Should Congress pass the Stop Trading on Congressional Knowledge (STOCK) Act?

PRO (yes)

Tim Walz, MS, US Representative (D-MN), wrote in his Dec. 6, 2011 testimony for the US House Committee on Financial Services hearing on "H.R. 1148, the Stop Trading on Congressional Knowledge Act”:

"Americans are understandably frustrated and they have lost faith in our ability to govern. We can and we should do something about it. The STOCK Act is a big step in the right direction to help restore the American people’s faith in Congress and the work of democracy… We need to ensure the people of this country know that lawmakers are working in their best interests, and not the interests of their own bank account. Americans need to know that their elected leaders play by the same rules as everyone else. It is simply not right - we should not be above the rules. It is time for us to do the right thing and pass the STOCK Act.”

Dec. 6, 2011 - Tim Walz, MS 

Scott Brown, US Senator (R-MA), wrote in his Dec. 1, 2011 testimony for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":

"As members of Congress, we have access to information that the public does not; classified briefings, closed conference reports and personal conversations with government officials. All of these sources can give us nonpublic information that may have a significant value if traded upon. But not only do we access information, we create information and policy. When we act on legislation or negotiate legislative language, frequently that legislation has real financial consequences to an industry or company. Because we have access to and we create information, we must not betray the public’s trust by using it for our own personal gain...

I believe that the vast majority of Members and staff of Congress are here to serve their constituents best interests, not to line their pockets. But by explicitly prohibiting the use of material nonpublic information for personal gain, we will vastly increase transparency while restoring some public faith in Congress...

I am not afraid of acting in the public’s interest, and that is why I introduced this legislation to improve Washington. The STOCK Act is critically needed and should not be a partisan issue. I strongly encourage my colleagues to listen to the American people and take an important step towards regaining their trust -that is why action is needed now."

Dec. 1, 2011 - Scott Brown, JD 

Louise M. Slaughter, MS, US Representative (D-NY), wrote in her Dec. 6, 2011 testimony for the US House Committee on Financial Services hearing on "H.R. 1148, the Stop Trading on Congressional Knowledge Act”:

"Enacting the STOCK Act will prove that Congress is capable of reforming its internal operations and will help ensure Members are held to at least the same standards as everyone else when it comes to insider trading. Failing to pass the STOCK Act will send a clear signal to the American public that we have no interest in gaining their approval or reforming a broken system…

I understand there are some who do not think the STOCK Act is necessary. They might argue that, in theory, the current ethics rules and SEC rules could be applied to cases of trading using congressional material nonpublic information. However, in practice, we have never seen these rules applied to Congress. This has made the public rightly question the adequacy of the rules we have today. That is why the STOCK Act has a multi-pronged effort to address congressional insider trading and remove any current ambiguity around the issue.”

Dec. 6, 2011 - Louise M. Slaughter, MS 

Stephen M. Bainbridge, MS, JD, William D. Warren Professor of Law at the University of California, Los Angeles (UCLA) School of Law, in the online article "Insiders on the Hill" published Mar. 30, 2006 on, wrote:

"Much Congressional trading based on nonpublic information may not violate the securities laws....

Effective regulation of problematic Congressional trading thus requires a broader prohibition than the securities law definition of insider trading...

Unfortunately, the [STOCK Act] bill may well get tied up in partisan bickering. The bill's authors are both Democrats and some Hill observers view it as a slap at Bill Frist, whose HCA [Hospital Corporation of America] stock trades have been questioned, and at Tom DeLay, whose former staffer Tony Rudy has engaged in some questioned trades. The problem, however, is a bipartisan one and a legislative fix deserves bipartisan support."

Mar. 30, 2006 - Stephen M. Bainbridge, MS, JD 

The Seattle Post-Intelligencer editorial board, in its Mar. 30, 2006 online opinion article, "Insider Trading: Congress for Sale," wrote:

"Congress enacted the Securities Act of 1933, which required registration of publicly traded companies -- making more information open and available to the public. A year later, Congress added more protections for investors. One of those provisions made it illegal to trade stock by corporate insiders who were privy to special information that could help or hurt a stock.

