When news stories began coming out about insider trading in Congress, many people were infuriated. Normal business people found to be guilty of insider trading face harsh penalties, so why should members of Congress not face the same? In response to public outrage, Congress passed the Stop Trading on Congressional Knowledge Act (STOCK).
The STOCK Act, in various versions, has been proposed multiple times over the years. Until now, though, members of Congress have managed to avoid applying securities laws to their own trading.
Though the STOCK Act was intended to ban congressional trading, two of the key measures that would have accomplished this were stripped away by House Majority Leader Eric Cantor. One measure would have required “political intelligence professionals” to register as lobbyists, and the other would have broadened anti-corruption law.
Political intelligence professionals are typically former members of Congress or staffers who now work for trading firms. They attempt to gain financial information from Congress to do better in the markets.
The new legislation now bars members of Congress from trading on material, non-public information learned in their official capacity, but they are still allowed to trade in areas they influence. Senate Banking Committee members, for instance, can still trade in banking.
According to CNBC, portfolios of lawmakers consistently outperform the market. It will be interesting to see if the STOCK Act affects such performance.
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