[DEFEATED] Repeal "Sophisticated Investors Protocol"

[Wallenburg]

Repeal "Sophisticated Investors Protocol"

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Category: Repeal || Resolution: GAR #642 || Proposed by: Wallenburg

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Recognizing the complicated and volatile nature of several investor instruments and products,

Concerned that existing legislation intended to reserve high-risk investments to those qualified to competently act in response to their risk factors makes several fatal errors that render it unable to actually effect its intended mandates,

Disappointed by the unnecessary denigration of non-expert investors in the terminology chosen in GAR #642,

The World Assembly hereby repeals GAR #642, "Sophisticated Investors Protocol", for these several faults:

1. Section 1, presumably intended to define "sophisticated investor", fails to do so. Instead of establishing rules for identifying an investor as "sophisticated", it merely requires member states to supply their chosen definition of "sophisticated" to certain classes of investors upon written request. Consequently, member states are left total authority to determine which entities are "sophisticated investors".
   
   
   1. Were this issue not present and were member states actually required to designate sophisticated investors according to the details of section 1, member states would still have near-unrestricted latitude in practice. Section 1 describes standards for each class of investor that depend entirely on what each individual member state considers "necessary" or "sufficient", or on what laws already exist in member states. Therefore, even if these subsections were relevant to the target's mandates they would merely mandate member states adhere to the national standards they choose to set.
2. Section 2 is rendered twice toothless, once by the equal toothlessness of section 1's failure to establish a standard for "sophisticated" investors, and once more by the structure of its text, which merely requires that member states classify themselves as sophisticated investors in order to permit or make available specified high-risk investment instruments or products.
   
   
3. As a consequence of the target's combined lexical failures, member states are encouraged to identify themselves and no other entities as "sophisticated investors" to the end that the mandates of section 2 and 3 have very little effect on any member state.
   
   
4. By the failure of sections 1 and 2 to achieve anything of consequence, the target is reduced to a requirement that investees and other entities selling investment instruments or products disclose risks of investment, a meek requirement not worthy of such bloated international legislation.

[Wallenburg]

Repeal "Sophisticated Investors Protocol"

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Acknowledging the potentially disastrous risks of unskilled or poorly informed investment practices,

Concerned that GAR #642 does nothing to manage these risks or even distinguish "sophisticated" investors from "unsophisticated" ones,

Disappointed by the unnecessary denigration of non-expert investors in the terminology chosen in GAR #642,

The World Assembly hereby repeals GAR #642, "Sophisticated Investors Protocol", for these several faults:

1. Section 1, which should establish rules for defining any investor to be "sophisticated", merely requires member states to give the definition of "sophisticated" to certain classes of investors upon written request. Consequently, member states are left unrestricted interpretive freedom to determine which entities are to be considered "sophisticated investors".
   
   
   1. Were this issue not present and were member states actually required to designate sophisticated investors according to the details of section 1, member states would still have near-unrestricted latitude in practice. Section 1 describes standards for each class of investor that depend entirely on what each individual member state considers "necessary" or "sufficient", or on what laws already exist in member states. Therefore, even if these subsections were relevant to the target's mandates they would merely mandate member states adhere to the standards they choose to set.
2. Section 2 is rendered twice toothless, once by the equal toothlessness of section 1's failure to establish a standard for "sophisticated" investors, and once more by the structure of its text, which merely requires that member states classify themselves as sophisticated investors in order to permit or make available specified high-risk investment options.
   
   
3. By the failure of sections 1 and 2 to achieve anything of consequence, the target is reduced to a requirement that investees disclose risks of investment, a meek requirement not worthy of such bloated international legislation.

Repeal "Sophisticated Investors Protocol"

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Recognizing the complicated and volatile nature of several investor instruments and products,

Concerned that existing legislation intended to reserve high-risk investments to those qualified to competently act in response to their risk factors makes several fatal errors that render it unable to actually effect its intended mandates,

The World Assembly hereby repeals GAR #642 "Sophisticated Investors Protocol" on these grounds:

1. Section 1 of GAR #642 fails to define "sophisticated investor", in place of establishing standards for sophistication instead merely establishing conditions for investors to compel member states to supply their definition of "sophisticated".
   
   
2. Instead of restricting certain instruments and products to "sophisticated investors", section 2 of GAR #642 prohibits member states that are not also sophisticated investors from making available any of those instruments or products to any investor.
   
   
3. Due to a lack of World Assembly standards for identifying "sophisticated investors", member states are left with total authority on what constitutes a "sophisticated investor".
   
   
4. As a consequence of the target's combined lexical failures, member states are encouraged to identify themselves and no other entities as "sophisticated investors" to the end that the mandates of section 2 and 3 have no effect on any member state.
   
