We the securities investors of the United States, in order to form more transparent financial markets, establish effective regulations, defend against destructive speculation and manipulation, promote financial well-being, preserve working capital, and protect retirement income, do establish this Securities Investors Bill of Rights and Protections (SIBORAP).
These rights are intended to replace, amend and/or abolish all laws and regulations currently in conflict with SIBORAP, and are to be implemented by all parties to financial transactions.
Any institutional efforts to create and/or market securities and/or derivative products that do not comply with the spirit of SIBORAP will result in fines to corporate officers and directors, congressional oversight committee members, regulatory agency directors, and their financial or legal counsel.
All derivative investment products of any kind, any investment programs or specific recommendations promoted in any medium by non-professionals and professionals alike, SEC registered or not, must comply with SIBORAP. Any non-plain-vanilla security, or derivative product containing college-level mathematical complexity, must comply with SIBORAP.
If the average investor cannot understand the purpose of the security, view its content, and form valid expectations about its market value and/or income generation performance in varying market environments--- that security should not be purchased by that person, and must not be sold to him.
It is important that the regulatory bodies responsible for implementing SIBORAP include non Wall Street representatives in their advisory committees. Any and all financial products, contracts, options, and programs approved by regulators will be given a layman's language risk assessment.
All producers of derivative products must provide regulators with clear written documentation of the specific risks involved, in layman's terms. Regulators will label derivatives as to risk "tier level", and identify the entities, persons, and programs prohibited from purchasing them.
The primary purpose of SIBORAP is to protect investors from the actions of others by lessening the global impact of specific types of transactions. A secondary objective is to protect the majority of investors from themselves.
SIBORAP includes these ten specific sections: (1) Product Transparency, (2) Regulation and Education, (3) Protection from Speculators (4) Control of Hedge Funds, (5) Brokerage Account Statements, (6) Retirement Account Investments, (7) Executive Compensation, (8) Corporate Financial Statements, (9) Taxation of Investment and Retirement Income, and (10) Transactional Greed and Fear Controls.
Section One: Product Transparency.
All individual investors, regardless of size, tax status, or educational achievement have the right to see precisely what securities are inside any investment product they purchase, and not only in terms of the top ten positions and asset allocation. All securities within the portfolio must be visible electronically, and updated daily. The top ten holdings would typically represent less than 30% of the portfolio.
Investment Companies shall create no products that contain more than one level of content identification, or whose make-up would artificially or inappropriately impact the market valuation of the securities it contains. A product containing individual negotiable securities of any kind, either equity or income based, may not become a part of any other product or publicly traded security.
This rule would outlaw all multi-level derivatives such as funds-of-funds, index funds that purchase more than 100 shares of the stocks they track, CDOs, and other multi-level gambling devices so popular within the derivative markets.
It will also allow shareholders and regulators to see if any illegal or undisclosed activities or processes are being used in-between standard reporting periods. (Note that funds, corporations, and brokerage firms would no longer be required to send quarterly or annual reports to anyone, so long as the documents are available on line.)
Full disclosure, always in laymen's terms, is required for all gain-enhancing/risk-increasing activities such as leverage, options, and futures transactions.
Section Two: Regulation and Education.
Since the investor community has grown to include nearly all employed persons, and because such persons may have a limited understanding of investing, they have the right to expect government regulators to protect their interests.
Incidentally, and because approximately 99.9% of "middle class" members are investors, the tax rules associated with SIBORAP Section Nine will be effective retroactive to the 2007 tax year--- for middle class families and small business taxpayers only. The resultant tax credit will be applied to withholding taxes.
A well-regulated securities industry is needed to assure that the risks associated with securities are clearly identified and labeled. Investors have the right to clear, non-legalese, explanations of risk, particularly when their selections involve other than stocks and bonds.
Specific risk assessment for individual securities and derivatives (securities whose value depends upon the value of other securities) is more important than disclosure of company operations and affiliations. If Registered Investment Advisors (RIAs) have no weapons of mass financial destruction (WMFDs) to sell, no mass financial destruction will recur.
Section Two (Regulation and Education) is continued in Part Two of the SIBORAP report. Part Two also includes Sections Three (Protection from Speculators) and Four (Control of Hedge Funds).
Click for Details --> Part 2