Federal Reserve Rolls Out New Trading Restrictions For Senior Officials

The Federal Reserve has barred senior officials from a number of investment activities, particularly those involving individual stocks, bonds, cryptocurrencies and commodities.

The Federal Open Markets Committee announced the new rules on February 18. They specifically bar covered officials:

“[F]rom purchasing individual stocks or sector funds; holding investments in individual bonds, agency securities, cryptocurrencies, commodities, or foreign currencies; entering into derivatives contracts; and engaging in short sales or purchasing securities on margin.”

“Additionally, senior Federal Reserve officials will be required to provide 45 days’ non-retractable notice for purchases and sales of securities, obtain prior approval for such transactions, and hold investments for at least one year. Purchases and sales also will be prohibited during periods of heightened financial market stress.”

The new rules follow the resignation of three high-ranking policymakers who traded in individual stocks, real estate securities and stock funds in 2020, a year in which the central bank rolled out a range of pandemic response programs that placed officials’ day-to-day decisions at the core of what happened in financial markets.

Robert Kaplan, president of the Federal Reserve Bank of Dallas, and Eric Rosengren, president of the Federal Reserve Bank of Boston – resigned following revelations that they bought and sold stocks and real estate-tied assets in early 2020 as the central bank undertook aggressive policy action to bolster the economy at the start of the COVID-19 pandemic.

The Fed’s departing vice chair, Richard Clarida, came under scrutiny shortly after that over a New York Times report that revealed he failed to initially disclose the extent of a financial transaction he made in early 2020, suggesting that he was actively trading just days before Chairman Jerome Powell suggested the central bank may swoop in to prop up in the economy.

“These tough new rules raise the bar high 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,” Powell said in October, when the rules were first outlined.

Fed officials covered by the new rules include Board members; presidents, first vice presidents and research directors at Federal Reserve Banks, Board division directors; and managers or deputy managers of the System Open Market Account.

Officials covered by the new rules will have 12 months from the effective date of the rules to dispose of all impermissible holdings, and, going forward, newly covered officials will have six months to dispose of all impermissible holdings.

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