Calling them “comprehensive new rules for the investment and trading activity of senior officials,” the Federal Reserve’s rate-setting committee announced Friday it has adopted new regulations aimed at clamping down on investment activity by key interest-rate policymakers and staff.
In a release, the Fed said its Federal Open Market Committee (FOMC) unanimously adopted the rules, which were first announced in October, to support public confidence in the impartiality and integrity of the panel.
Key provisions of the rules include that Federal Reserve officials are barred from: purchasing individual stocks or sector funds; holding investments in individual bonds, agency securities, cryptocurrecies, commodities, or foreign currencies; entering into derivatives contracts; and engaging in short sales or purchasing securities on margin.
Also: senior Federal Reserve officials will be required to provide 45 days’ non-retractable notice for purchases and sales of securities, obtain prior approval for such transactions, and hold investments for at least one year. Purchases and sales also will be prohibited during periods of heightened financial market stress, the agency said.
“These new rules supplement existing rules that prohibit Federal Reserve officials from holding bank stocks and Treasury securities and from engaging in financial transactions during a blackout period around FOMC meetings,” the Fed asserted.
The rules will take effect on May 1, 2022, except that requirements for advance notice and pre-clearance of transactions will take effect on July 1, 2022, the Fed said.
The new rules come in the wake of recurring reports that Federal Reserve Bank presidents, and other Fed officials, had made moves in investments that appeared to, in some cases, benefit the Fed officials as the FOMC – the primary committee for establishing monetary policy, including interest rates at the Fed – acted on rates. One Fed bank president resigned and another retired as their investment activity came to light last fall. Eric Rosengren, president of the Federal Reserve Bank of Boston, stepped down for health reasons; Robert Kaplan, president of the Dallas Fed, resigned, he said, to avoid becoming a “distraction” from the Fed’s broader mission.
Former Vice Chairman Richard Clarida – whose term was set to expire Jan. 31 – resigned two weeks early following public exposure of transactions he had made.
“When the new policy takes effect, Reserve Bank presidents will be required to publicly disclose securities transactions within 30 days, as Board members and senior Board staff currently do,” the Fed said. “In addition, financial disclosures filed by Reserve Bank presidents will be promptly posted on the website of the relevant Reserve Bank. Financial disclosures filed by Board Members will continue to be available on the website of the Office of Government Ethics.”
The agency said the new rules will apply to Fed Board members and reserve bank presidents, as well as to other top reserve bank officials (including first vice presidents and research directors). The rules also apply to FOMC staff officers, the manager and deputy manager of the System Open Market Account, Feb Board division directors who regularly attend FOMC meetings, and “any other individual designated by the Chair, and to the spouses and minor children of these individuals.”
The agency said it expects that additional staff will become subject to all or parts of the rules after the completion of further review and analysis.
Officials covered by the new rules will have 12 months from the effective date of the rules to dispose of all impermissible holdings, and, going forward, newly covered officials will have six months to dispose of all impermissible holdings.