The US Federal Reserve announced a sweeping set of rules on Thursday that restrict policymakers and senior staff from trading in certain instances and increases public reporting of their trading activity.
The new rules come nearly six weeks after an investigation by the Wall Street Journal revealed that some regional Reserve Bank leaders bought and sold shares of individual companies like Tesla, Apple, and Google while they were simultaneously regulating those companies during the pandemic.
In turn, lawmakers on Capitol Hill began pressuring the central bank to investigate the matter and enact new rules. Two Reserve leaders resigned after the reports were published.
New rules restrict trading
“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," Federal Reserve Board Chair Jerome Powell said in a statement.
The Federal Reserve previously had rules in place that restricted trading of individual securities, but still allowed it for policymakers. The new rules are much more expansive and “are designed to place the Federal Reserve's investment and trading rules at the forefront among major federal agencies,” the central bank said in a press release.
Under the new rules, Federal Reserve policymakers are not allowed to buy or sell “individual stocks, hold investments in individual bonds, hold investments in agency securities (directly or indirectly), or enter into derivatives.”
Mutual funds allowed
Instead, policymakers can only trade in “diversified investment vehicles,” such as mutual funds. Central bank leaders must also hold their investments for at least a year and cannot buy or sell securities during “times of financial crisis.”
Policymakers must also give at least 45 days’ advanced notice before purchasing or selling a security to “guard against even the appearance of any conflict of interest,” the central bank said in its press release.
Reserve Bank presidents are also required to publicly disclose financial transactions within 30 days just like Board members and senior staff.
During the pandemic, the Federal Reserve purchased more than $4trn of bonds and billions in corporate debt to help stabilise the economy.