Federal Reserve adopts strict trading rules for senior officials

The U.S. Federal Reserve on Friday announced it adopted stringent new rules to regulate trading and investing by senior officials and their dependents. 

Federal Open Market Committee unanimously adopted the new rules that were first proposed in October 2021 after questions emerged over pandemic stock trades by Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren.

The new rules, which will be in effect May 1, 2022, "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," the Federal Reserve wrote in a press release.

Senior Fed officials will be prohibited under the new extensive rules "from 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," the federal bank stated.

The sale of securities will also be highly regulated. Officials will also be required to provide 45 days of non-retractable notice for the purchase and sale of securities, which they are required to hold for one year before trading. The officials must also obtain approval on the transactions, which "will be prohibited during periods of heightened financial market stress," according to the Fed.

The rules also apply to senior officials' spouses and minor children. After the requirements take effect, officials have 12 months to get rid of any securities that are not allowed while new officials will have six months to do so.

The Fed expects to expand the rules to include additional lower-level Fed staffers at a later point.

The trades by Kaplan and Rosengren were technically allowed under the Fed's rules, but raised questions about conflicts of interest. Both men stepped down last fall and Fed Chairman Jerome Powell ordered a review of the banks' ethics guidelines.