Printable Format84-8-501. Securities account; acquisition of security entitlement from securities intermediary. (a) "Securities account" means an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset.
(b) Except as otherwise provided in subsections (d) and (e), a person acquires a security entitlement if a securities intermediary:
(1) Indicates by book entry that a financial asset has been credited to the person's securities account;
(2) receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person's securities account; or
(3) becomes obligated under other law, regulation or rule to credit a financial asset to the person's securities account.
(c) If a condition of subsection (b) has been met, a person has a security entitlement even though the securities intermediary does not itself hold the financial asset.
(d) If a securities intermediary holds a financial asset for another person, and the financial asset is registered in the name of, payable to the order of, or specially indorsed to the other person, and has not been indorsed to the securities intermediary or in blank, the other person is treated as holding the financial asset directly rather than as having a security entitlement with respect to the financial asset.
(e) Issuance of a security is not establishment of a security entitlement.
History: L. 1996, ch. 202, ยง 68; July 1.
KANSAS COMMENT, 1996
This section is new but is derived from various sections of former Part 3 of Article 8, modified to apply to acquisition of security entitlements. It is identical to the 1995 Official Text.
Part 5 of Article 8 deals with the provisions of security entitlements, dealing with indirect holdings. These are transactions in which the owner of a financial asset will be registered as such by a securities intermediary, but not with the issuer or other underlying obligor. See 84-8-103 for the distinctions between whether an obligation is a security or a financial asset. A "financial asset" is defined broadly in 84-8-102(a)(9) to include securities and obligations held by a securities intermediary for an entitlement holder. A common illustration occurs when a corporation registers its securities with a clearing corporation, which in turn will register ownership of the rights in that security on its books on a prorated basis with various brokers, which in turn will show the prorated ownership of the rights the broker has against the clearing corporation on the books of the broker to various customers. Thus the customer has rights against a portion of the broker's rights against the clearing corporation which owns the securities of the issuing corporation. Only the clearing corporation owns the security. The customer's rights against the broker and the broker's rights against the clearing corporation are a "security entitlement" (84-8-102(a)(17)), and the broker and the clearing corporation are "securities intermediaries" (84-8-102(a)(14)). The security entitlements are held in "securities accounts." 84-8-501(a).
Subsection (b) replaces the provisions of the former 84-8-313 to the extent that section dealt with former "financial intermediaries." Subsection (b) provides that a person acquires a security entitlement when the person has rights against a securities intermediary. Under subsection (c), the person has a security entitlement even if the intermediary has not yet acquired the financial asset.
Subsection (d) deals with the difference between a direct ownership of a security, where the broker holds the financial asset which remains registered or payable to the person, and a securities entitlement, a situation where the financial asset is in the name of the security intermediary. Subsection (e) reinforces this by providing where a security is issued to a person, the person holds a security, one type of financial asset, and not a security entitlement, a different type of financial asset. Part 5 of Article 8 applies to security entitlements, not to securities.