As momentum keeps building publicly to stop Congress from trading stocks, the people with the power to do it—Congress members themselves—aren’t in a rush. Last week, House Democrats started teasing a rewritten version of a bill that would ban most congressional trading, only for their own majority leader, Steny Hoyer, to say he was probably voting no, and party leadership to subsequently table the vote until after the November midterms, at the earliest. Meanwhile, conservative and progressive watchdog groups both argue the bill contains a “significant loophole” anyway.
So while lawmakers battle all of that out, two groups have proposed a pair of exchange-traded funds, or ETFs, that will allow regular investors to replicate the trades made by lawmakers.
According to a regulatory form filed September 15, Unusual Whales and fund manager Subversive Capital have created two EFTs to track Democratic and Republican trades. Their portfolios will contain 500 to 600 different holdings, intended to match the positions of Congress members, assembled by combing through the financial disclosures that the lawmakers and their spouses and children are required to make. When a politician closes their position, Unusual Whales’ and Subversive Capital’s EFTs will do the same. Unusual Whales is merely supplying the investing data; Subversive Capital says it’ll take over from there, from managing the funds to complying with all regulatory bodies. As the funds’ tickers, they’ve proposed NANC for Democrats (after House Speaker Nancy Pelosi, Jacobin’s 2021 Wall Street Trader of the Year) and KRUZ for Republicans (after Senator Ted Cruz). If approved by the SEC, the two ETFs could launch after the November midterms.
Members of Congress can buy and sell stocks with few restrictions. Meanwhile, they have access to privileged information, and they can pass laws, or merely threaten to, that move the very markets they trade in. From 2019 to 2021, 35% of Congress members reported a trade by themselves or a family member. This month, a New York Times investigation found that more than half of these members sat on committees that gave them insight into the companies whose shares they reported buying or selling.
The 2021 Stock Act requires Congress members to report any securities transactions of $ 1,000 or more within 45 days. But average Americans glean very little from these disclosures, since markets often fluctuate wildly in a month and a half, as is their wont. Fines for violators are also largely toothless—$ 200 is the standard amount, and on top of that, Senate and House ethics officials can also waive them. A recent report noted that since 2021 at least 72 Congress members have violated the Stock Act; their offices described the violations as clerical goofs, accounting mistakes, or pure ignorance of the rules. Democrats and Republicans are equal-opportunity violators, and the issue is among the handful voters in both parties express frustration over. In one recent poll, 76% of Americans said members of Congress shouldn’t be allowed to trade stocks at all.
Currently, there are a variety of online trackers that let average citizens monitor congressional trading activity. Doing so via a fund that also enriches average citizens alongside Congress members may feel icky to some critics, and Subversive Capital also plans to collect a 1% fee—30 times the rate charged by some S&P 500 funds, because of the volume of buying and selling involved. While it’s also unclear if an ETF mimicking Congress members’ trading portfolios would even yield returns, NANC and KRUZ funds will probably generate plenty of attention. Still, this isn’t going to solve what reformers see as the root problem—Congress members raking in $ 355 million worth of trades last year, and Capitol Hill increasingly resembling a Wall Street trading desk.
It will take Congress members to do that, something Unusual Whales seems to recognize. “Because of our efforts, together with others, [we] are the closest in history the U.S. has ever come to a trading ban,” its website says. “One hopes this will increase public notice on the issue.”
