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Federal Reserve to Restrict Officials’ Trading

October 22, 2021 by Reece Nations
Federal Reserve to Restrict Officials’ Trading
The Federal Reserve. (Photo by Dan McCue)

WASHINGTON — The Federal Reserve Board on Thursday announced it would impose new restrictions on active trading of stocks and prohibitions on the purchasing of individual securities by its policymakers and staff.

The restrictions forbid purchasing individual stocks, holding investments in individual bonds, holding investments in agency securities or entering into derivatives and will apply to Federal Reserve Bank and board policymakers and senior staff, Fed officials announced in a release.

The new policies will limit senior Federal Reserve officials to purchasing mutual funds, although all stock purchases will be barred during times of “heightened financial market stress.” Further, Fed policymakers and staff will now generally be required to give 45 days’ notice in advance for purchases of securities, obtain prior approval for purchases and sales, and hold on to the investments for at least a year.

The Fed is taking steps to guard against conflicts of interest after financial disclosure forms showed Federal Reserve Bank of Boston leader Eric Rosengren and Federal Reserve Bank of Dallas President Robert Kaplan vigorously traded in markets last year when interventions by central bank officials were needed to support the country’s economy during the pandemic.

The revelation of the officials’ trades stirred an ethics controversy as its officials could have financially profited from the Fed’s actions despite technically complying with its rules, culminating in the resignation of both Rosengren and Kaplan in September.

“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 written statement.

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