Internal Fed watchdog to examine trading activity

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The Federal Reserve has said its internal watchdog plans to open an investigation into the trading activities of senior U.S. central bank officials, following trading revelations in 2020.

“As part of our comprehensive review, last week we began discussions with the Office of the Inspector General of the Federal Reserve to initiate an independent review to determine whether the trading activities of certain senior officials were in line with the both to the relevant ethics rules and to the law, ”the Fed said in a statement Monday. “We welcome this review and will accept and take appropriate action based on its findings. “

Fed Chairman Jerome H. Powell last month opened an internal review of central bank ethics rules following revelations of unusual business activity in 2020 as the Fed triggers emergency support to the US economy to stem the effects of the pandemic.

Speaking to reporters on September 22, he promised “a thorough and comprehensive review.” We will put all the facts together and look for ways to further tighten our rules and standards. “

‘Logic’

Sen. Patrick J. Toomey of Pennsylvania, the top Republican on the Senate Banking Committee, said an investigation “makes sense.”

“It is important that the public have a very high level of confidence that no senior Fed official engages in creating any conflict of interest,” Toomey said.

The Inspector General has the power to contact law enforcement agencies whenever an investigation indicates that criminal laws may have been violated.

The Fed’s Information Security Directive contains specific rules for trading, noting that “an employee with knowledge of ‘confidential political information” should avoid engaging in any financial transaction the timing of which may occur. appear to act on inside information regarding Federal Reserve proceedings and Stocks. “

The trade questions come as investors wait to see whether President Biden appoints Powell for another four-year term as central bank head or chooses someone else. A decision is expected this fall.

The Fed’s efforts on trading have not satisfied critics. Senator Elizabeth Warren on Monday asked the Securities and Exchange Commission to determine whether stock transactions by senior Federal Reserve officials violated insider trading rules.

The Massachusetts Democrat on Friday cited a Bloomberg News report that financial information from Fed Vice Chairman Richard Clarida shows he traded between $ 1million and $ 5million from a bond fund to funds. of actions a day before Powell issued a statement signaling possible political action as the pandemic worsened. Two regional Fed chiefs recently announced their departure following revelations about their trading activity last year.

Informed of the OIG’s intention to open an investigation, Warren said, “Well, they should. The SEC is also expected to open an investigation. This is serious.”

An SEC spokeswoman declined to comment on Warren’s letter, as did a Fed spokeswoman.

“Planned rebalancing”

Speaking on behalf of Clarida, a Fed spokesperson said in an Oct. 1 statement that the transactions, which were released in mid-May, were a “pre-planned rebalancing on her accounts, similar to a rebalancing he did and reported in April 2019 “. and were “executed prior to his involvement in deliberations over Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period.”

The end of February 2020 was a time of extreme movements in financial markets as investors faced the threat of the pandemic spreading across the United States. In the six days leading up to February 27, the Standard & Poor’s 500 Index fell more than 10% from record high. At the same time, bond markets were on a strong rally, with US two-year bond yields plunging as traders began to anticipate a Fed rate cut.

The Fed announced an emergency cut of half a percentage point on March 3.

– With the help of Bloomberg writer Laura Litvan.


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