After this generation's corporate scandals, Congress passed Sarbanes-Oxley in 2002 to improve corporate governance and audit independence. But one of the measures added reporting requirements and tougher standards for insider trading.

Unfortunately, Congress forgot itself. It remains perfectly legal for a member of Congress to buy and sell stocks based on information that's not available to the public. Last year it was reported that a 'political intelligence' firm tipped off its clients to an undelivered speech by Senate Majority Leader Bill Frist on asbestos liability. The information was profitable to those in the know.

'This is simply wrong that members of Congress can exchange information...and get rich on it,' says Rep. Brian Baird, D-Wash., who is co-sponsor of a bill [the STOCK Act] to prohibit insider trading by members of Congress and their staffs...

We think Baird's right. Even if a congressional insider trading ban comes seven decades too late."

Mar. 30, 2006 - Seattle Post-Intelligencer 

Brian Baird, PhD, US Representative (D-WA), was quoted in his Mar. 30, 2006 press release, "Rep. Baird Testifies before Rules Committee on Insider Trading and 72 Hour Proposals," as having said:

"It violates any notion of fairness or common sense that Members of Congress or their staff can legally share nonpublic information about current or upcoming congressional activity with a handful of investors outside of Congress for investment purposes, or can engage in their own trading of securities based on nonpublic information that they obtain by virtue of their position in Congress...

Clearly, the buying or selling of stock based on nonpublic information has the potential to profit some private parties at the expense of others who may not have access to this same information. In addition, I am very concerned that privileging a handful of investors with confidential information about congressional activity is not only a misuse of a congressional office, but also undermines investor confidence in the fairness and integrity of the securities market..."

Mar. 30, 2006 - Brian Baird, PhD 

CON (no)

John Coffee, Jr., Adolf A. Berle Professor of Law at Columbia University Law School, wrote in his Dec. 1, 2011 testimony for the US Senate Committee on Homeland Security and Public Affairs hearing on "Insider Trading and Congressional Accountability":

"While both S.1871 and S.1903 [versions of the STOCK Act] are well intentioned, they leave major loopholes that undercut their deterrent effect, because much material, nonpublic information that a Member of Congress receives does not relate to ‘pending or proposed legislation’ (as these proposed statutes would require)...

[T]his statute extending the insider trading prohibition to Members of Congress would overreach; that is... it could prove a trap for the unwary, snaring relatively innocent mistakes by busy Members of Congress. Or it could impose illiquidity on Members of Congress who would not dare to trade...

...Congress should not attempt a comprehensive statute defining all of insider trading law. Congress has attempted that before, only to give up. The moment Congress attempts a comprehensive statute, special interest groups will appear in droves, seeking safe harbors for their members. The result could give rise to even greater uncertainty...

...Congress should pursue a narrow, surgically targeted statute and not take on the very complex problem of codifying the entire law of insider trading. That could prove a disaster.”

Dec. 1, 2011 - John Coffee Jr., LLM 

Bill Bergman, MBA, Director of Research at Social Movement Sciences, wrote in a Feb. 15, 2012 email to

"Congress should not pass the STOCK Act, even if it just passed the House 417-2.

Market prices tend to reflect material information rapidly. If they don’t, people with material information will buy or sell until they do. Stopping this tendency is like trying to gather smoke with your bare hands. Whatever class of people this measure applies to will still hold information, and that information will find its way out. It may be slower, but the incentives will carry the day, and enrich people closely connected to those with information. Instead, robust disclosure requirements for government generally, not just Congress and its immediate employees, are a better way to go. And putting greater discretionary authority in the Department of Justice on this score undermines our liberty in the long run, by further tipping the scales toward the executive branch.

