The Fed’s Bans on Officials Trading Stocks, Bonds, and Crypto

Last month, the Fed approved rules that would ban its officials from trading certain assets.

The rules were first set forth in the fall of 2021, amended to include a ban on cryptocurrencies, and recently approved. They will go into effect, at least in part, on May 1, 2022. 

This is a move to increase consumer confidence that policymakers are making decisions in the best interest of the public.

What are the New Regulations?

With the onset of the new rules, Fed officials will be restricted from owning individual stocks, bonds, cryptocurrency, and other assets, including:

• Commodities

• Foreign currencies

• Sector index funds

• Derivatives

• Short positions

• Agency securities

They will also be banned from using margin debt to buy assets.

The new rules don’t only ban the above-mentioned assets. They also require those who fall under them to give 45 days advance notice before making any approved asset purchases. They must also hold those assets for at least one year, and not trade during periods of heightened financial stress.

If this sounds like a lot of restrictions, you’re not wrong, but the move for greater regulation isn’t unwarranted.

Why the Regulations?

Last year, several officials traded positions just ahead of the Fed’s extraordinary measures to help the economy through the Covid crisis.

As one might expect, this sparked a controversy that these officials traded with the knowledge of the forthcoming changes.

Thus, according to an official release, the changes “aim to support public confidence in the impartiality and integrity of the Committee’s work by guarding against even the appearance of any conflict of interest.”

Who’s Affected?

It’s not just members of the Federal Open Market Committee (FOMC) that are banned from these investments, including stocks, bonds, and cryptocurrencies, though. The rules extend to regional bank presidents, bond desk managers, Fed employees who regularly attend board meetings, and staff officers as well as all their spouses and minor children.

While the rules go into effect this May, affected persons won’t have to dump their positions immediately; existing members will have 12 months and new members will have 6 months to sell their prohibited assets.

While the new regulations currently extend only to members of the Fed and other officials, there’s also been talk of banning members of Congress from holding individual stocks. However, no official moves regarding this policy have been made.

What does this mean for investors?

As an investor, even one participating in verified investing in private markets, the Fed’s decisions affect you. If they are no longer participating members in the individual stock, commodity, or crypto marketplaces, perhaps they won’t be swayed by how their decisions will impact their holdings. As is always the case, the market is constantly changing, and these new rules for members of the Fed, among others, are another pebble that could ripple the water.  

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