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XBRL at the Italian stock exchange
Luca Filippa Director of Research
Development Borsa Italiana SpA 1st European XBRL
Conference for Financial Services How XBRL will
improve Financial Services reporting by
2006 London, Chartered Accountants
Hall Wednesday 29 June 2005
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The role of information for financial markets
XBRL at the Italian stock exchange

• Greater transparency enhances trust reducing
  information asymmetries
• The effectiveness of the worlds capital markets
  depends on public trust, and trust depends on the
  timely availability of complete, relevant, and
  reliable information
• Corporations have the obligation to provide
  information to the market and to stakeholders,
  which are demanding greater transparency
• Evolution of regulatory regime must take
  information from the market into consideration

For these reasons, Borsa Italiana must keep the
following fundamental questions in mind when
analysing the efficiency on their information
collection processes

• Are the processes by which it obtains and
  provides information appropriate or burdensome?
• Are the reports it issues relevant or outdated?
• Is it basing its decisions on facts or data of
  questionable quality?

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Technology and regulations two conflicting forces
XBRL at the Italian stock exchange

• On one hand, fostering greater efficiency in
  trading systems, simplifying connections and
  reducing costs to operators, they exalted
  positive networks externalities that characterise
  the production of liquidity, significantly
  increasing size and role of Exchanges
  strengthening their central position in the
  financial system
• On the other hand, setting out a tendency to more
  homogeneous market models and fostering the
  automation of procedures, they threw down entry
  barriers opening the exchange industry to new
  competitors, not necessarily organised as
  regulated markets

4
The centrality of Borsa Italiana the situation
till year 2000
XBRL at the Italian stock exchange

• Media
• Investors
• Info vendors

Listed companies
Borsa Italiana
Borsa Notices
Fax, paper
CONSOB
Fax, e-mail
Up to 2000, communication between Italian listed
companies and the market (via Borsa Italiana) was
almost entirely paper-based, starting from faxes
sent to Borsa Italiana and CONSOB, which had the
right to wait up to 15 minutes before
disseminating information to the market - again
via fax and printed Borsa Notices
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Emerging needs for analysts and institutional
investors
XBRL at the Italian stock exchange

• Immediate availability of financial information
• Increasing number of companies to be monitored as
  an opportunity to increase performances
• Increasing depth of analysis, comparison and
  benchmarking, due to higher attention to specific
  topics (i.e. corporate governance, stock options
  and pension funds etc.) and new investment styles
• Reduction of costs and risks in financial
  analysis through
• automatic collection of financial data (to reduce
  costs and errors in translating paper-based or
  pdf documents into personalised analysts
  models), focusing analysts on high-value
  activities
• higher comparability of financial data (both
  across time and across different companies)
• larger easiness of analysis (through increased
  visibility of critical information, often
  contained in the notes to financial statements)

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Emerging needs for listed companies
XBRL at the Italian stock exchange

• Ensuring accuracy and reliability of their
  financial information
• Improving investor relations through provision of
  more transparent and user-friendly information
• Reducing costs for investors to collect financial
  information on the company (that implies a deeper
  use of the Internet), in order to increase
  investors base both domestically and
  internationally
• Streamlining and reducing internal costs for
  preparing and distributing financial information
• Simplifying the process and reducing the costs
  involved in external reporting to different
  regulatory authorities
• Saving costs by preparing data in one single form
  and automatically generating many outputs

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Borsa Italiana NIS the first answer to these
needs
XBRL at the Italian stock exchange
Network Information System (NIS)

• Media
• Investors
• Info vendors
• Borsa Italiana website

Listed companies
Borsa Italiana
Pdf documents
CONSOB
Pdf documents

• Higher timeliness of reporting
• Automatic delivery to regulators and to the
  public
• Reduction in operational burden for Borsa
  Italiana, CONSOB and reporting companies
• Opportunity to organise electronic documents and
  to query on the basis of some pre-defined fields

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Characteristics of the Network Information System
(1)
XBRL at the Italian stock exchange

