What is the Stop Trading on Congressional Knowledge (STOCK) Act?

The Stop Trading on Congressional Knowledge (STOCK) Act prohibits members and employees of Congress from using "any nonpublic information derived from the individual's position… or gained from performance of the individual's duties, for personal benefit.” The bill also applies to all employees in the Executive and Judicial branches of the federal government. The STOCK Act requires a one-year study of the growing "political intelligence” industry, and requires every Member of Congress to publicly file and disclose any financial transaction of stocks, bond, commodities futures, and other securities within 45 days on their websites, rather than once a year as they do now. The Act also requires members of Congress and Executive branch officials to disclose the terms of mortgages on their homes, prohibits them from receiving special access to initial public stock offerings, and denies federal pensions to members of Congress who are convicted of felonies involving public corruption.

The US House of Representatives Ethics Manual states that its members should "never use any information coming to him confidentially in the performance of governmental duties as a means for making private profit," and the Senate Ethics Manual states that its Conflict of Interest Rule 37(1) provides for "a broad prohibition against members, officers or employees deriving financial benefit, directly or indirectly, from the use of their official position[s].” No arrests or prosecutions, however, have ever been made against members of Congress for insider trading based on nonpublic congressional knowledge.

While Members of Congress are not exempt from federal securities laws (including insider trading prohibitions), it remains unclear whether a member of Congress has a fiduciary duty to the United States (misappropriating information gained through an employment relationship is illegal, but case law conflicts as to whether members of Congress actually constitute "employees” of the federal government), whether the information on which the Member trades is "material” (Is there "a substantial likelihood” that a reasonable investor "would consider it important” in making an investment decision?), and whether the information on which the member traded is "nonpublic.”

The STOCK Act was originally introduced in the 109th session of the House of Representatives on Mar. 28, 2006 by Brian Baird (D-WA) and Louise Slaughter (D-NY) where it died in committee. It was reintroduced in the 110th (May 16, 2007) and 111th (Jan. 26, 2009) House sessions where it also died in committee.

On Mar. 17, 2011, Tim Walz (D-MN) introduced the STOCK Act into the 112th House session where it gained one co-sponsor and was referred to various committees. Eight more co-sponsors joined by Nov. 4, 2011.

On Nov. 13, 2011, 60 Minutes reported that several members of Congress allegedly used insider information for personal gain. The STOCK Act received 84 additional House co-sponsors in the five days following the report, and Scott Brown (R-MA) filed the STOCK Act in the Senate on Nov. 15, 2011. Kirsten Gillibrand (D-NY) also filed a variation of the STOCK Act in the Senate on Nov. 17, 2011.

On Dec. 6, 2011, House Financial Services Chairman Spencer Bachus (R-AL) scheduled a markup of the STOCK Act for Dec. 14, 2011. House Majority Leader Eric Cantor (R-VA) indefinitely postponed the markup session on Dec. 7, 2011, stating that "a large group of bipartisan members of the committee felt the legislation was flawed and being recklessly moved solely in response to media pressure. Members of both sides of the aisle wanted more time to gather information and develop appropriate alternatives.” Congressman Walter Jones (R-NC) described Cantor’s move as "absolutely unacceptable” and "petty,” while Congresswoman Louise Slaughter (D-NY) stated that "last week we passed a bill worth hundreds of billions of dollars with less than a two day layover and no one knew what was in it. This bill has been around for six years.”

On Jan. 24, 2012, in his State of the Union Address, President Obama said "Send me a bill that bans insider trading by members of Congress, and I will sign it tomorrow.” Immediately after the speech, Senate Majority Leader Harry Reid (D-NV) told reporters, "I think people should have enough sense not to do it [insider trading] without legislation, but I will support legislation.” On Feb. 2, 2012, a revised version of the STOCK Act passed in the Senate by a vote of 96-3 with Senators Richard Burr (R-NC), Tom Coburn (R-OK), and Jeff Bingaman (D-NM) dissenting. On Feb. 9, 2012, the STOCK Act passed in the House by a vote of 417-2 with Representatives John Campbell (R-CA) and Rob Woodall (R-GA) dissenting. On Mar. 22, 2012, the Senate unanimously consented to the House version of the STOCK Act.

On Apr. 4, 2012, the STOCK Act was signed into law by President Obama.