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Fed bans its top officials from crypto trading

The rules are aimed at preventing a repeat of last year’s ethics scandal where officials actively made trades, often ahead of key policy decisions.

Federal Reserve / Image by: Wikimedia Commons

Mon, 21 Feb 2022, 11:14 am UTC

The Federal Reserve has adopted new investment and trading activity rules for its officials that extended trading restrictions to include crypto. The rules are aimed at preventing a repeat of last year’s ethics scandal where officials actively made trades, often ahead of key policy decisions.

“The Federal Open Market Committee on Friday announced that it unanimously formally adopted comprehensive new rules for the investment and trading activity of senior officials,” the Fed announced in a blog post on February 18. “The rules, which were first announced in October 2021, 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 new rules prohibit senior Federal Reserve officials 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.”

In addition, Fed officials are required to obtain prior approval for purchases and sales of securities, provide 45 days’ non-retractable notice for such transactions, and hold investments for a minimum of one year.

The new rules also prohibited trading activities during specific market conditions. “Purchases and sales also will be prohibited during periods of heightened financial market stress,” the Fed wrote. “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 post also specified the Fed officials that are covered by the new rules. These include Board Members, Reserve Bank presidents, first vice presidents, research directors, FOMC staff officers, the manager and deputy manager of the System Open Market Account Board division directors who regularly attend Committee meetings. The Chair may also designate certain individuals who will be subject to the rules and the restrictions will include their spouses and minor children.

Officials will be required to disclose securities transactions within 30 days after the new rules take into effect on May 1, 2022. Meanwhile, they will be given 12 months to dispose of all impermissible holdings while newly covered officials will be given 6 months to dispose of such holdings.

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