• One of the first international experiences of
  automation in the information dissemination
  process for a stock exchange
• Ensures the certainty of the source sending
  information, providing different system users
  with different permissions
• Guarantees the security of the system by three
  different layers (one based on the application,
  another based on the communication software and
  the last based on the configuration of hardware
  components)
• Handles the dissemination of information through
  several authorized steps and check points, in
  order to validate the process flows
• Handles also the acquisition and the aggregation
  of information sent by sources using different
  technology platforms compared to NIS

The NYSE launched a similar initiative only in
March 2005.
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Characteristics of the Network Information System
(2)
XBRL at the Italian stock exchange

• Redistributes to multiple users price sensitive
  information without giving any one of those users
  a time advantage over any other one
• Manages a central storage mechanism of all
  information (messages, documents, data) sent by
  issuers through a data model designed by Borsa
  Italiana (Borsa Italiana has stored all
  information sent through NIS since 2001)
• Allows, free of charge, the access via web to the
  end users for all types of information
• Some examples of the information channelled
  through the NIS
• Financial results announcements
• Internal dealing communications
• State of adoption of Corporate Governance Code
• Corporate actions (i.e. right offerings, public
  offers, takeover bids)
• Borsa Italiana Notices

The NYSE launched a similar initiative only in
March 2005.
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Borsa Italianas current mission regarding
information dissemination
XBRL at the Italian stock exchange

• Further increase of transparency and liquidity of
  the market
• Favour the listing and presence on the market of
  mid and small companies through increasing
  availability of data for potential investors
  (retail and institutional)
• Increasing frequency and completeness of
  reporting without additional cost for issuers
• Maintaining high security and reliability of data
• Extract value from the large quantity of
  available data, favouring
• the entire group of stakeholders (investors,
  intermediaries, issuers, regulators, distributors
  of financial information and news)
• the increase of internal opportunities for data
  analysis, as a support to further market
  development

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The reason behind the adoption of XBRL
XBRL at the Italian stock exchange
Even if the NIS is currently a state-of-the-art
application at an international level, XBRL
promises to be an exciting enhancement that will
improve the reporting process for issuers and
users. As a result of attaching an identifying
tag to each piece of data, a business-reporting
document becomes "smart" (i.e., a computer can
read the data, search for information, or perform
calculations). XBRL heralds the transition from
a document-centric environment to one that is
data-centric Importantly, this transformation is
about being able to digitize data and its
attributes (i.e. what financial statement
classification it belongs to, how it should be
presented, its audited status etc.). XBRL
promises to be a new killer application in
financial reporting
Source Ernst Young. http//www.ey.com/global/
content.nsf/International/XBRL-How_Does_It_Work
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Advantages of the adoption of XBRL
XBRL at the Italian stock exchange
Principles for better information collection
How XBRL supports these principles

• By delivering data definition in XBRL format to
  providers, regulators open the door to
  system-to-system data transfer, thereby
  eliminating the delays involved in rekeying and
  review and potentially reducing the time required
  for data to be consolidated within providers.

Timeliness
The use of XBRL taxonomies and especially
agency-specific validation rules or data edits
improves data accuracy by ensuring that
information is properly reviewed prior to leaving
the provider. System-to-system data transfer
precludes the possibility of data entry errors.
Accuracy
Reasonability
By drawing on public taxonomies, and by using the
standard as a universal format for data
definition and improved cooperation between
agencies, regulators are better able to
understand, consult on, and mitigate provider
burden.
As XBRL accounting taxonomies are used more
widely, and XBRL capabilities within the core
products of many accounting system vendors
rapidly evolve, regulators should be able to
improve the relevance of the information that
they seek from companies.
Relevancy
Efficiency
With XBRL capabilities being built into many
accounting systems, and the improvements that
adaptive data collection can bring, XBRL should
help agencies control the costs associated with
data collection.
Transformation
With living taxonomies becoming the way that
knowledge about regulatory reporting obligations
is managed and improved, the capacity of agencies
to move their collections with industry
developments is substantially enhanced.
Source KPMG Improving regulatory reporting
realising the benefits of XBRL.
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Increasing recognition of benefits of XBRL in the
financial community
XBRL at the Italian stock exchange

