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Be Very Wary of the STOCK Act

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Since the 60 Minutes expose on insider trading, the STOCK Act (HR 1148)has gained enormous steam in both the House and Senate.

Designed to prohibit insider trading from Congressional insiders, the bill is designed to address an important concern: Members should be serving the public, not their own personal profits.

But is the STOCK Act, as it's currently written, an appropriate solution?

Today's Roll Call raises a few concerns about the design of the bill.  A quick read adds a few additional concerns to the list.

Most significantly, read Section 3.

That section changes the House Ethics manual to prohibit Members from disclosing "material nonpublic information" about "any pending or prospective legislation" that the Member has "has reason to believe that the information will be used to buy or sell the securities of such publicly traded company". This is probably a well-intended provision: Members shouldn't disclose legislative information in order to give secret signals that affect markets.

But the way this provision is drafted would effectively prohibit most disclosure of nonpublic information about legislation.  Any time a Member describes things moving through Congress, there's a good chance that it could affect a publicly traded company, and there's reason to believe that the information will be used to buy or sell securities.

We should prohibit Members inappropriately using insider information.  And we should also protect their ability to share information about Congressional activity.  This provision appears to achieve the first, but at the expense of the second.

My other concern with the bill has to do with Section 5.  If Members and top staff must report transactions to the Clerk of the House (or Secretary of the Senate), then they should do it publicly.  The Clerk and Secretary should be instructed to make that information public by putting it online, just as they should be doing for a variety of other pieces of information as well, that are currently only available on paper.

We may have more updates on this as we review it further, but these two concerns should be addressed as the bill moves quickly through the process.

 

Update:  To be clear, Sunlight is very supportive of the STOCK Act effort, as we have been earlier in the year.  The concerns I raise above should certainly be addressed, and we hope that they're addressed through a quick and successful consideration of the STOCK Act by the House and Senate.  The insider trading issue threatens to even further erode public trust in Congress, and it's entirely appropriate for Congress to respond promptly.  The STOCK Act should be the vehicle through which that response is made.