   
5. Consequently, the entire resolution is rendered a mess of meaningless financial regulations that obstructs competent legislation in the same area.

[Capercom]

Hereby requires that:

A competent authority of a member state must define, if desired in writing by the said investor, to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

An individual investor meets all requirements on personal and household wealth, income, education, experience and knowledge of financial instruments and products sufficient to invest in complex financial instruments and/or products;

A corporate investor has a majority of its board of directors and/or officers (as defined by the member state) satisfying all education, experience and knowledge of instruments and products deemed necessary by the member state, and for the corporate itself to have such sufficient wealth and income as deemed necessary;

I bolded for emphasis. Isn't the quoted text a definition?

What is not a definition about the statement "an individual investor...in complex financial instruments..."? It is saying (paraphrasing) that someone who has enough wealth, education, etc and is able to invest and use more systems than the average person in the nation are able to is sophisticated.

You can't say "Anyone making $xxxxxx or more is sophisticated!" because economies are different and we all use different currencies. You can't say "Anyone who has x amount of stock in the stock market!" because not every nation has to have a stock market.

The wording in this to me provides a clear enough definition that the nation of Capercom would reject the Repeal Proposal.

[Wallenburg]

snip

Section 1 says a competent authority must define to be "sophisticated" in writing upon the request of an investor that meets the section's requirements. Section 1 does not define what "sophisticated" means or classify a class of investors as sophisticated.

[Desmosthenes and Burke]

The Republic supports. The mistake of Anglican grammar pointed out is egregious.

OOC: Wally, correct me if I am wrong, but the crux here is article 1 nonsensically requires member states to provide the definition of "to be sophisticated". What is should have done is requires member states to declare/define an investor to be sophisticated.

[Wallenburg]

The Republic supports. The mistake of Anglican grammar pointed out is egregious.

OOC: Wally, correct me if I am wrong, but the crux here is article 1 nonsensically requires member states to provide the definition of "to be sophisticated". What is should have done is requires member states to declare/define an investor to be sophisticated.

That is the main issue, yes.

[The Ice States]

Ooc: Reposting this because nobody commented is sneaky

More seriously, I still support this repeal.

[Wallenburg]

Ooc: Reposting this because nobody commented is sneaky

More seriously, I still support this repeal.

Oh fuck, I even had it bookmarked and still forgot I had written this before. I'll be merging the two shortly then.

[Wallenburg]

This has reached a quorum.

[Tinhampton]

Opposed.

1. Member state regulators are under GA#642 actually incentivised to maximise, rather than minimise, the scope of who can be a sophisticated investor, because they may interpret the given criteria however they please.
2. Thanks to the advances in mandatory financial education afforded by GA#474, member states may require their inhabitants to receive the financial knowledge (including the kinds of derivatives/CDOs that Simone elaborated on in the original draft thread) necessary that they would be accredited in a reasonable member state as a sophisticated individual investor anyway. There's therefore no point in trying to gatekeep the sophisticated investor title.

(I'd also like to apologise for the ongoing lack of Sophia IFVs. I've been busy, other Sophians have not taken a great deal of interest in the IFV project, and the Empire of Great Britain is undergoing internal reforms which mean they've been unable to help me out with this task as they normally would have.)

[Simone Republic]

Opposed as a co-author.

Low quality rationale (mine)

It took me a long while to figure out what was the lexicon failure issue claimed for the "said investor" bit was, thus the reply is coming quite late.

The definition of an investor was (between draft 3 and draft 4) moved to the "further defined" section - the sentence which seems to be in dispute here, "if desired in writing by the said investor" is referring to the three different types of investors (individual, corporate, institutional) in the "hereby further defines" section before clause 1 - the preamble comes much earlier in the text. Nowdays I number the definition section as well whereas in drafts I wrote last year I did not. This edit was mine, not IA's.

High quality rationale (obviously not mine)

1. Section 1 of the target does not "fails to do so", as claimed in the repeal (sentence 1 of clause 1), i.e. define sophisticated investors - it defines it as what member states define it as.

2. Section 1(a) of the target is independent from member states: "An individual investor meets all requirements on personal and household wealth, income, education, experience and knowledge of financial instruments and products sufficient to invest in complex financial instruments and/or products[.]"

That text requires member states to make a factual determination of what is or isn't sufficient. It is non-discretionary. When the legislature gives a specific test, the powers given to the implementor are only in determining whether it meets that test; the implementor does not have the power to discard the test entirely. The vagueness of the definition does not make it not a definition.

3. Section 2 of the target does not "merely require" member states classify themselves, the member states, as sophisticated investors. Nothing in section 2 requires them to classify themselves thereas; that section 2 and subsections do other things also vitiates the word "merely" in clause 2 of the repeal.

