Fed Unveils New Rules Cracking Down On Officials’ Trading

Having seen numerous Fed officials caught with their hands in the cookie jar, including The Fed Chair himself, The Federal reserve has unveiled a new ‘tougher’ set of rules about what, when, and who can front-run their policy decisions.

The new rules will bar senior officials from purchasing individual securities and restrict investment activities to broad-based products such as mutual funds.

The rules will require Fed officials and senior staff to provide 45 days’ advance notice for any purchases and sales of diversified investment vehicles, such as mutual funds.

Officials will also be required to obtain prior approval for any investment purchases and sales, and they will be required to hold investments for a minimum of one year.

Transactions won’t be allowed during periods of “heightened financial market stress,” the Fed said in a statement.

The new rules would apply to the system’s 12 reserve bank presidents and the seven governors on the central bank’s Washington-based board.

The rules go beyond what other government agencies require of senior leaders.

“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,” said Federal Reserve Board Chair Jerome H. Powell.

While this move does not ban trading, we would suggest that Senator Warren wins the first round…

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Full Federal Reserve Statement:

Following a comprehensive review, the Federal Reserve Board on Thursday announced a broad set of new rules that will prohibit the purchase of individual securities, restrict active trading, and increase the timeliness of reporting and public disclosure by Federal Reserve policymakers and senior staff. As a result of the new policies, senior Federal Reserve officials will be limited to purchasing diversified investment vehicles, like mutual funds.

The new restrictions will apply to both Reserve Bank and Board policymakers and senior staff and prohibit them from purchasing individual stocks, holding investments in individual bonds, holding investments in agency securities (directly or indirectly), or entering into derivatives. The new rules are expansive and are designed to place the Federal Reserve’s investment and trading rules at the forefront among major federal agencies.

“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,” said Federal Reserve Board Chair Jerome H. Powell.

To help guard against even the appearance of any conflict of interest in the timing of investment decisions, policymakers and senior staff generally will be required to provide 45 days’ advance notice for purchases and sales of securities, obtain prior approval for purchases and sales of securities, and hold investments for at least one year. Further, no purchases or sales will be allowed during periods of heightened financial market stress.

Reserve Bank presidents now will be required to publicly disclose financial transactions within 30 days, as Board Members and senior staff currently do.

The Board and the Reserve Banks will incorporate these new restrictions into the appropriate Federal Reserve rules and policies over the coming months.

Developing…