A high-profile group of investors, led by two former Securities and Exchange Commission chairmen, has published its own views on how best to reform regulation of the U.S. financial markets, which include calling for the creation of an independent Systemic Risk Oversight Board.

The Investors' Working Group, sponsored by the CFA Institute Center for Financial Market Integrity and the Council of Institutional Investors and co-chaired by former SEC chairmen William Donaldson and Arthur Levitt, detailed its recommendations in a 46-page report released today.

The SROB would collect and analyze financial institutions' exposures, practices, and products that could threaten the stability of the financial system and recommend steps existing regulators should take to reduce those risks, according to the report.

It says the recommendation for a SROB—which could potentially evolve into a full-fledged regulator—represents a "middle ground" between the systemic risk regulator advocated by the Obama administration and the "college of cardinals" model supported by some officials of existing federal regulators. The group contends that a council would have blurred lines of authority and could be hamstrung by jurisdictional disputes. Moreover, it says having the Federal Reserve Board serve as a systemic risk regulator has even more drawbacks, since its credibility "has been tarnished by the easy credit policies it pursued and the lax regulatory oversight that let institutions ratchet higher their balance sheet leverage and amass huge concentrations of risky, complex securitized products."

The report advocates a number of other reforms, many of which have already been floated in pending legislation and proposals, including calls to close regulatory gaps related to over-the-counter-derivatives, securitized products, hedge funds, private equity, and investment advisers and companies.

The IWG report also supports a number of corporate governance reforms, including majority voting standards in uncontested director elections, shareholder access to corporate proxies for nominating directors, and either the separation of the chairman and chief executive roles or the appointment of a lead director or some other form of independent board oversight. The reports also calls for stock exchanges to adopt listing standards that require compensation consultants who advise boards to be independent of management, for companies to provide for a shareholder say-on-pay, and for stronger federal provisions to clawback unearned executive pay.

Members of the group include former Commodity Futures Trading Commission Chair Brooksley Born; CalPERS Chief Investment Officer and CII Chair Joe Dear; former SEC Commissioner Harvey Goldschmid; Ira Millstein, a senior partner at Weil, Gotshal & Manges; and senior associate dean for corporate governance at Yale School of Management; and Nell Minow, editor and co-founder of The Corporate Library.

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