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Carl Malamud currently collaborates with webchick at He was the founder of the Internet Multicasting Service and is the author of eight books.

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By Carl Malamud, Being EDGAR »

Transcript - August 14, 1995

Obtained Through FOIA Request No. 98-2181

Pages: 1 through 271
Place: Washington, D.C.
Date: August 14, 1995

Monday, August 14, 1995
Conference Room A
Hyatt Regency
400 New Jersey Avenue, N.W.
Washington, D.C.

The above-entitled matter came on for hearing, pursuant to notice, at 9:05 a.m.

ARTHUR LEVITT, Chairman, United States Securities and Exchange Commission

MICHAEL BARTELL, Associate Executive Director, Office of Information Technology
STEVEN M. H. WALLMAN, Commissioner United States Securities and Exchange Commission
CHARLES WOODS, Project Manager, Office of Information Technology
GEORGE POSPOLITA, Special Assistant to the Director, Office of Information Technology

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COMMISSIONER WALLMAN: Assuming for the moment that the Commission retains its role in determining what disclosures are needed and how the disclosure is to be formatted or perhaps even do more in terms of insuring that formats are comparable so that there is easier comparability across companies, what do people think about the issue of the Commission's role in terms of the dissemination and distribution of the information and how it should be maintained?

[Jamie Love rushes the microphone.]

Let me get a comment from the back.

MR LOVE: First, my name is Jamie Love. I work for a group called Taxpayer Assets Project.

COMMISSIONER WALLMAN: I am sorry. I have been asked for purposes of the audiotape for everybody to identify themselves from the audience in terms of their name and their company.

MR. LOVE: It is a non-profit organization. We are a group that has been engaged in monitoring the way government property, including government information broader public access to government information, including the SEC EDGAR database. We have been active in this in the past.

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The SEC dissemination system that was done by New York University and Internet Multi-Casting [sic] Service was a really huge success and really widely received on the Internet. It brought all kinds of new people into the system to appreciate the work of the Commission—journalists, citizen groups, individual investors, episodic users, high school students, college students, a whole range of people that were not normally even aware of what the Commission was doing.

It has really given the Commission a lot of goodwill in the community, and it has, I think, enhanced the mission of the agency, which is to have more capital markets, but also to give more accountability in general to the public in a wide range of things.

The fact that the SEC staff, the data processing staff, never embraced that project, never offered to provide ongoing funding for it, has continued to associate that with the objectives of a small handful of commercial data vendors, has been very distressing to people.

I can say from our experience in the legal market that the important value added sector that is left out when you have poor government management on records are the most innovative companies. The companies that cannot enter, for example, the legal market are the companies that provide artificial intelligence front ends, that provide novel new ways of searching documents and combining information.

Those are the very things that are happening right now in the SEC market because New York University and IMS have put the basic data out there and put the public domain thing out essentially for free. That allows and that has allowed all kinds of firms to create all kinds of innovative products.

I would also like to express in closing some objections to the way all these panels were constituted. There are very few people other than Wall Street or financial concerns that are represented on these panels, even though a lot of people care what happens to the data and care what happens to the agency.

Rather than having a graduate student from New York University who worked on the dissemination project, you should have had some of the principals like Mr. Campell or Carl Malamud on one of the panels so that you could have heard some of the most articulate and experienced spokesmen on this.

Thank you.

COMMISSIONER WALLMAN: Thank you. Just in response to your last comment, a number of the people you referenced were invited. Some of them could not make it. We did in fact ask them to come. We had the same thoughts as you did, so thank you very much for that.

GREG SMITH, PRESIDENT, INDEPTH DATA: Why should I have to pay $250,000 or $500,000 a year and you cross subsidize the commercial market for free? I mean, if it is going to be free for this New York University project or subsidized by the government, where is my subsidy?

MR. LOVE: I think that the $250,000 that you referred to or the $500,000 it probably actually costs to disseminate the filings for free on the Internet you have to compare to the $60 million plus which was spent on the full Disclosure system to actually get the data into the system in the first place, which is more than just the cost of the computer stuff. It is the cost of all the enforcement personnel and—

MR. SMITH: That is not the question. My question is why should I pay $250,000? Most of your users on the Internet, am I correct, or a preponderance of the hits on the Internet web site are actually from law firms and other commercial users?

