Why our federal MPs need stricter rules on trading shares

US politicians have proven to be some of the best traders on Wall Street, consistently beating the market and raising questions over allegiance, integrity and transparency.

Requirements on Australian politicians are even more relaxed than those in America, and this needs to change to boost public trust and integrity in our democracy.

In Australia, federal ministers are banned from holding shares in companies, but there are no restrictions on investments by ministers’ families, their staff, and MPs outside the ministry – leaving the door wide open to insider trading occurring based on information gained via relationships or work.

Thirty per cent of parliamentarians have declared holdings for themselves or their spouses and children.Credit: Dominic Lorrimer

Politicians, by the very nature of their jobs, are privy to information not known to the market and can influence legislation in a way that can materially affect the price of securities.

Last week a bipartisan group of US senators proposed new legislation that would ban members of Congress and their families from trading shares, with large penalties for violations. Now momentum is growing for a similar, but more extensive ban here in Australia.

“Our proposed Australia ban would apply to all parliamentarians, their partners and dependent children, ministerial staff, and senior officials in all public bodies and boards from owning shares or options in public or private companies, either directly or through their self-managed super funds and trusts,” proposes Sean Johnson, the founder of political transparency website Open Politics.

There are presently 67 MPs (30 per cent of parliament) who have declared holdings for themselves or their spouses and children. Mining, energy, financials and telco shares are the most popular investments with federal parliamentarians and their families, according to analysis from Open Politics.

Telstra is the most widely held security among MPs, however, lesser-known critical minerals producer Lynas Rare Earths, the recipient of recent federal government support, is held by no less than five government MPs.

“Even where holdings don’t influence ministerial decisions, they create a perception of a conflict of interest which can damage public confidence in our political system,” says Johnson.

In America, scrutiny of politicians’ share trades is nothing new, and rightly so, with numerous suspicious trades occurring before large market moves.

Former US House Speaker Nancy Pelosi.Credit: Getty

Nancy Pelosi, a senior Democrat and former speaker, is satirically regarded as one of the best traders of all time.

She reportedly returned a portfolio gain of 65 per cent in 2023, easily beating the S&P 500’s gain of 24 per cent, as well as the returns of every hedge fund on Wall Street.

With an estimated net worth of $US250 million ($381.7 million), she famously bought $US5 million of Nvidia shares in July 2023, before the chipmaker rocketed 180 per cent in the following 6 months.

Last year, while studying a journalism degree in New York, I briefly managed the ‘Nancy Pelosi Stock Tracker’ Twitter account, which tracks unusual trades made by American politicians.

I documented multiple trades by politicians shortly before the Silicon Valley Bank crisis, in which several politicians sold millions of dollars of banking shares days before the prices of regional banks plummeted.

One of the most bizarre I uncovered, and one that was run by the Wall Street Journal, was a New York congresswoman who purchased shares in one of the failing banks a day before they were taken over, jumping 30 per cent the next day.

These trades were only uncovered thanks to independently created registers, such as the Capitol Trades website, that tracks the disclosures, the size and date of congressional trades. We have no such tool in Australia, other than the parliamentary register of interests, which provides scant information, only requiring parliamentarians’ interests be declared.

While we don’t have any Nancy Pelosis (that we know of), we do have a Barnaby Joyce, who appears to be taking a liking to meme stocks.

Barnaby Joyce has declared interests in various mining shares,Credit: Alex Ellinghausen

Recently, a most curious disclosure from Barnaby Joyce’s register of interests is the purchases in the defunct Bougainville Copper in March of this year. In the same filing, Joyce discloses the opening of Superhero and Spaceship trading accounts.

Bougainville Copper is a Papua New Guinean company that has not undertaken any operations since 1989 but from February to March became a meme stock, jumping over 100 per cent on multiple days following an announcement relating to an exploration permit.

Joyce has also declared a purchase of Lynas shares, the largest rare earths producer outside of China, for one of his children a month before Gina Rinehart, to whom he has had much to do with, also took a substantial holding in.

Other notable recent trades included those of Keith Pitt, the former resources minister who, earlier this month, purchased shares in several fossil fuel companies – Stanmore Resources, Woodside, Whitehaven Coal, and Coronado Global Resources.

Also not afraid of coal is Pauline Hanson, who has a declared an investment in Queensland coal company Bowen Coking Coal.

Then there is Assistant Health Minister Ged Kearney’s spouse Leigh Hubbard, who appears to be a lithium and rare earths’ speculator.

In Kearney’s 2022 declaration of interests, she reveals his holdings in Vulcan Energy, Syrah Resources, Galan Lithium, Lake Resources, Arafura Rare Earths (which received $840 million from Labor in March) and Northern Minerals, which was recently the subject of forced divestment from Treasurer Jim Chalmers.

“Ged Kearney’s husband Leigh Hubbard has 36 shareholdings across various regulated and subsidised companies. It’s not a good look,” says Johnson.

To be clear, I am not suggesting any insider trading or anything untoward has or is occurring in our politics, but rather there is a perception that it could occur under the existing system.

Family and staff purchases should be considered the same as purchases made by the members of parliament and be subject to equal levels of restrictions and scrutiny in any new legislation. At the very least, the public should have access to information regarding the size and exact date of transactions as they do in the US.

From my experience as a trader, I can tell you the ASX is already as leaky as a sieve when it comes to share prices moving significantly before market-sensitive announcements such as contract wins or drilling results.

If America is moving to ban politicians from trading shares, we should trump them and go one better in banning backbenchers, their immediate family and staffers too.

Will Bennett is a freelance business journalist and day trader.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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