The US Senate and the US Supreme Court are the only two out of 975 federal entities that we could find that seem to have no rules and no laws prohibiting them from trading stocks based on nonpublic information they gain on the job.

While 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," the rule is not legally binding and the repercussions of a Representative violating this rule is determined by the House on a case by case basis.

According to the US Securities Exchange Commission, insider trading is in part "buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security."

Insider trading regulations do not clearly define whether government officials trading on inside government information is considered illegal insider trading. In terms of congressional insider trading, legislative information can be "nonpublic" and "material" – thereby giving it the potential to affect stock prices. But Congressional representatives are not considered corporate insiders, temporary insiders, or tippees when they trade securities based on their knowledge of pending legislation. They are also not considered to be "misappropriating" information because it is unclear whether or not they have a "fiduciary duty" or other "relationship of trust or confidence" to Congress.

For example, a Congressional representative who trades stocks based on information received from a family member who is a corporate insider (a director, officer, or other permanent employee of the corporation) could be charged with insider trading. However, a Congressional representative who learns in a private committee hearing that company X will likely be awarded a lucrative government contract and who then buys stock in company X before that contract is publicly awarded may currently do so with impunity.

With their insider information, members of Congress could have an advantage in trading stocks over those who lack such information. A 2004 Georgia State University study revealed that US Senators' stock trades performed 12.3% better than the market average. Studies show that the stock purchases of corporate insiders outperform the market by an average of 7.4%, and the average household's stock portfolio underperforms the market by approximately 1.5%.

In addition, the spurt in the growth of "political intelligence operatives," firms that sell market-moving legislative information gathered on Capitol Hill for stock trades on Wall Street, has increased public scrutiny of the legitimacy and fairness of trading on such information. Political intelligence operatives are estimated to have grown into a $40 million industry. In Mar. 2008, Representative Baird and Representative Slaughter presented the Political Intelligence Disclosure Act that would have required specifically the political intelligence community to disclose their clients, profits, and activities. The proposed bill did not come to a vote.

In 2006, Representative Baird (D-WA) and Representative Slaughter (D-NY) proposed a bill known as the Stop Trading on Congressional Knowledge (STOCK) Act to prohibit the trading of securities based on material nonpublic information obtained in Congress. However, the bill did not come to a vote. It was reintroduced in 2007 and again on Jan. 26, 2009. The bill received its first hearing in the House of Representatives on July 13, 2009. As of Aug. 10, 2009, the bill remains in committee.

This issue is little understood in the United States, and given its potential relevance to investors and the general public, we decided to showcase the issue using our nonpartisan pro-con format.