MR. LOVE: That is not true.

Mr. SMITH: They are the majority of the hits, are they not?

[Malamud rushes the microphones.]

MR. MALAMUD: I run that system. That is not true.

MR. SMITH: Is it not? I mean, every New York law firm that I know is an active user of that web site.

MR. MALAMUD: By the way, my name if Carl Malamud. I am president of the Internet Multi-Casting [sic] Service, and I was not invited to participate today.

In fact, the grduate student, Mr. Ginsburg, was not invited. He was just put on the panel without his knowledge, which is really like if I put your secretary on a panel because she happened to be in the audience.

As far as the users, however, we do have commercial users. There is no doubt about it. I think, by the way, you should not pay $250,000. I think the SEC, for $250,000, could put the entire database on line for everybody.

MR. SMITH: Including—

MR. MALAMUD: That is it. Final cost for you, for everybody.

Many of our users, approximately a third, are from the educational communities. That is in the summer. It goes up during the year. About a third are from non-profit organizations and international. We get a lot of working engineers and computer companies and places like that that access the information.

What we found are the people that buy your data are typically not using our system as a replacement. The reason is because they want more timely information.

What we have done, if you talk to the president of Disclosure, if you talk to Moody's, of you talk to R.R. Donnelly Financial—all three of those support our efforts—is that the market for your information has actually gone up because the consuming public out there is getting more educated. They get out of school. They want the documents right now. They want the Japanese document. They want the 1970 document. They want you to tell them what is in it.

We have acted very much as a library. You are a book store, and we teach people how to read. Then they buy your product.

COMMISSIONER WALLMAN: Any other comments, panelists?

MR. LOVE: I would like to respond to the gentleman's question about the $250,000 fee.

COMMISSIONER WALLMAN: Let me just get some more panelists to respond to some of thethings that are already on the table.

MR. LOVE: Sure.

HARVEY NEVILLE, PROJECTS COORDINATOR, DAVIS, POLK & WARDWELL: This is really directed back to Carl or Jamie. I personally as a user of the information do not see a contradiction between and the necessity to continue what you have done and to make the information that the SEC pulls together available to the public essentially for free. Anyone who has web access or access to a service that has that should have the ability to look at it as your service does.

Is there a contradiction, however, between that and the ability of any other reseller of information to come in, pick up the information and resell as they want?

MR. MALAMUD: Absolutely not. The basic data is cheap. It used to be value added to take a tape and put it on disk and make it available. The companies that did that value added made a lot of money and they should make a lot of money.

MR. NEVILLE: Let me ask a question.

MR. MALAMUD: Let me finish.


MR. MALAMUD: Value added today does not consist of putting a web server up. Everybody can do a web server. I mean, the Department of Interior has one, U.S. Geolological Surveys has one, Newt Gingrich insured that the Thomas system be on line. That is not rocket science.

There is a tremendous market for extracting value out of this information, and I believe by putting the base data out there we are going to encourage a retail information industry. Again, that is why companies like R.R. Donnelly Financial support out efforts because it is going to make them more money in the long term.

MR. NEVILLE: If the SEC allowed this free access, assuming it gets a web site and puts all this information on that it already has an I can go into it, you can go into it and anyone all over the world can get into that.

If at the same time Indepth Data or if Disclosure wants to buy the entire database instantaneously, should they be charged for that?

MR. MALAMUD: If there is an incremental cost that is substantial for doing that, yes, but again I think that the idea of distributing raw data on the Internet is not rocket science. It is cheap. It costs us maybe $175,000 a year to do that if we are not paying $112,000 on top for the data. Even a real time feed is not that big a deal.

A ten megabyte [sic] Internet link today is $2,000 a month. That's it. I mean, this is nothing compared to the millions of dollars that the SEC pays to buy its own data back to get the Lexus/Nexus [sic] search capability. It is just a trivial drop in the bucket to do that.