• Increasing adoption of XBRL among financial
  authorities (i.e. APRA, FDIC, UK Inland Revenue,
  FSA, DCCA ...)
• EU and CEBS expressed public commitment in favour
  of XBRL
• SEC EDGAR started XBRL testing for US GAAP in
  February 2005
• Some Exchanges (TSE, KOSDAQ, Deutsche Börse,
  NASDAQ) started pioneer initiatives for issuers
  to report financials through XBRL
• Some big companies started using XBRL for
  internal purposes and to enhance investor
  relations (i.e. Microsoft, Reuters, Novartis ...)
• But in particular...
• Year 2005 is the beginning of a new era in
  financial reporting for listed companies, with
  some 80 countries going through the adoption of
  IFRS
• IASC already developed the XBRL taxonomy for IFRS
  reporting
• Borsa Italiana is in a privileged position in
  Italy to test XBRL

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XBRL may represent the third step in the
evolution of Borsa Italiana information
collection and dissemination system
XBRL at the Italian stock exchange

• Borsa Italiana is testing with IBM a prototype to
  manage IFRS financial reporting through XBRL,
  with the aim to be one of the first Italian
  adopters of XBRL
• Borsa Italiana aims to go live with a voluntary
  period of reporting for listed companies -
  following feedback in the testing period - by the
  end of 2005 the goal is to replace current
  Excel-based communication of financial data for
  companies belonging to the STAR segment (with
  voluntary higher transparency and corporate
  governance requirements), developing new ways to
  increase visibility of these data at the benefit
  of issuers and analysts.

Before 2000
After 2000 - NIS
NIS XBRL
Paper based
Program bound
Adaptive/standard-based
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The transformation of data collection systems
XBRL at the Italian stock exchange
Paper based
Program bound
Standard based
Timeliness
LOW
HIGH
HIGH
Accuracy
LOW
HIGH
HIGH
Reasonability
HIGH
HIGH
HIGH
Relevancy
MEDIUM
MEDIUM
HIGH
Efficiency
MEDIUM
LOW
MEDIUM
Transformation
MEDIUM
LOW
HIGH
Source KPMG Improving regulatory reporting
realising the benefits of XBRL.
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Borsa Italiana first step in the adoption of XBRL
XBRL at the Italian stock exchange

• Voluntary approach (at least in the first phase)
• To be developed on the basis of issuers feedback
  in the testing and voluntary period feedback
• Replacing STAR Excel-based communication of
  financial data used to provide data for some
  information services on Borsa Italiana website
• Based on IFRS taxonomy developed by IASC
• Applied to infra annual and annual reporting
• Issuers will be supported by Borsa Italiana in
  the adoption of XBRL instance creator software,
  where required
• To facilitate the transition phase, Borsa
  Italiana will also create templates to be
  translated into XBRL once sent to Borsa Italiana
  central systems
• Borsa Italiana plans to develop both Internet and
  paper-based initiatives to spread the data
  collected using XBRL, increasing visibility for
  market participants

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Borsa Italianas vision concerning XBRL
XBRL at the Italian stock exchange

• The instance document could also be sent to
• Listed companys website
• Info vendors
• Media
• Regulators

Excel (pre- defined)
Adobe Intelligent Form (pre-defined)
XBRL instance builder
Listed comp.
NIS
Borsa Italiana public website
XBRL validator
Errors msgs
DBMS
XML
XBRL
Borsa Italiana
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Conclusions
XBRL at the Italian stock exchange

• XBRL promises to enhance the centrality of Borsa
  Italiana in its role of collector and
  disseminator of information, which benefit the
  transparency and liquidity of the market
• XBRL, after the necessary setting-up phase (like
  every new technology), should allow issuers to
  comply with regulatory requirements with more
  flexibility and at lower costs
• Borsa Italiana is evaluating the possibility to
  be one of the pioneers in Italy in the adoption
  of XBRL, to enhance the functions of the NIS
• Borsa Italiana is open to discuss this initiative
  with all the parties involved, to be sure its
  effort will be sustained by all the participants
  to the financial community which could benefit
  from it issuers, regulators, analysts)
• This initiative will be extremely valuable for
  mid and small companies, allowing - thanks to
  automatic translation - their data to be analysed
  by a larger number of institutional investors,
  especially abroad
• In the future, this initiative could be extended
  with the creation of new taxonomies at the
  European or national level (i.e. codifying
  information regarding corporate governance,
  insider dealing, corporate actions etc.)