FOMC Approves Tighter Rules on Trading Activity for Officials

Over the past six months, three top Fed officials, including a Vice-Chairman, have resigned after the disclosure of their pandemic-era personal trading. The controversy has accelerated since the disclosures and resulted in Friday’s (February 18) unanimous adoption of sweeping changes to Federal Reserve ethics rules. The rules prohibit some officials from even the most basic securities transactions.

The Federal Reserve has now banned senior officials from engaging in various forms of active trading. The new rules “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest,” the central bank said in a statement.

The Federal Open Market Committee (FOMC) announced the guidelines, along with the effective date, which is May 1. The rules specifically prohibit senior officials from purchasing or shorting individual stocks. They also cannot buy or sell short sector funds, enter into derivatives contracts, or purchase securities on margins. The strict guidelines also prevent foreign currency transactions, commodities trading, cryptocurrencies, agency securities, or individual bonds.

The affected officials will be required to provide 45 days notice before selling or buying securities and may only do so after they obtain approval. They will also be required to hold any investments for at least one year. This portion of the rule becomes effective July 1. The FOMC is also extending its blackout trading period running up to regularly scheduled meetings by a day after each meeting.

People impacted by the rules range from Fed Board members and Reserve Bank presidents to Reserve Bank first vice presidents, research directors, staff officers, and any other person designated by the Chair—and their spouses and minor children.

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