Security Trades by FHLB Personnel Policy
March 21, 2019
Federal securities laws make it illegal for any director, officer, employee or agent of FHLB Cincinnati (FHLB) to engage in “insider trading” or “tipping.” These prohibitions apply to the capital stock of FHLB, the debt securities issued by the FHLBank System and any other securities eventually issued by FHLB. The prohibitions apply as well to securities of member institutions or other companies if a FHLB director, officer, employee or agent learns something in the course of his or her duties that may affect the value of those securities.
The consequences of insider trading violations can be staggering.
For individuals who trade on inside information (or disclose inside information to others who trade):
1. Disgorgement of any profit gained or loss avoided;
2. A civil penalty (in addition to disgorgement) of up to three times the profit gained or loss avoided;
3. A criminal penalty of up to $25 million and prison terms of up to 10 years; and
4. Injunctions or cease and desist orders prohibiting future violations.
For FHLB (as well as possibly any supervisory person) that fails to take appropriate steps to prevent illegal trading:
1. A civil penalty of the greater of $2.104 million or three times the profit gained or loss avoided as a result of the employee’s violation;
2. A criminal penalty of up to $25 million; and
3. Injunctions or cease and desist orders prohibiting future violations.
For a director, officer, employee or agent who violates this Policy- Statement, FHLB imposed sanctions, including dismissal for cause, may result. The FHLB may also refer potential violators of law to appropriate authorities.
Any of the above consequences, even an SEC investigation that does not result in prosecution, may tarnish the FHLB's reputation and irreparably damage the careers of those involved.
The purpose of this policy is to inform FHLB directors, officers, employees or agents for FHLB Cincinnati of his/her obligations including both legal and regulatory guidelines and ramifications for securities trade and insider trading.
This policy applies to the FHLB’s directors, officers, employees and agents and covers trading and other activities considered to be insider trading in order to minimize legal and reputational risks.
Insider Trading: Initiating a security purchase or sale when a person possesses material nonpublic information.
Material Information: Positive or negative information that a reasonable investor would consider important in a decision to buy, hold or sell a security. Examples include: financial results; projections of future earnings or losses; changes in dividend policies; offerings of securities; changes in management; mergers, acquisitions or divestitures; significant new products or changes in pricing; impending financial liquidity problems; significant litigation; regulatory or other governmental investigations or actions and the gain or loss of a substantial member, customer or counterparty. This list is merely illustrative and not wholly inclusive.
Tipping: Passing material nonpublic information to another person who may buy or sell securities based on that information. A “tippee” is the receiver of material inside information.
Trading Blackout Periods: A specified time-frame when trading in specific securities is restricted as determined by the Executive Committee of the Board of Directors.
5. Roles and Responsibilities
1. The Board is responsible for the approving, interpreting and addressing violations of this policy.
2. The First Vice President of Human Resources is responsible for implementing and maintaining the policy and ensuring acknowledgements are received and tracked as required.
The requirements and prohibitions in this Policy Statement are supplemental and in addition to the FHLB’s Standards of Conduct, Directors’ Conflict of Interests, Code of Ethics for Senior Financial Officer and Information Classification policies. In the event of a conflict between this Policy and any of the policies listed above, the most restrictive applicable requirement will control.
Restrictions on Trading: If a director, officer or any employee has material nonpublic information relating to FHLB, it is FHLB’s policy that neither that person nor any related person may (1) buy or sell securities of FHLB or engage in any other action to take advantage of that information or (2) communicate that information to other persons not having a need to know the information for legitimate, FHLB-related reasons. This policy also applies to information obtained by a director, officer or employee relating to any member institution counterparty, vendor or other company. Even transactions that may be motivated by or justified on independent reasons (such as the need to raise money for any emergency expenditure) are no exception. Even the appearance of an improper transaction must be avoided to preserve the FHLB’s reputation for adhering to the highest standards of conduct.
When Information Is Public: If you are in possession of material information which has not previously been made public, it is also improper for you to enter a trade immediately after FHLB, the member institution or other company has made a public announcement of the information. Before entering into a trade, the investing public must be afforded sufficient time to receive the information and act upon it. Although the amount of time you must wait varies with the type and complexity of the information released, a good general rule is to wait until the third business day following the public release of the information before engaging in a trade.
Twenty-Twenty Hindsight: If your securities transactions become the subject of scrutiny, they will be viewed after-the-fact with the benefit of hindsight. As a result, before engaging in any transaction, carefully consider how regulators and others might view your transaction in hindsight.
Transactions by a Director’s Institution: The restrictions set forth above apply to member institution(s) where a director serves as an officer or director. Directors should not discuss material nonpublic information with the individuals at their institution(s) who make decisions or execute transactions involving either the capital stock of FHLB, the debt issued by the FHLBank System or the securities of other member institutions. Directors are responsible for the compliance of their institutions.
