© Reuters. FILE PHOTO: Federal Reserve Board building is pictured in Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo
(Reuters) – The U.S. Federal Reserve on Thursday banned individual stock purchases by top officials at the central bank and unveiled a broad set of other restrictions on their investing activities roughly six weeks after reports of active trading by some senior policymakers triggered an ethics uproar.
The guidelines below are from the statement issued by the Fed on Thursday, with some clarifications from a Fed official. More specifics will emerge during an internal rule making process. How long that will take and when the new rules will take effect is not clear, though the Fed said they would be incorporated “over the coming months.”
BROADLY, WHAT IS ALLOWED?
Senior Fed officials will be limited to purchasing diversified investment securities, such as mutual funds.
A Fed official said the new rules will require divestment of investments as appropriate. Newly appointed Fed officials would be required to divest disallowed securities before taking office.
MAY FED OFFICIALS BUY OR HOLD INDIVIDUAL STOCKS?
Purchases of individual stocks by Fed officials will be prohibited.
Continued ownership of individual stocks held before an official takes office may be permissible, but they may not buy more. It is not clear if that restriction applies to pre-existing passive investment plans such as dividend reinvestments.
Under existing rules, Fed officials may not own bank stocks.
WHAT ABOUT INDIVIDUAL BONDS?
Ownership of individual bonds will be prohibited. This includes individual debt securities issued by corporations; bonds sold by state and local governments and other bonds issued in the municipal securities market; and bonds issued by government-sponsored entities such as Fannie Mae, Freddie Mac (OTC:FMCC) or Ginnie Mae.
Under existing rules, Fed officials may not own Treasuries.
CAN OFFICIALS TRADE DERIVATIVES?
Fed officials will be prohibited from entering into derivatives contracts, such as equity options and financial and commodities futures.
HOW WILL SECURITIES PURCHASES AND SALES BE HANDLED?
Fed officials wishing to buy or sell permissible securities must provide notice 45 days in advance and obtain prior approval. They must hold these investments for at least one year.
No purchases or sales may be made during periods of “heightened financial market stress.” A Fed official said officials are working on how to define such periods.
WHAT ABOUT RESERVE BANK PRESIDENTS?
Heads of the 12 regional reserve banks will be required to disclose their transactions within 30 days, bringing them into alignment with rules governing members of the Federal Reserve Board of Governors and senior staff.