The base data is easy to put on line. The value added is a very different story, and there is going to be an incredible number of vendors out there that figure out how to take this raw information, add value to it and charge for it. That is a good thing to do. That is a very good thing, but the question is—

MR. NEVILLE: I would think, though, that the SEC or we as the people who help subsidize the SEC's operation, along with the filers that prepare all the filings, should get some value back for what it has put in to collect the information and make it accessible.

MR. MALAMUD: I think the value of a public disclosure system is an informed citizenry. It is people—you know, graduate students—that go off to get a job and read the annual report or people that are about to invest. They go off and read the documents.

These are the people that want to read the base documents. It is not that difficult a thing to provide. It does not conflict with the commercial market, and it serves the fundamental public purpose of the SEC laws, which is public disclosure. That is the reason we do this.

MR. LOVE: I would say why spend over $60 million running the full Disclosure program and then have a big barrier so very few people can get access to the fruits of the full Disclosure program.

Maybe the purpose of running the free dissemination thing is so you leverage the number of people that get access to the filings by a thousand-fold. I mean, it is the biggest bang for the buck that anybody in your agency can come up with to make that program actually get out to the people of the United States.

MR. EMEN: I think one of the major disparities in the existing Disclosure system is the fact that the small retail investor, traditionally while there is a theoretical even handed access to information, is not able to get that information nearly as easily or as readily as the larger, sophisticated institutions. One of the panel members alluded to that earlier.

To the extend that free Internet access would enable smaller investors to get information more quickly and compete more efficiently, I think that is something that ought to be achieved.

MR. LOVE: When Newt Gingrich considered putting the THOMAS system on line, everybody said that was opposing this that only lobbyists wanted to read copies of legislation pending before Congress and that is was not necessary. It would just benefit big corporations. When they put the data on line, there was a huge new group of people which got access to bills that started to participate in the political process.

That is what happened with the Internet Multi-Casting [sic] Service when they put on the SEC data. Instead of a handful of people that had access to the high priced services, there was a whole new class of people which had access to SEC information. That was a positive thing that you all should be supporting, not trying to stop.

MR. MALAMUD: We have done over 3,000,000 documents to the American public in the last 19 months, and I think what is important is you alluded to Newt Gingrich. This is not a right verus left issue.

If you look at the Paperwork Reduction Act which takes effect October 1, that was a key part of the Contract with America. It was also supported by the Clinton Administration wholeheartedly, and there were no dissenting votes in Congress. That Act says that timely and equitable access to information is an obligation of every agency, and it specifically lists the SEC as one of those agencies.

COMMISSIONER WALLMAN: Let me break in here. I do not know if there is a misunderstanding or a misperception of what it is that we are intending to do.

Part of the reason I wanted this conference, part of the reason that I thought that was important to get public feedback on but also to open up the whole issue of how best to have the EDGAR system established for the future, was the notion very strongly felt and believed in by me that public access to this information is what in part the Commission is all about.

If we cannot insure that over time we have a broad based distribution of information at low cost or free to the investing public, we lose a great deal of what it is that the Commission was established to do 60 years ago.

In order for the markets to be able to understand how best to set prices, in order for issuers to raise capital over the long term, in order for people to continue to invest their monies in the market, they need to be able to be insured that there is real time information that is useful and usable to them.

My view is that over time, that is going to be available through electronic means more than it is through paper. My view is that through electronic means we will be able to have much better information provided to people. It will be much more analytically sound. It will be much more capable of being analyzed more easily.

I think we have a fundamental agreement with regard to most of the issues that are being presented by you all at least at the Commission level. There may be others who wonder about the fairness of how that system will work or who subsidizes who or whether or not this is the appropriate place for monies of the government to be spent or other kinds of things.

There are certainly valid choices that people can make as to whether or not the government should be spending money in order to insure that there is free information of this type or whether or not the government should be spending money for other kinds of things, given in fact that the government's dollars do not grow on trees.

There are other people who will question whether or not in fact the way that we present information or make it available is fair in terms of who gets information first or how the feed is going to be set up first or who gets to determine what kind of information gets put into the database.

Others would like us to mandate certain kinds of information so it is easier to do analytics, but that puts the cost back on the preparers. Others would prefer that we do not do anything with regard to that and leave it to value added resellers to try to figure out how to best compare and take information and use it.

