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A stock certificate, as distinct from a dematerialized interest in a security

The ownership of securities is governed by Article 8 of the Uniform Commercial Code (UCC). This Article 8, a text of about 30 pages,[22] underwent important recasting in 1994. That update of the UCC treats the majority of the transfers of dematerialized securities as mere reflections of their respective initial issue held primarily by two American central securities depositories, respectively The Depository Trust Company (DTC) for securities issued by corporations and the Federal Reserve for securities issued by the Treasury Department. In this centralised system, the title transfer of the securities does not take place at the time of the registration with the issuer's registrar for the account of the investor, but within the systems managed by DTC or by the Federal Reserve.

This centralization is not accompanied by a centralized register of the investors/owners of the securities, such as the systems established in Sweden and in Finland (so-called "transparent systems"). Neither DTC nor the Federal Reserve hold an individual register of the transfers of property reflecting beneficial owners. The consequence for an investor is that proving ownership of its securities relies entirely on the accurate replication of the transfer recorded by DTC and FED and others in the intermediated holding system at the lower tiers of the holding chain of the securities. Each one of these links is composed respectively of an account provider (or intermediary) and of an account holder.

The rights created through these links are purely contractual claims: these rights are of two kinds:

  1. For the links where the account holder is itself an account provider at a lower tier, the right on the security during the time where it is credited there is characterized as a "securities entitlement", which is an "ad hoc" concept invented in 1994: e.g., designating a claim that will enable the account holder to take part to a prorate distribution in the event of bankruptcy of its account provider.
  2. For each link of the chain, in which the final account holder is at the same time the final investor, its "security entitlement" is enriched by the "substantial" rights defined by the issuer: the right to receive dividends or interests and, possibly, the right to take part in the general meetings, when that was laid down in the account agreement concluded with the account provider. The combination of these reduced material rights and of these variable substantial rights is characterised by article 8 of the UCC as a "beneficial interest".

This decomposition of the rights organized by Article 8 of the UCC results in preventing the investor to revindicate the security in case of bankruptcy of the account provider, that is to say the possibility to claim the security as its own asset, without being obliged to share it at its prorate value with the other creditors of the account provider. As a consequence, it also prevents the investor from asserting its securities at the upper level of the holding chain, either up to DTC or up to a sub-custodian. Such a "security entitlement," unlike a normal ownership right, is no longer enforceable "erga omnes" to any person supposed to have the security in its custody. The "security entitlement" is a mere relative right, therefore a contractual right.

This re-characterization of the proprietary right into a simple contractual right may enable the account provider to "re-use" the security without having to ask for the authorization of the investor. This is especially possible within the framework of temporary operations such as security lending, option to repurchase, buy to sell back or repurchase agreement. This system the distinction between the downward holding chain which traces the way in which the security was subscribed by the investor and

The first step in the analysis is to determine whether the UCC or the common law governs the transaction. If the UCC governs, courts will usually try to find which form constitutes the offer. Next, the offeree's acceptance forms bearing the different terms is examined. One should note whether the acceptance is expressly conditional on its own terms. If it is expressly conditional, it is a counteroffer, not an acceptance. If performance is accepted after the counteroffer, even without express acceptance, under 2-207(3), a contract will exist under only those terms on which the parties agree, together with UCC gap-fillers.

If the acceptance form does not expressly limit acceptance to its own terms, and both parties are merchants, the offeror's acceptance of the offeree's performance, though the offeree's forms contain additional or different terms, forms a contract. At this point, if the offeree's terms cannot coexist with the offeror's terms, both terms are "knocked out" and UCC gap-fillers step in. If the offeree's terms are simply additional, they will be considered part of the contract unless (a) the offeror expressly limits acceptance to the terms of the original offer, (b) the new terms materially alter the original offer, or (c) notification of objection to the new terms has already been given or is given within a reasonable time after they are promulgated by the offeree.

Because of the massive confusion engendered by Section 2-207, a revised version was promulgated in 2003, but the revision has never been enacted by any state.

The ownership of securities is governed by Article 8 of the Uniform Commercial Code (UCC). This Article 8, a text of about 30 pages,[22] underwent important recasting in 1994. That update of the UCC treats the majority of the transfers of dematerialized securities as mere reflections of their respective initial issue held primarily by two American central securities depositories, respectively The Depository Trust Company (DTC) for securities issued by corporations and the Federal Reserve for securities issued by the Treasury Department. In this centralised system, the title transfer of the securities does not take place at the time of the registration with the issuer's registrar for the account of the investor, but within the systems managed by DTC or by the Federal Reserve.

This centralization is not accompanied by a centralized register of the investors/owners of the securities, such as the systems established in Sweden and in Finland (so-called "transparent systems"). Neither DTC nor the Federal Reserve hold an individual register of the transfers of property reflecting beneficial owners. The consequence for an investor is that proving ownership of its securities relies entirely on the accurate replication of the transfer recorded by DTC and FED and others in the intermediated holding system at the lower tiers of the holding chain of the securities. Each one of these links is composed respectively of an account provider (or intermediary) and of an account holder.

