Fed to ban policymakers from owning individual stocks, restrict trading following controversy

Marriner S. Eccles Federal Reserve Building in Washington, D.C., Friday, September 17, 2021.

Stephanie Reynolds | Bloomberg | Getty Images

In response to the growing controversy over investment practices, the Federal Reserve on Thursday announced a broad ban on officials owning individual stocks and bonds and restrictions on other activities as well.

The ban includes senior policymakers such as those who sit on the Federal Open Market Committee, along with senior staff. Future investments should be limited to diversified assets such as mutual funds.

Federal Reserve officials can no longer own shares in certain companies, nor can they invest in individual bonds, or hold agency securities or derivative contracts. The new rules replace existing regulations which, while somewhat restrictive, still allow members to buy and sell shares.

“These tough new rules raise the bar high in order to reassure the public we serve that all of our senior officials maintain a single focus on the Fed’s overall mission,” Fed Chair Jerome Powell said in a statement.

Under the new rules, administrators will have to provide 45 days’ notice before buying or selling any securities that are still permitted. A press release announcing the moves said they would also be required to hold the securities for at least a year, and could not buy or sell funds during “increasing financial market pressures.”

The rules come on the heels of disclosures that several Fed officials were buying and selling shares at a time when central bank policies were designed to improve market performance, particularly during the Covid crisis.

Since the early days of the pandemic, the Fed has bought more than $4 trillion in bonds to support the economy with liquidity and low interest rates. It has also bought billions of corporate bonds for some of the biggest names on Wall Street in an effort to ensure the market is working.

Regional presidents Robert Kaplan of Dallas and Eric Rosengren of Boston both resigned shortly after disclosing their involvement in trading individual securities in 2020. In Kaplan’s case, the moves occurred in large dollar allocations.

Vice Chairman Richard Clarida was also mentioned in the reports. Powell also sold securities last year, even though they were exchange-traded funds that track market indices.

said George Celgene, director emeritus of the Center for Monetary and Financial Alternatives at the Cato Institute.

The announcement stated that reserve bank chiefs would have to disclose transactions within 30 days, an already in place requirement for FOMC members and senior staff. The statement said the new rules would be formally introduced “over the course of a month”. Existing holdings will have to be liquidated, although a timeline has not been announced.

“The optics are bad,” Celgene said of the Fed’s previous rules. “They needed a base like this. I don’t think we need to feel sorry for them. They will do a good enough job with that restraint.”

These new rules come on the heels of a new disclosure from the New York Times that the Fed’s ethics office sent an email in March 2020 to officials warning against trading as the pandemic worsened, and central bank officials were rolling out a series of emergency measures.

The New York Times reported that Senator Elizabeth Warren, a critic at the Federal Reserve who said she would not support Powell if re-nominated for a second term, called Thursday for the public release of the email.

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