Federal Reserve puts new bans on trading in stocks, bonds, crypto or commodities following trading scandal

The Federal Reserve has barred senior officials from a number of investment activities, particularly those involving individual stocks, bonds, cryptocurrencies and commodities.

The Federal Open Markets Committee announced the new rules on February 18. They specifically bar covered officials: 

“[F]rom purchasing individual stocks or sector funds; holding investments in individual bonds, agency securities, cryptocurrencies, commodities, or foreign currencies; entering into derivatives contracts; and engaging in short sales or purchasing securities on margin.”

Notably, officials can still hold existing stocks, while crypto seems to be completely off-limits. There are exceptions for commodities and foreign currencies “owned for noninvestment purposes” — presumably because officials may want to travel or put gas in their cars — but no such carve-out for crypto.

The new rules follow the controversial tenure of Richard Clarida, a governor of the Fed Board who announced his resignation in January following revelations of a number of stock trades he made in February 2020. The Fed, as the US’s central bank, wields enormous economic power. For example, the stock market has faced turbulence in recent weeks since Fed Chair Jerome Powell indicated that it planned to raise its benchmark interest rates. 

Critics suspected Clarida of trading on insider knowledge of the stock market crisis that was impending as the first wave of Covid and lockdowns hit the US. Many members of Congress are discussing new legislation in a similar vein.

Fed officials covered by the new rules include Board members; presidents, first vice presidents and research directors at Federal Reserve Banks, Board division directors; and managers or deputy managers of the System Open Market Account.

The Federal Reserve Board currently features a number of vacancies. Allegations of corruption against Sarah Bloom Raskin, a former Board governor who is a current nominee, have led to a standoff in the Senate Banking Committee.