For folks that don’t know--insider trading is the buying or selling of securities on the basis of material, nonpublic information in violation of a duty of confidentiality - either to the issuing company or to the source of the information.
The Washington Post’s Capitol Briefing blog summed up what we’re trying to do:
The practical effect of such a ban: If a Senate aide sits in on a meeting where leaders decide to bring bill X to the floor tomorrow, that aide couldn't run to his desk and buy or sell stock based on that information. Under current law, the aide could trade to his heart's content, or pass on a tip to a friend in the private sector.
The reason we need this legislation is because the Securities and Exchange Commission (SEC) does not currently have the authority to hold congressional staffers liable for engaging in insider trading.
Here is some information on a couple of key provisions in the STOCK Act:
Additional Disclosure
The bill will require Members of Congress and employees to report the purchase, sale or exchange of any stock, bond, or commodities future transaction in excess of $1,000 within 90 days. Members and employees who choose to place their stock in holdings in blind trusts or mutual funds would be exempt from the reporting requirement.
Registration of Political Intelligence Firms
Right now there are political intelligence firms that provide investors with inside information about impending legislative action. That information can then be used to inform investment decisions, and have thus far operated largely in secret and without controls. Political intelligence firms first appeared in the 1970s, but the industry remains relatively unknown because the firms are currently not required to register their clients or their earnings.
To cite but one recent example of questionable conduct made possible by the industry:
On November 15, 2005, the stock of a building materials company in Chicago (USG Corp) suddenly doubled, despite the fact that there was no publicly available news about the company, or industry, which explained the increase in volume. What the public didn’t know yet, but what some investors discovered through back channels and political intelligence companies, was that then-Senate Majority Leader Bill Frist had quietly decided to move forward with legislation to relieve companies, such as USG Corp, of their liabilities in asbestos related lawsuits.
The Washington Independent had a piece on the STOCK Act last week that mentioned USG:
Somehow, someway, the message that Congress was moving to help companies like USG had dribbled onto Wall Street before the rest of the world knew a thing about it. And trading on such leaks, it turns out, is perfectly legal.
Our bill will require firms that specialize in "political intelligence" and obtain their information directly from Congress to register with the House and Senate, much like lobbying firms are now required to do.
The STOCK Act will also:
• Prohibit Members or employees of Congress from buying or selling stocks, bonds, or commodities futures based on nonpublic information they obtain because of their status;
• Prohibit Executive Branch employees from buying or selling stocks, bonds or commodities futures based on nonpublic information they obtain because of their status;
• Prohibit those outside Congress from buying or selling stocks, bonds, or commodities futures based on nonpublic information obtained from within Congress or the Executive Branch;
• Prohibit Members and employees from disclosing any non-public information about any pending or prospective legislative action obtained from a member or employee of Congress for investment purposes.
I invite you to watch my testimony on the STOCK Act at 2:00pm here on the House Financial Services website. As we’re working hard to strengthen our economy, the STOCK Act will not only help rebuild trust in our markets, but also ensure the integrity of this Congress. - LMS
Comments are closed on this story.