Posted on Saturday, July 13, 2019

S.P. Kothari, Chief Economist and Director, Division of Economic and Risk Analysis, at the Securities and Exchange Commission gave a speech on July 13 at the National Bureau of Economic Research (NBER) conference on big data and high-performance computing, where he referenced the value of structured data and the Legal Entity Identifier. Highlights from his talk are below:

…the SEC has required filers to tag some data using methods such as XML, FIX, FpML, XBRL, and, more recently, Inline XBRL. By dramatically reducing the variety of the data, tagging transitions an electronic document from being human readable into one that is also machine readable. A perennial challenge of the SEC is to find cost-effective ways to reduce the variety of financial data without loss of substantive information…

 Structuring disclosures so that they are machine readable facilitates easier access and faster analyses that can improve investor decision-making and reduce the ability of filers to hide fraud. Structured information can also assist in automating regulatory filings and business information processing. In particular, by tagging the numeric and narrative-based disclosure elements of financial statements and risk/return summaries in XBRL, those disclosure items are standardized and can be immediately processed by software for analyses. This standardization allows for aggregation, comparison, and large-scale statistical analyses that are less costly and more timely for data users than if the information were reported in an unstructured format. Structured data will likely drive future research in corporate finance and macroeconomics…

I believe that the full benefits of LEI have yet to be realized. As some companies may have hundreds or thousands of subsidiaries or affiliates operating around the world, more benefits lie ahead as the LEI becomes more widely and comprehensively used. The LEI allows more transparency regarding hierarchies and relationship mapping. This will support better analyses of risks as they aggregate and potentially become systemic.

Read the speech.