XBRL Is Cool

Just a very short one during my “lunch”. Ever heard of XBRL? Its short for Extended Business Reporting Language – basically a kind of sort of extension of XML or, perhaps more precisely, a subset of SGML. I like to follow developments on it because I think the potential ways in which XBRL will impact a variety of industries (primarily the financial sector) is huge.

To give you an idea, here’s a (rather old) excerpt from a speech that the CIO of the SEC gave at the last XBRL International Conference last May:

I think the agency can be proud of its use of electronic filing and information distribution. But we can aim higher. Today, the vast majority of EDGAR documents are filed in ASCII text, and another large fraction in HTML. That’s fine for reading about a company’s strategy and general issues, but if you want to do financial analysis or compare accounting policies between companies, you then have to do a lot of printing, searching, data entry, text parsing, and other mechanical work. Or, you can go to a third-party data provider, who can provide you with a database of financial information — but the data provider will have made a number of assumptions to simplify and standardize the financial information, and it may no longer be consistent with how the company intended to present its financials. And you won’t get any of the valuable information from the footnotes.

Since you’re at this conference, I know you can all envision the attractive alternative posed by XBRL and interactive data, so I won’t belabor the point. The potential benefits are persuasive enough — greater transparency of financial information, reduced costs for investors and analysts, potentially even deeper coverage of midcap companies by analysts, and ultimately more efficient markets.

Let me paint what I think is an interesting scenario. Wall Street types have been talking for a couple of years about algorithmic trading — basically, using computers to process real-time streams of market data and making fast, automated trading decisions. Today, that market data is mostly about stock prices and volumes, since that’s what’s available in real time. But at some point in the not-distant future, I envision a hedge fund starting to algorithmically trade with XBRL-based balance sheet and P&L data in real-time as it’s disclosed by companies. At that point, we will all know that interactive data has won the day.

Imagine that. And that’s just the tip of the iceberg. The number of tools that one can create to digest, compile, report and analyze numbers is limited only by one’s imagination. I can also imagine the potential impact that this could have on data vendors who charge quite a bit to provide archived financial information – often in rather archaic forms.

Surprisingly, I’ve not heard of many companies or startups that are working on new products (particularly on the software front) either to help in generating XBRL, translating information into XBRL, or crunching XBRL reports (though admittedly, I haven’t been following it that closely).

Anyway, if you’re in this space, and you haven’t yet looked into XBRL, you should certainly consider doing so.