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> On the other hand, if SEC employees are not forced to sell, then their holdings may diminish their impartiality. It seems like the only fair and neutral approach is to require SEC employees to hold no individual stocks at all during their employment - or any type of financial instrument issued by organizations they might potentially investigate.

The solution is blind trusts, with the additional cost picked up as part of their compensation package. The way to guarantee impartiality is to remove any chance of impropriety.

I would also settle for extremely common ETFs like the SPDR S&P 500.

SEC employment is often preceded by time in the industry. This means a large fraction of high-value employees are likely entering their roles with existing holdings. Requiring immediate divestment for all SEC roles sounds extreme.

It makes sense that any new investments made during one's time at the SEC should be made into index funds or accounts managed at the independent discretion of a non-SEC manager. But banning all SEC employees from holding any individual stocks during their employment is a deterrent to recruiting.

But what do you with existing holdings? Do you "lock" them so the employee is prohibited from dumping/purchasing them in the event of insider information?

SEC employees should be able to sell at any time after review by their supervisor and a compliance officer - this would treat the employees no differently than the securities employees they regulate. I also agree with mandatory divestment prior to an expected conflict of interest.

To incentivise against insider trading: anonymous public disclosure of all un-forced stock sales by SEC employees. This would expose suspicious trades ex post facto. In the event of prosecution or investor lawsuits (a) the name of the employee would be unsealed during discovery and (b) the SEC, the employee, and the supervisor and compliance officer who approved the trade(s) would jointly share civil and criminal liability.

I believe we're in violent agreement!

SEC employment is often preceded by time in the industry.

That would suggest a blind trust approach for those within the industry as well: if you're engaged in trading on behalf of others, positions you hold personally represent a distinct conflict of interest and moral hazard.

It is unfair, but does it actually do any damage to the market? The same amount of people would lose the same amount of money regardless. The problem with insider trading is that it can create bad incentives (like the SEC employees choosing not to investigate companies they are invested in.) Just forcing them to sell before hand doesn't seem to bad.

Well, first and foremost: why is it possible for SEC employees to trade stocks at all? I supposed some sort of ethic barrier was in place, at least for those exposed to sensible informations...

Because Wall Street is the intelligence tax on all Americans. Every task, even a wink, requires up front fees and a percentage off the top. The social contract states, give us your money, and we will share our tax on the stupid with you.