With the federal government increasingly involved in the financial affairs of private companies, a pair of lawmakers has proposed prohibiting members of Congress and other federal employees from trading stocks based on non-public information obtained from congressional or federal agency activity.

The bill (HR 682) would bar members of Congress, their staff and executive agency employees from buying or selling stocks based on information that had not been publicly released.

The measure would also prevent outsiders from trading stocks based on private information passed to them from legislative or executive branch employees.

The legislation, sponsored by Brian Baird , D-Wash., and House Rules Chairwoman Louise M. Slaughter , D-N.Y., would change House rules to bar members and staff from disclosing non-public information related to a publicly traded company.

It would also require members to report stock transactions of more than $1,000 within 90 days, in contrast to the current practice of reporting such sales and purchases on annual financial disclosure forms. And it would direct firms that specialize in political intelligence to register with the House and Senate, as lobbying firms do.

The House Financial Services Subcommittee on Oversight and Investigations heard testimony on the bill Monday.

“We’ve reached a point where the more the government is involved in the market, the greater the potential for abuse of insider information,” said Baird. The prohibitions would have the most impact on lawmakers who sit on the Financial Services, Appropriations, Ways and Means, and Energy and Commerce committees, Baird said.

Early Access

Slaughter noted that in the past year, Congress has been involved in bailing out financial services firms and overseeing the Troubled Asset Relief Program. She said she is particularly concerned that political intelligence firms were trying to obtain information from congressional staff on pending legislation that could affect investment decisions.

“Congress and federal employees have had early access to so much sensitive information that can seriously affect the stock market, that we cannot wait any longer to close these loopholes,” Slaughter testified to the subcommittee.

The financial market regulatory overhaul being considered by Congress will “bring with it even greater opportunity for those with early access to information to profit on an immense scale,” she said.

Watchdog groups say that unlike the private sector, members of Congress have avoided any regulation of their trading based on the information they are privy to on the job.

“It is kind of bewildering that it is perfectly legal for members of Congress and their staff to use this kind of information,” said Craig Holman, legislative director of Public Citizen.