4. In clause 1 of the repeal, it states that "it merely requires member states to supply their chosen definition of "sophisticated" to certain classes of investors upon written request". The word "supply" here should clearly have been "apply", and use of "supply" is an honest mistake. "Supply" means to give something.

5. The assertion in clause 1 "Section 1(a)'s requirement that a member nation fit its definition into its terms means member states are left total authority to determine which entities are "sophisticated investors"" is incorrect. This is settled law.
viewtopic.php?p=36692725#p36692725.

[Xeknos]

It's wild when even a co-author is like "No, this is a terrible idea."

[Waffia]

Opposed as a co-author.

Low quality rationale

It took me a long while to figure out what was the lexicon failure issue claimed for the "said investor" bit was, thus the reply is coming quite late.

The definition of an investor was (between draft 3 and draft 4) moved to the "further defined" section - the sentence which seems to be in dispute here, "if desired in writing by the said investor" is referring to the three different types of investors (individual, corporate, institutional) in the "hereby further defines" section before clause 1 - the preamble comes much earlier in the text. Nowdays I number the definition section as well whereas in drafts I wrote last year I did not. This edit was mine, not IA's.

High quality rationale

1. Section 1 of the target does not "fails to do so", as claimed in the repeal (sentence 1 of clause 1), i.e. define sophisticated investors - it defines it as what member states define it as.

2. Section 1(a) of the target is independent from member states: "An individual investor meets all requirements on personal and household wealth, income, education, experience and knowledge of financial instruments and products sufficient to invest in complex financial instruments and/or products[.]"

That text requires member states to make a factual determination of what is or isn't sufficient. It is non-discretionary. When the legislature gives a specific test, the powers given to the implementor are only in determining whether it meets that test; the implementor does not have the power to discard the test entirely. The vagueness of the definition does not make it not a definition.

3. Section 2 of the target does not "merely require" member states classify themselves, the member states, as sophisticated investors. Nothing in section 2 requires them to classify themselves thereas; that section 2 and subsections do other things also vitiates the word "merely" in clause 2 of the repeal.

4. In clause 1 of the repeal, it states that "it merely requires member states to supply their chosen definition of "sophisticated" to certain classes of investors upon written request". The word "supply" here should clearly have been "apply", and use of "supply" is an honest mistake. "Supply" means to give something.

5. The assertion in clause 1 "Section 1(a)'s requirement that a member nation fit its definition into its terms means member states are left total authority to determine which entities are "sophisticated investors"" is incorrect. This is settled law.
viewtopic.php?p=36692725#p36692725.

"Dear colleague, I do think the problem is the sentence 'A competent authority of a member state must define [...] to be "sophisticated"', which is missing the intended direct object. This sentence therefore reads as '[...] must define "to be sophisticated"', which thus merely requires that the authority send, say, the dictionary definition of 'to be sophisticated'. Within that interpretation, the 'if' clause after that is merely the criterion selecting to whom the authority is required to send that dictionary definition. In summary, the target resolution does not actually define 'sophisticated investor'.

"I believe the target resolution would have been correct if it had read as follows, with my addition in bold."

Ambassador Grebbel projects the following using a document camera:

A competent authority of a member state must define, if desired in writing by the said investor, an investor to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

"And perhaps had replaced 'define' with 'designate'."

"I suppose an alternative format would also have been possible, though I think it less clear."

A competent authority of a member state must define, if desired in writing by the said investor, to be "sophisticated", provided that the investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

1. An individual investor, if they meet all requirements on personal and household wealth, income, education, experience and knowledge of financial instruments and products sufficient to invest in complex financial instruments and/or products;
2. (etc.)

"On the other hand, of course, I think it is quite clear that the literal interpretation given in the repeal was not the intended interpretation. Now, I'm not too well-known with how literal these kinds of mistakes have been interpreted in precedent; in this case, given the pending illegality challenge, the degree of literalness in the interpretation is to be determined by GenSec, since the repeal contains and honest mistake if and only if this interpretation is too literal. Waffia therefore supports the repeal until and unless the repeal is determined to be illegal."

[Waffia]

It's wild when even a co-author is like "No, this is a terrible idea."

"I think you misunderstand. Simone Republic is a co-author of the resolution that is proposed to be repealed, not a co-author of the repeal itself."

[Simone Republic]

The Republic supports. The mistake of Anglican grammar pointed out is egregious.

OOC: Wally, correct me if I am wrong, but the crux here is article 1 nonsensically requires member states to provide the definition of "to be sophisticated". What is should have done is requires member states to declare/define an investor to be sophisticated.

