Feb 18, 2022 - Economy

Fed publishes new rules limiting trading

The Federal Reserve building

The Federal Reserve has published new rules that prohibit its senior leaders from trading securities that might be affected by the central bank's actions.

Driving the news: After a scandal involving Fed officials trading during the early days of the pandemic that led to three top leaders resigning, the central bank has codified new limits.

The details: Under the new rules, senior Fed officials are prohibited from investing in individual stocks or bonds, cryptocurrencies, commodities, foreign currencies, derivative contracts, and short sales or securities on margin.

  • They also will be required to give 45-day notice before buying or selling securities that are allowed, such as index funds.
  • The rules state that purchases and sales are prohibited during periods of "heightened financial market stress" and include more rapid disclosure of officials' investments.

The backstory: When financial markets were going haywire in February and March of 2020, Dallas Fed President Robert Kaplan, Boston Fed President Eric Rosengren, and Vice-Chair Richard Clarida made financial moves that would be prohibited under the new rules. All three eventually resigned.

The bottom line: The Fed is putting in place rules that prohibit activity that damaged its reputation and raised questions about whether officials were using their public position for financial advantage.

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