The rights created through these links are purely contractual claims: these rights are of two kinds:

  1. For the links where the account holder is itself an account provider at a lower tier, the right on the security during the time where it is credited there is characterized as a "securities entitlement", which is an "ad hoc" concept invented in 1994: e.g., designating a claim that will enable the account holder to take part to a prorate distribution in the event of bankruptcy of its account provider.
  2. For

    This centralization is not accompanied by a centralized register of the investors/owners of the securities, such as the systems established in Sweden and in Finland (so-called "transparent systems"). Neither DTC nor the Federal Reserve hold an individual register of the transfers of property reflecting beneficial owners. The consequence for an investor is that proving ownership of its securities relies entirely on the accurate replication of the transfer recorded by DTC and FED and others in the intermediated holding system at the lower tiers of the holding chain of the securities. Each one of these links is composed respectively of an account provider (or intermediary) and of an account holder.

    The rights created through these links are purely contractual claims: these rights are of two kinds:

    This decomposition of the rights organized by Article 8 of the UCC results in preventing the investor to revindicate the security in case of bankruptcy of the account provider, that is to say the possibility to claim the security as its own asset, without being obliged to share it at its prorate value with the other creditors of the account provider. As a consequence, it also prevents the investor from asserting its securities at the upper level of the holding chain, either up to DTC or up to a sub-custodian. Such a "security entitlement," unlike a normal ownership right, is no longer enforceable "erga omnes" to any person supposed to have the security in its custody. The "security entitlement" is a mere relative right, therefore a contractual right.

    This re-characterization of the proprietary right into a simple contractual right may enable the account provider to "re-use" the security without having to ask for the authorization of the investor. This is especially possible within the framework of temporary operations such as security lending, option to repurchase, buy to sell back or repurchase agreement. This system the distinction between the downward holding chain which traces the way in which the security was subscribed by the investor and the horizontal and ascending chains which trace the way in which the security has been transferred or sub-deposited.[23]This re-characterization of the proprietary right into a simple contractual right may enable the account provider to "re-use" the security without having to ask for the authorization of the investor. This is especially possible within the framework of temporary operations such as security lending, option to repurchase, buy to sell back or repurchase agreement. This system the distinction between the downward holding chain which traces the way in which the security was subscribed by the investor and the horizontal and ascending chains which trace the way in which the security has been transferred or sub-deposited.[23]

    Contrary to claims suggesting that Article 8 denies American investors their security rights held through intermediaries such as banks, Article 8 has also helped US negotiators during the negotiations of the Geneva Securities Convention, also known as the Unidroit Convention on Substantive Rules for Intermediated Securities.

    Article 9 governs security interests in personal property as collateral to secure a debt. A creditor with a security interest is called a secured party.

    Fundamental concepts under Article 9 include how a security interest is created (called attachment); how to give notice of a security interest to the public, which makes the security interest enforceable against others who may claim an interest in the collateral (called perfection); when multiple claims to the same collateral exist, determining which interests prevail over others (called priority); and what remedies a secured party has if the debtor defaults in payment or performance of the secured obligation.

    Article 9

    Fundamental concepts under Article 9 include how a security interest is created (called attachment); how to give notice of a security interest to the public, which makes the security interest enforceable against others who may claim an interest in the collateral (called perfection); when multiple claims to the same collateral exist, determining which interests prevail over others (called priority); and what remedies a secured party has if the debtor defaults in payment or performance of the secured obligation.

    Article 9 does not govern security interests in real property, except fixtures to real property. Security interests in real property include mortgages, deeds of trusts, and installment land contracts. There may be significant legal issues around security interests in Bitcoin.[24]

    The obligee which is the debtor shall return all assets stated in the collateral to secured party after the perfection of default by secured party in response to protest by the Obligee within specified time frame in the civil code and UCC Article 9-3.

    The Model Tribal Secured Transactions Act (MTSTA) is a model act written by the Uniform Law Commission (ULC) and tailored to provide Native American tribes with a legal system to govern secured transactions in Indian country. It was derived from the UCC, primarily Article 9.

    Certain portions of the UCC have been highly influential outside of the United States. Article 2 had some influence on the drafting of the United Nations Convention on Contracts for the International Sale of Goods (CISG), though the end result departed from the UCC in many respects (such as refusing to adopt the mailbox rule). Article 5, governing letters of credit, has been influential in international trade finance simply because so many major financial institutions operate in New York. Article 9, which established a unified framework for security interests in personal property, directly inspired the enactment of Personal Property Security Acts in every Canadian province and territory except Quebec from 1990 onwards, followed by New Zealand's Personal Property Securities Act 1999 and the Australian Personal Property Securities Act of 2009.[25]

    See also