On Friday (February 18), local time, the Federal Reserve officially issued restrictions on its officials' participation in investment and trading activities, bringing an end to the stock trading storm of Fed officials who caused storms in September and October last year.
The strictest new rules of the Federal Reserve completely prohibit officials from trading
The content of the new rules includes: prohibiting officials from holding stocks , industry funds, institutional securities, bonds, cryptocurrencies, commodity , foreign exchange and derivative contracts; prohibiting short selling and participating in margin trading; senior officials must issue irrevocable transaction notices 45 days in advance, and must obtain prior approval before trading, and hold investment for at least one year; trading is prohibited during a period when the financial market pressure is intensified.
The Fed said that current Fed officials will have 12 months to deal with non-compliant holdings , while new officials will have a grace period of 6 months in the future.
new regulations will take effect on May 1 this year, and the principle of early notification will take effect on July 1. The above provisions apply to Federal Open Market Committee (FOMC) and local Fed Chairman, the applicable population has also expanded to the first vice chairman of the local Fed, the head of the local Fed research department, FOMC staff, the head of the Fed Council department who regularly attends the meetings, other individuals designated by the Federal Reserve Chairman, as well as the spouses and minor children of the above-mentioned persons.
Three senior Fed officials resigned in five months
In fact, some of the contents of the new regulations were first announced in October last year.
In September 2021, the scandal of two former local chairmans of the Federal Reserve becoming "stock gods" was exposed, causing the reputation of the central bank to be greatly damaged. On September 16, Federal Reserve Chairman Powell issued an order requiring a comprehensive review of the holding and trading of stocks by senior Federal Reserve officials. Subsequently, Kaplan, then chairman of the Dallas Fed, and Rosengren, then chairman of the Boston Fed, not only cleared his personal holdings, but also forced to resign one after another. Even former Fed Vice Chairman Clarida's stock trading in the early stages of the outbreak has caused doubts about insider trading and conflicts of interest. In January 2022, Clarida, who was deeply involved in a public opinion storm, announced her early resignation two weeks before the end of her term.
So far, in just five months, three senior Fed officials resigned, which is the first time in the history of the Federal Reserve. The storm has a huge impact. The Federal Reserve issued a statement on October 21, 2021 saying that it would ban senior officials of the agency from buying and selling individual stocks and bonds, and regulations apply to the Federal Reserve's 12 regional Fed chairmen and seven directors of the Federal Reserve's Board of Governors in Washington, as well as senior staff who are deeply involved in preparing for the meeting of the interest rate decision-making committee.
The final written new regulations are stricter than the statement five months ago and involve a wider range of people. The Federal Reserve said in a statement on Friday that the new regulations are designed to prevent any conflict of interest and ensure public confidence in the fairness and integrity of the work of the Federal Open Market Committee.
"Parliamentarian stock trading ban" is about to emerge?
For the Fed to reorganize internal discipline, Gregory Rowe, a trader on the New York Stock Exchange and chief trader of Livermore Trading Group, welcomed him in an interview with First Financial reporter after the market. "This move can certainly restore some of the public's confidence in the independence of the Fed, but the central bank's politicization trend is obvious, and it still has a long way to go to win the full trust of the public." He also said that in addition to relevant Fed persons, the investment behavior of some members of the Congress should also be regulated and restricted. "I personally believe that some members of Congress may have too much power or can use their positions to learn inside information in advance, and they should not be allowed to trade stocks for personal gain."
Regarding the "ban on stock trading by lawmakers", the Congress has started discussions since the end of 2021. A poll showed that 76% of the people believe that members of parliament and their spouses have "unfair advantages" in the stock market, and only 5% of respondents agree with lawmakers' stock trading. House Speaker Pelosi said that members of Congress should not be banned from participating in stock trading because the United States is a "free market economy."Ironically, Pelosi himself does not trade stocks. Her husband Paul Pelosi often trades large-scale stocks, and his scouts are extremely accurate, and he almost makes a profit without losing money. He was named " Capitol Hill stock god" by the media.
Earlier this month, the U.S. Senate issued a statement that a bipartisan senator group introduced a bill that prohibits members of Congress and their spouses from holding and trading individual stocks, bonds, commodities, futures and other securities, including interests in hedge funds , derivatives, options or other complex investment tools. The bill does not prohibit investment in ordinary and widely held funds, such as mutual funds and ETFs, as long as these funds do not have conflicts of interest and are diversified in investment.
