Federal Reserve Rolls Out Tough Trading Restrictions After Scandal

The Federal Reserve on Friday adopted a new set of ethics rules meant to prevent questionable financial market trading activity by top officials, a sweeping response to a scandal that has rocked the central bank since late last year.

Fed officials traded in individual stocks, real estate securities and stock funds in 2020, a year in which the central bank rolled out a range of pandemic response programs that placed officials’ day-to-day decisions at the core of what happened in financial markets. Three high-ranking policymakers resigned earlier than they had planned after news of the trading broke last year and early in 2022.

Jerome H. Powell, the Fed chair, acknowledged in the wake of the revelations that he and his colleagues were not “happy” with what had happened and said they would revamp the central bank’s ethics rules to prevent a similar situation in the future.

The new rules, which were previewed in October, aim to fulfill that promise. They prevent senior officials from purchasing individual stocks or funds tracing business sectors, the Fed said, and they ban investments in individual bonds, cryptocurrencies, commodities or foreign currencies, among other securities.

Senior Fed officials must now announce that they are buying or selling a security 45 days in advance, and that notice will not be retractable. Investments must be held for at least one year under the new guidelines.

The Fed’s 12 regional bank presidents will be required to publicly disclose securities transactions within 30 days, the way that its seven board members in Washington already do. They must post financial disclosures on their bank websites, something they now do only sporadically.

The fresh set of rules will apply to a wide array of personnel with access to sensitive information, from reserve bank first vice presidents and research directors to high-ranking staff members and people designated by the chair.

The Fed will also extend its financial trading blackout period — which typically applies in the run-up to Fed meetings — by one day after each meeting. That will align it with the period in which Fed officials are not allowed to give speeches.

Most of the restrictions will take effect on May 1, although the new rules on the advance notice and preclearance of transactions will take effect on July 1.

Financial disclosures released in late 2021 showed that Robert S. Kaplan, the former Federal Reserve Bank of Dallas president, had made big individual-stock trades, while Eric S. Rosengren, the Boston Fed president, had traded in real estate securities. Mr. Kaplan resigned in September, citing the scandal; Mr. Rosengren resigned simultaneously, citing health issues.

Richard H. Clarida, then the Fed’s vice chair, sold and then rapidly repurchased a stock fund on the eve of a major Fed decision, corrected financial disclosures showed. Mr. Clarida also resigned slightly earlier than planned, though he did not cite a reason.

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