What the legislation hopes to accomplish

It’s no surprise that politicians and senior officials are well-connected people and have the inside track on new legislation that might affect a company or an industry. And while it doesn’t make them clairvoyant, it’s certainly an advantage when it comes to the market.

A survey, commissioned by conservative advocacy group Convention of States Action earlier this year, showed that more than 75% of voters believe lawmakers have an unfair advantage when it comes to trading in the stock market.

And those feelings aren’t unfounded.

A report from Business Insider revealed that 72 members of Congress didn’t report their financial trades as they are mandated to do by the Stop Trading on Congressional Knowledge Act of 2012.

But an even larger investigation from the Wall Street Journal revealed thousands of Washington officials are taking part in ethically gray trading.

This bill would aim to address that, by preventing members of Congress, their spouses and dependent children, senior staffers in Congress, Supreme Court justices, federal judges, the president and the vice president, as well as members of the Federal Reserve System’s Board of Governors from taking part in active investing.

Senior officials and others affected by the bill will be required to either sell their holdings when they take their position or put them into a blind trust, where they would have no control over trades. They would still, however, be able to purchase diversified ETFs, diversified mutual funds, U.S. Treasury bills or bonds, state or municipal government bills or bonds and others.

Critics have been calling for such a bill for a while now, but the House and Senate have long resisted.

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It’s personal for the Pelosis

Nancy Pelosi, the speaker of the House, had originally directed the House Administration Committee to draft legislation back in February, but the release of that draft this fall came at a bit of an awkward time. Just weeks before, she’d faced harsh criticism when her husband, Paul, a venture capitalist, exercised his call options and purchased shares in Nvidia, a manufacturer of graphics cards.

It was right before the Senate was expected to vote on a bipartisan bill that would see domestic chipmakers get a $52 billion subsidy, and the move received significant blowback.

That bill ultimately passed in July and, amid the scrutiny, Paul Pelosi sold his holdings in the semiconductor manufacturer at a six-figure loss.

But support even from Dems isn’t guaranteed

However, advocates from both sides of the aisle have questioned whether the contents of the bill will do much to limit insider trading. Some have pointed out that it lacks teeth, with a built-in loophole around the blind trust requirement.

Former Obama administration ethics chief Walter Shaub took to Twitter to voice his concerns, tweeting: "Pelosi’s bill would ... [authorize] each ethics office to allow anything they want and call it a blind trust. Literally anything. There are no limits in the bill as to what these office can do."

Right after the bill was announced, House Majority Leader Steny Hoyer said he will likely to vote against the act when it makes it to the floor. While Hoyer’s office told Punchbowl News that he’ll wait to see final legislation before making an official decision, they did say he’d rather see increased penalties for members who violate existing insider trading laws.

And Rep. Abigail Spanberger, a Democrat from Virginia, who was a member of the bipartisan coalition working on a previous version of the bill, slammed the House Administration Committee for introducing “a kitchen-sink package that they knew would immediately crash upon arrival, with only days remaining before the end of the legislative session and no time to fix it.”

It may be a few weeks before discussion picks back up again as legislators wind down from midterms, but it already looks like Pelosi faces an uphill battle getting this bill through Congress.

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About the Author

Lauren Bird

Lauren Bird

Staff Reporter

Lauren Bird was a former reporter for Moneywise.com. Before writing about personal finance Lauren reported and produced for CBC and BBC Radio. Her work has also appeared in The Atlantic.

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