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Topline
The Federal Reserve on Friday adopted rules governing investments made by central bank officials, banning them from purchasing individual securities after a series of top officials resigned from their positions amid scrutiny over their trading activity during the pandemic.
Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking confirmation … [+] hearing on Tuesday, Jan. 11.
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Key Facts
In a Friday release, the Fed’s Federal Open Market Committee said it unanimously adopted the new rules, originally announced in October, for senior officials and that they would go into effect on May 1.
Fed policymakers and senior staff, including board members, will be barred from purchasing individual securities, including stocks, cryptocurrencies and bonds, holding investments in agency securities—like Treasurys—and entering into derivatives contracts.
Beginning June 1, officials will be required to provide 45 days of advance notice before purchasing or selling securities “to help guard against even the appearance of any conflict of interest,” the Fed said.
They will also need to obtain prior approval to transact securities and hold their investments for at least one year.
Though the Fed didn’t mention the pandemic stock trades that sparked widespread criticism in September, it did say that officials will no longer be allowed to purchase or sell investments during periods of “heightened financial market stress.”
The rules will also require Fed presidents to publicly disclose financial transactions within 30 days, as is already required by board members and senior staff.
Key Background
Stock trading by government officials has faced growing scrutiny in recent months amid widespread concerns about officials being able to trade on nonpublic information. Eric Rosengren and Robert Kaplan, the former presidents of the Federal Reserve Banks of Boston and Dallas, respectively, announced their retirements on the same day in September, weeks after they came under scrutiny for trading individual stocks during the pandemic. While Rosengren cited health issues for his early retirement, Kaplan acknowledged the “recent focus” on his financial disclosures risked “becoming a distraction” for the Fed. Former Vice Chair Richard Clarida resigned early last month after trades he made in February 2020 also faced criticism.
Crucial Quote
“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,” Fed Chair Jerome Powell said in a statement about the rules in October.
Further Reading
Two Senior Federal Reserve Staffers Disclosed Trades Amid Central Bank’s 2020 Stimulus (Forbes)
Fed’s Vice Chair Will Leave Early After 2020 Trades Cause Stir (Forbes)
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