing of financial information using interactive data. Archived Webcasts of the meetings are available at
We are adopting, as proposed, the requirement that an interactive data file must be submitted to the Commission for any registration statement or post-effective amendment thereto on Form N-1A that includes or amends information provided in response to Items 2, 3, or 4.