A new computer language that will allow for the instant slicing and dicing of financial data will be put to the test in Japan. Brokers, investors and companies everywhere should pay notice or risk falling behind.
Starting next month, Japanese companies will begin reporting their earnings in a language known as XBRL, the first time it will be used in filing results and forecasts in real time.
XBRL, or extensible business reporting language, places unique tags on individual items of data that work like bar codes, allowing software to download, codify and analyse time-sensitive financial data in a matter of seconds. That might not sound like a major breakthrough to the common consumer used to quick downloading over a broadband network.
But the technology is expected to dramatically alter the way investors and companies process and share data, and mean a sea change for the securities industry, which still does much of its data entry by hand.
"It's a similar change to the change from film photography to digital photography," said John Turner, chief executive of CoreFiling and chairman of the XBRL Standards Board. "Nobody when digital photography first came along could really have guessed just the extent to which that has transformed that marketplace."
Regulators in the United States are also pushing XBRL, with plans to make filing by 500 of its largest firms mandatory in early 2009. Several other countries, including China and the Netherlands, have already introduced XBRL or getting ready to.
"Every other securities regulator in the world is now looking at these two initiatives," Turner said about the projects in Japan and the US "This is sort of game over for anyone hoping to continue using paper."
Once XBRL is available in real time, investors who can feed the numbers into their "black boxes," or computer trading models, will have a leg up on others.
JAPAN FIRST OFF THE BLOCK:
Being first with XBRL holds special meaning in Japan, which is waging an uphill battle to make its markets more transparent and attractive to foreign investors, who are increasingly looking to China and elsewhere in Asia for growth.
Japan kicks off the new technology next month when companies whose business year starts in April file the headline figures of their preliminary quarterly earnings reports through the Tokyo Stock Exchange's disclosure system.
That will be followed in August when some 8,000 companies and funds using Japanese accounting rules begin providing the core part of their financial statements to the country's financial regulator, the Financial Services Agency (FSA), in XBRL.
XBRL is being counted on to help tear down the language barrier faced by overseas funds. It creates common definitions for financial items, allowing investors to download in English what might have once been available only in Japanese.
"Investors that have not looked at Japan could start doing so and from that perspective it could be a bigger deal than the start of corporate disclosure over the Internet," said Taro Ikeda, a senior consultant at Daiwa Institute of Research.
XBRL involves start-up costs, but eventually should save money because it would allow companies to file just one XBRL coded report for multiple agencies.