As criticism mounts, Federal Reserve officials are now facing a ban on trading stocks and restrictions on active trading. The US central bank announced Thursday sweeping policy changes.
These will severely curtail the financial activities of top officials. Consequently, the new rules will limit officials to basic investment vehicles. These policy changes will take effect “over the coming months.”
Federal Reserve Officials Banned From Buying Stock, Face Restrictions On Active Trading
The new rules restrict Federal Reserve officials from various trading activities. Chairman Jerome Powell issued a statement regarding the policy ban.
“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” he said.
In particular, the new rules prohibit senior officers from purchasing individual securities. Active trading will also face restrictions. In addition, officials will need to report transactions and issue public disclosures faster.
The Fed will also limit officials’ investments. They can now only invest in diversified vehicles such as mutual funds. However, these investments will remain under tighter oversight.
Advanced Notice For Securities Purchases
The Fed will also require officials to notify the agency 45 days in advance for any trades. Officials should request 45 days in advance for any securities sales or purchases.
Transactions can only proceed with agency approval. Additionally, officials will need to hold investments for a minimum of one year. “No purchases or sales will be allowed during periods of heightened financial market stress,” the Fed said.
The new policy covers Federal Reserve officials at regional Fed banks and the Board of Governors. It also bans these senior officers from holding individual bonds, entering derivatives, or holding investments in agency securities.
Will Biden Retain Powell?
Recent trading scandals involving senior Federal Reserve officials necessitated the new policy. When their trades became public, the presidents of Boston and Dallas Fed banks announced their early retirements. Boston Fed President Eric Rosengren cited health concerns.
The insider trading allegations can affect Powell’s chances of another four-year term. Powell’s term expires this February, but the White House has yet to indicate if it will extend him.
The policy changes also came out soon after Senator Elizabeth Warren (D-MA) called for a deeper investigation into the trading scandal.
Warren tweeted Thursday that it should be illegal for Fed officials to trade individual stocks. Officials should “avoid actual and perceived financial conflicts, period.”
Critics Remain Unconvinced
Dennis Kelleher, CEO of financial reform nonprofit Better Markets, said in a statement that the changes are few and far between. “The changes announced today by the Federal Reserve are long overdue and a good start, but don't go far enough,” he said.
He said that the new rules should apply to everyone working at the Fed, not just officials. Everyone working there can have “potentially market-moving information.”
Kelleher also called for requiring all senior Fed leaders to put all of their investments into a qualified blind trust. More importantly, the trading ban should remain absolute.
Even with their retirement, the Fed should still disclose all trading information made by officials during the pandemic. “The new policies cannot be used to whitewash the prior bad judgment, failures of leadership, and violation of the Fed's own policies if not the law,” Kelleher said.
Watch the CNBC Television reporting that the Fed announced new rules around stock, derivative purchasing:
What do you think of the new policy restricting trading activity for Federal Reserve officials? DO you think the new policies are enough to defer insider trading?
Tell us what you think about government officials making money from conflict of interest activities.
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