Restrictions on Senior US Federal Reserve Personal Trading After Controversy

Senior US Federal Reserve staff will be prohibited from buying individual securities and will be restricted from investing in diversified investment vehicles such as mutual funds, following an independent review of the trading activity of senior policymakers in recent months. There will also be tighter rules requiring Federal Reserve policymakers and senior staff to report and disclose their trading activity.

Both Reserve Bank and Reserve Board policymakers and senior staff will also be prohibited from holding investments in individual bonds, holding investments in agency securities (directly or indirectly), or entering into derivatives, under changes introduced by the SEC.

The measures are designed to prevent a conflict of interest — and even an appearance of conflict of interest — in respect to the timing of staff investment decisions. Policymakers and senior staff generally will now be required to provide 45 days’ advance notice for purchases and sales of securities and obtain prior approval for purchases and sales of securities. They must also hold investments for at least one year.

The new rules come after two Federal Reserve regional bank presidents were embroiled in controversy after revelations they had traded in stocks during the pandemic in a way that could have benefited from the central bank’s 2020 intervention in financial markets.

Following the incidents, the independent body, the Office of Inspector General for the Federal Reserve, was tasked with conducting a review.