Transactions by Family Members: Although family members cannot own FHLB capital stock, they can own FHLB debt securities. The restrictions set forth above apply to your family members and others living in your household, and you are expected to be responsible for their compliance. You should not discuss material nonpublic information with family or household members. During times when you possess material nonpublic information, family and household members should be done without revealing the information you possess.
In the context of insider trading, there is no precise definition of family member. Your spouse and any person living in your household (whether or not related to you) definitely are included, as are children temporarily living away from home. Adult relatives of you and your spouse (parents, grown children, siblings, etc.) who do not live with you arguably are beyond your control. Bear in mind that transactions by these persons are likely to be suspect in an insider trading investigation. Therefore, it is crucial that you do not disclose confidential information concerning the FHLB, any member institution, counterparty, vendor or other company to anyone, including members of your household and your extended family.
Disclosing Information to Others: Whether the information is proprietary information about FHLB or information that could have an impact on the desire to buy, hold or sell FHLB stock or debt securities, you must not pass the information on to others (including other persons within the FHLB, family members, friends and, if you are a director, employees of your member institution) unless the person has a need to know the information for legitimate FHLB-related reasons. Be careful not to discuss such information in public places where it can be overheard, such as elevators, restaurants, taxis and airplanes; do not leave confidential documents on conference tables, desks or otherwise unguarded; and take whatever other steps are reasonably necessary to keep confidential information from being disclosed. Even within FHLB, confidential information should be distributed or discussed with others only on a need-to-know basis, and those people should be told that the information is confidential.
If you improperly reveal material inside information to another person, you can be held liable for the trading activities of your “tipee” and of any other person with whom the tipee shares the information. These penalties apply whether or not you benefit financially from the trades and whether or not you know or intended that another person would trade on the basis of the information revealed. In order to avoid even the appearance of impropriety, it is recommended that you refrain from providing advice or making recommendations regarding the purchase or sale of FHLBank System debt securities, whether or not you are then in possession of material nonpublic information.
In addition, you must be especially alert to inquiries about the FHLB and the FHLBank System, which may be made by the financial press, investment analysts, trade analysts, member institutions or, depending on the situation, other System FHLBanks. All such communications on behalf of the FHLB except such communication in the ordinary course of transacting FHLB business must be made through an appropriately designed officer under carefully controlled circumstances. Unless you are expressly authorized to the contrary, if you receive inquiries of this nature, you should decline comment and refer the inquirer to the FHLB President, Senior Vice President, General Counsel or the First Vice President, Corporate Secretary & Counsel.
Trading in Securities of Members: The penalties for insider trading and the Policy apply equally to material nonpublic information concerning member institutions and other System FHLBanks. FHLB routinely is in possession of nonpublic information related to its member institutions and often as to other System FHLBanks. You (and, if you are an elected director, your member institution) are prohibited from trading in the securities of any member institution about which you have material nonpublic information, and you must not disclose such information to others unless the person has a need to know the information for legitimate, FHLB-related reasons.
Trading in Securities of Vendors and Counterparties: The penalties for insider trading, and this Policy also apply to material nonpublic information concerning vendors, counterparties and other companies with which FHLB has business dealings that you obtain through your employment or association with the FHLB. You must refrain from trading securities of another company (whether public or private) while in possession of such material nonpublic information concerning it, and you must not disclose such information to others unless the person has a need to know the information for legitimate, FHLB-related reasons.
Trading Blackout Periods: These may be established from time-to-time by the Executive Committee of the Board of Directors when FHLB is in possession of material nonpublic information relating to itself, its members or the FHLBank System. A blackout period notice will state how long the blackout period will be in effect. Depending upon the reason for the blackout, FHLB may cease repurchases of FHLB excess stock or prohibit trading in member securities or FHLBank System debt securities.
Pre-Approval Requirement—Excess Stock Redemptions: Excess stock redemption requests (except for certain de minimis redemption amounts as determined by the Board) from member institutions which have a director or officer who also is a director of FHLB must be approved by the Board of Directors or, in circumstances where the full board is not available, by the Executive Committee of the Board.
7. Compliance and Enforcement
Any person who has any questions about specific transactions or general questions about the Policy may obtain additional guidance from the Senior Vice President, General Counsel. Remember, however, the ultimate responsibility for adhering to this Policy (including legal/regulatory requirements and avoiding improper transactions) rests with you. In this regard, it is critical that you use your best judgement.
You will be required to certify that you understand and will comply with this policy. Failure to comply may be grounds for your dismissal from employment for cause or, if you are director, your removal from the Board. Additional legal/regulatory consequences may also apply.
8. Exception to Policy
No exceptions permitted.
8.1 Policy Waiver
Policy will not be waived.
8.2 Policy Violations
Any violation of this policy is to be reported immediately to the President, an EVP or to the Board.Questions? Contact Us