Not really in terms of lexical failures, see below

The rest of the repeal is a "features vs bug" argument so I generally have refrained from arguing that as that was already debated in the original thread

It's wild when even a co-author is like "No, this is a terrible idea."

"I think you misunderstand. Simone Republic is a co-author of the resolution that is proposed to be repealed, not a co-author of the repeal itself."

Correct, I was the co-author of the target, not co-author of the repeal

This sentence therefore reads as '[...] must define "to be sophisticated"', which thus merely requires that the authority send, say, the dictionary definition of 'to be sophisticated'. Within that interpretation, the 'if' clause after that is merely the criterion selecting to whom the authority is required to send that dictionary definition. In summary, the target resolution does not actually define 'sophisticated investor'.

"I believe the target resolution would have been correct if it had read as follows, with my addition in bold."

Ambassador Grebbel projects the following using a document camera:

A competent authority of a member state must define, if desired in writing by the said investor, an investor to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

It actually was not, very strictly speaking, a stand-alone sentence, because I kind of mixed the old UN-style and the new bullet style in the same resolution, the "said investor" and the first "investor" in that paragraph in dispute is referring to the definitions of different types of investors in the preceding paragraph in the target beginning with "Hereby (sic) further defines".

It's clear that "said investor" is flowing from the preceding paragraph (ie more UN style) if I reproduce the entire relevant bit from the target, and that the definitions have already started and that it's no longer in the preamble part:

Hereby further defines:

"Individual investor" to mean an individual, a sole proprietorship or the partners of an unlimited partnership;

"Corporate investor" to mean an incorporated entity owned by multiple individuals or other corporate entities with limited liability, including (but not limited to) mutual societies and cooperatives and entities pursuant to legislation by at least one member state;

"Institutional investor" to mean an institution with specialist functions in investment;

Hereby requires that:

A competent authority of a member state must define, if desired in writing by the said investor, to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

[Desmosthenes and Burke]

The Republic supports. The mistake of Anglican grammar pointed out is egregious.

OOC: Wally, correct me if I am wrong, but the crux here is article 1 nonsensically requires member states to provide the definition of "to be sophisticated". What is should have done is requires member states to declare/define an investor to be sophisticated.

Not really in terms of lexical failures, see below

No really. You reproduced the text so allow to me to pick apart how I parse the issue:

A competent authority of a member state must define, if desired in writing by the said investor, to be "sophisticated" if that investor can present evidence to meet the requirements below at the time of accreditation and repeating at all times thereafter until the said investor rescinds such evidence:

Emphasis added.

There are three issues with the text highlighted in bold:

1. Primo, "the said investor" lacks any possible antecedent. The phrase requires a singular previously mentioned investor as an antecedent, and there is not one available.
2. Secundo, the bolder portion is contained within commas, which, in standard usage, makes it read as a parenthetical phrase, just as this portion of this sentence and the preceding comma delineated block are. It should thus be grammatically valid with that portion removed. Doing so yields:
   

   A competent authority of a member state must define to be "sophisticated" if that investor can present evidence to meet the requirements below

   
   This is plainly nonsensical as doing so reveals the grammatical object, as written, of the verb "define" as "to be 'sophisticated'' and not, as presumably intended, an investor.
3. Tertio, The parenthetical text "if desired in writing by the said investor" would be ambiguous even if the antecedent were well defined. What is supposed to be in writing? The desire on the part of "the said investor" or the definition provided by the competent authority?

As an aside "that investor" later in the phrase has a missing antecedent as well. There is no singular investor previously established in the resolution to which it can refer, which really renders the entire clause a cluster fuck, but it is really neither here nor there at this point.

[Simone Republic]

*snip*

It depends on if you count the preceding paragraph's use of the definition of different types of "investor"(s) (three times) as antecedent, since it's separated by a semi-colon not a full stop.

[Imperium Anglorum]

I'm not going to defend the quality of the grammatical constructions themselves since that is a very weak place to stand. The language of the target is at that low bar where it is comprehensible regardless. I don't believe the repeal engages with the policy at hand and the grammatical quibbling is transparently a dodge.

[Sea Dome]

SIP does not seem to be worth defending- "that low bar" may itself be an inappropriately low standard for the GA in our view. However, given that WA Membership obliges us to tolerate a fair degree of market capitalism, we are in favor of a future resolution targeting this issue for regulation. A minimal training standard for individuals who can crash regional or even larger systems if incompetent or undisciplined seems fair, as it is in many other industrial settings. To be clear, we do not complain about participation in a foreign economic system, but as long as we are participating, we are open to the idea of stricter controls.

[The Ice States]

"Repeal "Sophisticated Investors Protocol"" was defeated 9,843 votes to 3,402.