There are lots of questions that transcend the easy, simple answer of we want to make sure the information is available simply, easily and cheaply. I do not think there should be any misunderstanding that at least at the Commission level that my goal, our goal and the Chairman's goal as well is clearly to insure that there is access to this information as best we can real time, as best we can low cost or free, as best we can to the investing public as a whole. That is the ultimate goal.

The question is how do we get there. How do we get there in a way that makes sense so that we are not taking dollars that we should be using for other kinds of programs and spending it on things here?

Maybe the technology has gotten to the point where it is so inexpensive to do that appropriately now that it is not an issue. The question then is do we get the appropriate value added resellers? What do we do with people that are currently in the industry, and how do we insure that the information is not going to be disrupted?

There are lots of other questions that go with it. Who should run the system? Should we be the people who have to maintain the computer system? If we have to maintain the computer system, is the government really the best place for a computer system like this to be maintained? If we are the best place, who do we get to actually do it?

The government is not necessarily the best body to actually maintain the computer system. Do we privatize that? There are lots of questions that go with this.

It may be best that we move away from sort of the misunderstanding as to whether or not the government or the Commission is attempting to put hurdles in the path of utilizing this information. The answer is we are not. The clear answer is we are trying to reduce those hurdles to the level of zero if we can find an appropriate way to get there.

We should not misunderstand that there are not also balances with regard to all of this. Whenever we get something down so there is zero cost for people to be able to use it, that money is coming from somewhere. Nothing is free. Somebody is going to end up paying for that. We have to decide how is the best way to allocate our resources as well.

I do not mean to cut off the conversation, but it just seemed that we were getting into a set of premises that simply were not true or an assumption that the Commission was attempting to do something or taking a particular position that simply was not correct.

MR. MALAMUD: I think your staff, and this is my last comment, has very much opposed this EDGAR dissemination project from the start and actively opposed it and has spoken against it in the media on a regular basis.

The MIS staff from the SEC has never come in, never attended an advisory group meeting, never learned from our pilot project. I think it is a real shame that over a 19-month period we cannot at least learn from the technology and reject it based on knowledge instead of on ignorance.

The SEC does not even have a domain name. There is no SEC.GOV. That is how adamantly opposed they are to this technology.

COMMISSIONER WALLMAN: Let me say that I thinkat least a number of the points that you make are ones that are well taken. There are people at the Commission who would like some of those things to move forward. I think that we have an opportunity to learn. I think that we have an opportunity to move into a different frontier and a different way of thinking with regard to a number of these issues.

I think the staff's yeoman effort of setting up this conference, getting it all together, inviting people to come who would have disparate views, putting everything back on the table and having an open mind I think has really been in evidence over the number of months now that I have been working with the staff on this.

I would suggest that whatever positions may have been taken in the past, either distant or not to distant, I think people are really rethinking a lot of their underlying assumptions. I think we appreciate the comments and the insights that we all have.

I think that you need to give the benefit of the doubt to people who have spent a long time trying to put this system together and trying to make it work and to understand that there is a real desire for trying to make the system better at this point, understanding new opportunities, getting in place changes that will make it better for everybody.

My only caveat is that we all approach this with the idea that there is an open door here and that people are willing to take the steps to walk through into a new place. We need to I think lose some of the baggage of the past and see where we can go in the future. I think we will be much more productive.

Thank you.

MR. LYTELL: David Lytell. I am in the Office of Science and Technology Policy at the White House, and it can be safely assumed that I do not represent my employer for this next comment.

I run the White House service on the Internet. While I am pleased to see that you are grappling with the 1997-1998 era questions such as authentication and the format of filing, I really do think that there is something to be said for the people who are arguing that the 1995 era problem, today's present problem, is not as difficult as you might perceive it to be.

It seems to me that if you were to take the value that the American economy has put into having all of these expensive lawyers and bankers here today, you probably have as much money here in the room spent as it would cost for the SEC to be able to do its own electronic distribution over the Internet. It is not that terribly expensive.

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[Malamud and Love leave the room. A sigh of relief is heard. That evening Chairman Levitt calls the Associated Press and says he is absolutely committed to keeping the SEC project alive.]

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