As of August 1989, the Federal Reserve may refuse to designate as a primary dealer a foreign-controlled commercial or investment bank, if the government of the home country of the  foreign  bank  denies  national  treatment  to  US-owned  banks  for  government  securities operations.  Denial  of  the  primary  dealer  designation  means  that  the  Federal  Reserve,  at  its initiative, will no longer deal with that firm in the conduct of monetary policy. The firm, at its initiative  can  continue  unencumbered  to  purchase  US Government  securities  in  government auctions.
"§5342. Requirement of national treatment in underwriting government debt instruments [...]
(b) Designation of certain persons as primary dealers prohibited
(1) General rule
Neither the Board of Governors of the Federal Reserve System nor the Federal Reserve Bank of New York may designate, or permit the continuation of any prior designation of, any person of a foreign country as a primary dealer in government debt instruments if such foreign country does not accord to United States companies the same competitive opportunities in the underwriting and distribution of government debt instruments issued by such country as such country accords to domestic companies of such country.
(2) Certain prior acquisitions excepted
Paragraph (1) shall not apply to the continuation of the prior designation of a company as a primary dealer in government debt instruments if—
(A) such designation occurred before July 31, 1987; and
(B) before July 31, 1987—
(i) control of such company was acquired from a person (other than a person of a foreign country) by a person of a foreign country; or
(ii) in conjunction with a person of a foreign country, such company informed the Federal Reserve Bank of New York of the intention of such person to acquire control of such company.
(c) Exception for countries having or negotiating bilateral agreements with United States
Subsection (b) shall not apply to any person of a foreign country if—
(1) that country, as of January 1, 1987, was negotiating a bilateral agreement with the United States under the authority of section 2112(b)(4)(A) of title 19; or
(2) that country has a bilateral free trade area agreement with the United States which entered into force before January 1, 1987.
(d) "Person of a foreign country" defined
For purposes of this section, a person is a "person of a foreign country" if that person, or any other person which directly or indirectly owns or controls that person, is a resident of that country, is organized under the laws of that country, or has its principal place of business in that country.
(e) Effective date
This section shall take effect 12 months after August 23, 1988.[...]" (Primary Dealers Act (22 U.S.C. current through Pub. L. 117-49), § 5342)
Primary Dealers Act (22 U.S.C. current through Pub. L. 117-49), § 5342
[<a href="https://uscode.house.gov/view.xhtml?path=/prelim@title22/chapter62/subchapter3&edition=prelim">Act</a>]