Sunshine is the best disinfectant, the saying goes. Our government is putting on a show in light of dismal approval ratings. We need to address more important matters, including the reasons why information in Congress, the Executive Branch, and the intelligence and regulatory agencies is so valuable in the first place. Our government has too much power in our marketplaces."

Feb. 15, 2012 - Bill Bergman, MBA 

Jim Harper, JD, Director of Information Policy Studies at the Cato Institute, in his Mar. 16, 2008 post "Sunlight Is the Best Disinfectant," on the The Technology Liberation Front blog, wrote:

"The motivations behind it [the STOCK Act] are utterly pure. It would be unfair for Members of Congress and staff to use inside knowledge of Congress for pecuniary gain.

But how a law like this would be effectively enforced is beyond me. A bar on congressional-insider trading would most likely cause one of the following results:

1. It would be honored in the breach;
2. It would lead to endless (perhaps politically motivated) investigations of our representatives and their staffs; or
3. It would force many or most congressional employees to withdraw from investing as a prophylactic against 2.

None of these would be easy and fair, and compliance would deprive congressional staff of normal sources of income and of participation in investment that keeps their experience and thinking in line with other Americans. The law would not provide investors comfort.

The better solution is to lower the amount and value of congressional-insider information."

Mar. 16, 2008 - Jim Harper, JD 

Jeffrey Alan Miron, PhD, Senior Lecturer and Director of Undergraduate Studies in the Department of Economics at Harvard University, in his Mar. 28, 2006 The Case for Small Government blog post entitled, "Congress and Insider Trading," wrote:

"Democratic lawmakers apparently want to ban insider trading by members of Congress and their staffs. Perhaps unsurprisingly, these groups have so far been exempt from the general prohibition against insider trading.

Rather than broadening the ban, however, Congress should repeal it entirely. The ban is problematic on efficiency and equity grounds.

The ban is inefficient to the extent it delays release of relevant information, since this means delayed adjustment of stock prices. Markets cannot allocate resources properly unless they know which companies are doing well or badly.

The ban is inequitable because some corporate executives trade on inside information despite the law. Thus the ban rewards dishonest insiders."

Mar. 28, 2006 - Jeffrey Alan Miron, PhD 

Daniel Gross, AM, Senior Editor of Newsweek and Columnist for the Slate Magazine column "Moneybox," in his May 21, 2007 article entitled "Insider Trading, Congressional-Style" on the Slate Magazine column "Moneybox," wrote:

"Given all the problems that demand congressional oversight and activity—the subprime lending mess, Iraq, the Justice Department—it's difficult to see why this far-reaching necessary...

[T]he evidence isn't fully convincing. It's hard to believe that the mass of professional and amateur investors are continually outsmarted by shrewd Washington insiders. (It could be, for example, that senators' investments did abnormally well in the 1990s because good brokers and money managers were eager for their business.) Any concern that senators are slinging stocks could be allayed through a system of more or less instant disclosure of trading activity...

Even if Capitol Hill is plagued by widespread trading based on a perceived informational edge, it doesn't require the same sort of insider-trading charges that are filed against Wall Street malfeasants...In insider trading, the connection is direct, and the profit is sure.

But with legislation, the link between advanced knowledge of a senator's position on an issue and the certainty that a specific stock will benefit as a result is much more tenuous...A lot of things can happen: Multiple committees weigh in; there's the possibility of a filibuster or a veto...

The STOCK Act also takes a curious swipe at the First Amendment with its attempt to regulate so-called political intelligence firms...

Think about all the professionals who make their living peddling information about what goes on in Washington: law firms, consultants,...lobbyists, and researchers pitching glorified tip sheets to investors. Oh, and news organizations. The 'political intelligence' shops aren't doing anything much different than, say, the
Washington Post, National Journal, or the Wall Street Journal. After all, these companies employ Washington-based operatives who spend their days working government contacts to unearth information that isn't available to the public..."

May 21, 2007 - Daniel Gross, AM