Opinion ID: 478562
Heading Depth: 2
Heading Rank: 2

Heading: The Treasury Amendment

Text: 48 Defendants also contend that the district court erred in failing to hold that their option transactions relating to foreign currencies were excluded from the Act's reach by operation of the Treasury Amendment, a sentence found in Sec. 2(a)(1) of the Act, 7 U.S.C. Sec. 2. That sentence read, in pertinent part, as follows: 49 Nothing in this chapter shall be deemed to govern or in any way be applicable to transactions in foreign currency ... unless such transactions involve the sale thereof for future delivery conducted on a board of trade. 50 The district court reasoned that an option to buy or sell foreign currency is not a purchase or sale of the currency itself and hence is not a transaction in that currency, but at most is one that relates to the currency. See 473 F.Supp. at 1182. (The court thus found it unnecessary to reach the question whether the defendants' transactions fell within the unless clause of the section.) We agree. An option transaction giving the option holder the right to purchase a foreign currency by a specified date and at a specified price does not become a transaction[ ] in that currency unless and until the option is exercised. See Board of Trade, 677 F.2d at 1154 (relying partly on the opinion of the district court in this case); CFTC v. Sterling Capital Co., [1980-1982] Comm.Fut.L.Rep. (CCH) p 21,169, at 24,783-84 (N.D.Ga.) (same), modified on other grounds, [1980-1982] Comm.Fut.L.Rep. (CCH) p 21,170 (N.D.Ga.1981). Hence the Treasury Amendment did not, on its face, appear to exclude defendants' foreign currency options business from regulation. 51 This interpretation of the Treasury Amendment is consistent with its legislative history. That history discloses that the exception was included in the CFTA at the behest of the Treasury Department on the ground that the protections of the Act were not needed for the sophisticated financial institutions, already subject to regulation, that participated in such transactions: 52 [T]he Committee included an amendment to clarify that the provisions of the bill are not applicable to trading in foreign currencies and certain enumerated financial instruments unless such trading is conducted on a formally organized futures exchange. A great deal of the trading in foreign currency in the United States is carried out through an informal network of banks and tellers. The Committee believes that this market is more properly supervised by the bank regulatory agencies and that, therefore, regulation under this legislation is unnecessary. 53 S.Rep. No. 1131, 93rd Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 5843, 5863; accord id. at 5848 (the Committee amendment provides that interbank trading of foreign currencies and specified financial instruments is not subject to Commission regulation) (emphasis in original); see 1 P. Johnson, Commodities Regulation Sec. 101, at 5 & n. 4. These descriptions of the intended reach of the Treasury Amendment belie the notion that the exception was designed to exclude from regulation foreign currency options transactions such as those defendants engaged in with private individuals.