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F ederal r eser v e Bank o f Dallas


Circular No. 80-241
December 22, 1980

Credit By Brokers and Dealers
The Board of Governors of the Federal Reserve System issued a
proposal to amend Regulation T, by deleting the paragraph which permits the use
of foreign currency as a credit to a margin account.
Enclosed is a copy of the Federal Register document. Interested
persons are invited to submit comments to Theodore E. Allison, Secretary, Board
of Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, N. W., Washington, D. C. 20551, to be received no later than
February 19, 1981. Comments should be in writing and refer to Docket No. R0250.
Any questions on the proposed amendment should be directed to the
Consumer Affairs Section of our Bank Supervision and Regulations Department,
Ext. 6171.
Sincerely yours,
Robert H. Boykin
First Vice President

Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

Title 12 - Banks and Banking

Part 220 —

Credit By Brokers and Dealers

Notice of Proposal to Delete Provision Permitting Use of Foreign Currency in a Margin
[Docket No. R-0250]


Federal Reserve Board


Proposed Amendment

SUMMARY: The Board proposes to amend Regulation T (12 CFR §220) by deleting
the paragraph which permits the use of foreign currency as a credit to a margin
account (§220.6(j)). It has been called to the Board's attention that the exist­
ing language of §220.6(j) may permit the speculative holding of foreign currency
and securities in a margin account. By deleting §220.6(j), the Board will clarify
that such a possibility is prohibited and that transactions in foreign currency
should be effected in the Special Commodities Account or the Special Miscellaneous
Account, since in either case, they would be insulated from security credit trans­
actions. The Board specifically asks for comments on any inpact the proposed amend­
ment would have on operations of foreign branches or affiliates of United States
brokers and dealers.
DATE: Comments should be received on or before February 19, 1981.
ADDRESS: Comments, which should refer to Docket NO. R-0250, may be mailed to
Theodore E. Allison, Secretary, Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue, N.W., Washington, D. C. 20551, or delivered
to Room B-2223 between 8:45 a.m. and 5:15 p.m. Comments received may also be in­
spected at Room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided in
section 261.6(a) of the Board's Rules Regarding Availablity of Information
(12 CFR §261.6(a)).
FOR FURTHER INFORMATION CONTACT: Laura Harter, Securities Credit Officer, or
Bruce Brett, Securities Regulation Analyst, Securities Regulation Section, Division
of Banking Supervision and Regulation, Board of Governors of the Federal Reserve
System, Washington, D.C. 20551 (202-452-2781).
SUPPLEMENTARY INFORMATION: The Board has been requested by a law firm to inter­
pret Regulation T (12 CFR §220.6(j)) so as to permit the use of bank depository
receipts for gold as cash in a margin account. Section 220.6(j) of Regulation
T reads as follows:


2 -

"If foreign currency is capable of being converted without
restriction into United States currency, a creditor acting
in good faith may treat any such foreign currency in an
account as a credit to the account in an amount determined
in accordance with customary practice."
Ihe law firm is of the view that since the South African Krugerrand is legally
"currency" and, therefore, eligible for use as credit to an account, bank deposi­
tory receipts for gold, being similar in nature to the Krugerrand, should also
be eligible for use as a cash credit in a margin account under Regulation T.
Ihe Board rejected this argument, pointing out that since §220.6(j)
of Regulation T was written in 1938, when United States citizens were prohibited
from owning or trading gold, it was thus clear that §220.6(j) was never intended
to allow gold to be used in a margin account. Furthermore, the Board pointed out,
the law firm's request should be denied as a matter of policy, because the use
of volatile foreign currency and commodities such as gold in a margin account could
result in the speculative holding of both such currency or commodity and securities
in one account. In this connection, the Board noted that since December 31,
when the ban on private ownership of gold was ended, the price of gold has widely
fluctuated in value from $42.22 to $875.00. Similarly, the volatility of foreign
exchange rates has increased since the fixed exchange rate system was abandoned
in 1978. Today the values of most major currencies are "floating" in response
to market forces. Hie Board, therefore, believes that §220.6(j) should be deleted
since it may be interpreted to permit speculative activity in foreign exchange.
Since both gold and foreign exchange futures are presently traded on
commodity exchanges, the Board believes that the Special Commodity Account
(5220.4(e)) would be the appropriate account to transactbusiness in both.
Special Miscellaneous Account (§220.4(f)(7)) may also be used to effect and
carry customer transactions in foreign exchange. In either the Special Commodi­
ties Account or the Special Miscellaneous Account, the gold or foreign exchange
transactions would be insulated from security credit
Accordingly, pursuant to §§7 and 23 of the Securities Exchange Act
1934, as amended (15 U.S.C. §§78g, 78w), the Board proposes to adoptthe following
amendments to §220.6 of Regulation T:
Paragraph (j) of §220.6 is removed in its entirety and paragraphs (k)
and (1) are redesignated as paragraphs (j) and (k), respectively.
By order of the Board of Governors, December 12, 1980.

(signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102