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Global Investors' Bill Of Rights May Prevent Economic Déjà Vu (February 2009)

Submitted by Steve Selengut | RSS Feed | Add Comment | Bookmark Me! print

The purpose of IBOR is to protect financial markets and to create self-sufficient investors who produce economic growth instead of government deficits. IBOR standards create transparent financial markets, regulate speculation, and protect retirement portfolios. Here's a Summary:

Section One: Product Transparency. All investors have a right to see precisely what securities are inside any investment product by accessing real time information that includes names and cost-based allocation percentages.

Investment companies will create no multi-level derivatives, and no product may operate in a manner that artificially impacts the valuation of the securities it tracks. Full layman's language disclosure is required for all risk-increasing activities.

Section Two: Regulation and Education. Investors have a right to expect regulators to protect their interests. Specific risk assessment for all individual securities and derivatives is essential for informed decision making.

Industry regulators will: Provide ground floor education to all investors; Develop standardized risk classifications and assessment tools; Regulate/control Internet investment advice; Prevent the development of multi-level derivatives; Eliminate conflicts of interest between financial companies and rating agencies.

The "hierarchy-of-risk" tool compares the risk vs. reward characteristics of all investment securities, and imposes eligibility controls on speculations.

Section Three: Protection from Speculators. Investors have a right to protection from risks added to portfolios without their control, knowledge, or permission.

Naked shorting, index fund ownership of large share positions, and all naked option transactions would be prohibited. The "up-tick" rule would be permanently reinstated. Margin borrowing would be restricted to non-fiduciary portfolios.

Most commodity and currency speculations would be restricted to professionals.

Section Four: Controls of Hedge Funds. Investors have a right to know that the same rules apply to all market participants. Hedge funds will be subject to the same disclosure, fiduciary, and ethics rules as other regulated entities.

All hedge fund activities, conflicts of interest, speculative transactions, manipulative strategies, reporting, and collusion will be monitored.

Section Five: Brokerage Account Statements. Investors have a right to account statements that: 1) help manage asset allocation targets, 2) report realized gains and losses, 3) track cost basis and net deposits, and 4) emphasize the long-term, cyclical nature of the investment process.

Statements must provide cost-based allocation numbers for: Equity, Income, and Other classifications. Sub-category distinctions (tax status, security type, risk tier) would be required. A margin warning-label, and payback options would be mandatory.

Section Six: Retirement Account Investments. Cost based allocation and diversification rules, and income generation minimums, would be mandated to prevent speculation in self-directed retirement program. No retirement portfolio, publicly held corporation, government body, or other fiduciary entity may own Tier Four speculations.

Retirement plan programs that comply with IBOR, and include an SSRIA substitution option, are 100% non-taxable. All persons under 45 may opt out of government-sponsored plans in favor of SSRIAs; any person can fund an SSRIA.

Section Seven: Executive Compensation. Every shareholder of a publicly traded entity has a right to share in the growth and profits of the business in the same manner as highly paid employees.

Corporate executive compensation must never be tied to stock price, and compensation above a reasonable cap must be shared equally with all employees and other shareholders--- 50% of performance bonuses should be distributed.

All golden parachutes, "non-qualified" retirement plans, stock option and deferred compensation programs are banned, and at least 25% of all corporate profits must be distributed to shareholders.

Section Eight: Corporate Financial Statements. Investors have a right to clear and accurate financial statements. All public traded companies must provide independently audited financials in non-footnoted, simplified form. Auditors rotate between companies annually, and produce safety ratings linked to fundamentals.

Section Nine: Taxation Considerations. Investors have a right to formulate their investment and retirement plans without having to worry about changing tax code requirements. IBOR compliant retirement plans would be exempt from taxation.

All inheritance taxes are illegal, returnable retroactive 20 years, and the maximum tax on non-retirement plan investment income is a flat 10% used to fund all independent regulatory bodies globally.

Section Ten: Financial Industry Restructuring. Investors must be protected from the conflicts of interest that result from combining financial institutions. All Bank, Brokerage, Insurance, and Investment Banking crossovers will be unbundled for a less conflicted and manipulated environment.

Section Eleven: Global Reform Investor Protection and Education Board. A 15 to 25 member multi-national GRIPE board will be established with representatives of regulatory agencies, investor associations, academia, the media, and just one person each from Banking, Brokerage, Insurance, and Investment Banking.

Section Twelve: Transactional Fear and Greed Controls. IBOR will provide global investors with better information, introduce rules that will help them benefit from proven asset allocation and diversification techniques, and implement controls on both cold blooded speculators and blood thirsty tax collectors.

Investors would retain the right to be emotional, irrational, fickle, stubborn, confused, fearful, inexperienced, hindsightful, speculative, and greedy.

General Note: The above is a summary of the October 2008, four-part SIBORAP report, published by Steve Selengut, in collaboration with Claus Silfverberg, Managing Director, World Federation of Investors Corporations.

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