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Fed bans individual securities holdings by senior officials

The U.S. Federal Reserve on Thursday announced banning trading in individual stocks and bonds for its top officials. Yahoo Finance's Brian Cheung weighs in.

Video transcript

ALEXIS CHRISTOFOROUS: I want to get to our Fed correspondent, Brian Cheung, now for some breaking news regarding the Fed. They just released some news in which they're going to ban policymakers from owning individual stocks. Tell us about this, Brian.

BRIAN CHEUNG: Yep, Alexis, this coming in the fallout of that trading scandal which we've been following for the past few weeks, engulfing at least two Federal Reserve officials, the former heads of the Boston and the Dallas Feds, after their individual trades that were made over the course of 2020, when the Fed itself was making policies to save the United States economy.

Fed Chairman Jerome Powell this afternoon unveiling a new set of rules around ethics at the central bank that will also cover the likes of the Federal Reserve Bank presidents. He described them as tough new rules. And one of the biggest rules here is it restricts any act of trading and prohibits the purchase of any individual securities. That would include stocks, bonds, or derivatives, likely including the types that Dallas Fed president Robert Kaplan made when he bought a number of individual stocks over the course of 2020.

These new restrictions effectively only allow purchases of diversified investment vehicles, so this would really only allow these senior officials to get into mutual funds, for example. And if they wanted to, they would have to provide at least 45 days of advance notice to an ethics officer and obtain prior approval for any purchases or sales. If they make any sort of transaction, they will have to hold on to them for at least a year.

Again, all these things are new to the framework of what these senior officials were allowed to do. They will also be banned from making any purchases or sales during periods of, quote, "heightened financial market stress." Fed officials say they're still figuring out the details of what that would look like, but that the market stress of the spring of 2020 would certainly qualify as heightened financial market stress.

And lastly, the new rules will require an increased frequency of public disclosures from the Reserve banks. Previously, they were only required to update what they had done in their financial transactions on a yearly basis. That will now be done on a monthly basis. These rules will apparently be phased in and probably will require some divestment from any sort of existing holdings among the existing senior Fed officials that don't comply with these new rules. So, something definitely worth watching as Fed Chairman Jay Powell continuing to get fire from Capitol Hill and others that are watching the Fed with regards to that trading scandal. Karina, Alexis.

ALEXIS CHRISTOFOROUS: All right, we're going to be watching it. Brian Cheung, thanks so much for that.