The whole premise of my newsletter is to educate new investors to stock market moves and to do what I can to highlight potential advantages. I find it funny congress is proposing to eliminate their money making advantage with the Stop Insider Trading Act (HR 7008). The bill is moving forward, and while it sounds promising, you and I both know elections are this November and this bill is going to fail.
SITA has three main points:
• It strictly prohibits Members of Congress, their spouses, and their dependent children from purchasing any new individual stocks or securities from publicly traded companies.
• If a politician wants to sell a stock they already own, they must file a public notice at least 7 days (but no more than 14 days) before the transaction happens.
• Unlike the old "slap on the wrist" fines, this bill sets a penalty of $2,000 or 10% of the investment value (whichever is higher), plus they must forfeit any profits made from the illegal trade.
This bill creates a crucial paradox. While it may prompt congressional volatility as they are forced to sell, the true "efficiency" gain for the public is highly questionable.
I can already tell there are loopholes. The proposed ban doesn't seem to touch siblings, friends, or perhaps another third party entity that can makes trades on the politician’s behalf. Its pretty obvious, "smart money" can simply pivot. A mass sell off of stocks will surely have an impact on the market. Potentially wiping out gains for the small investors, especially for those copying political stock trades. Is this another way for the government to shut down a good thing like Pelosi tracking apps?
Will this bill make it to the president's desk for signature? The likely answer is no. From an ethical standpoint, should it be signed into law? Of course! Why should the biggest advantage in investing only be available to politicians.
The gesture is appreciated but I predict this bill is going to lack enough votes to become a law. I also think this is a great way for those who are fighting for their seats in the November elections to say "Hey look at me constituents, I'm trying to make the system fair for all". After November, no one in DC will care.
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