Printable Format84-8-503. Property interest of entitlement holder in financial asset held by securities intermediary. (a) To the extent necessary for a securities intermediary to satisfy all security entitlements with respect to a particular financial asset, all interests in that financial asset held by the securities intermediary are held by the securities intermediary for the entitlement holders, are not property of the securities intermediary, and are not subject to claims of creditors of the securities intermediary, except as otherwise provided in K.S.A. 84-8-511.
(b) An entitlement holder's property interest with respect to a particular financial asset under subsection (a) is a pro rata property interest in all interests in that financial asset held by the securities intermediary, without regard to the time the entitlement holder acquired the security entitlement or the time the securities intermediary acquired the interest in that financial asset.
(c) An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against the securities intermediary only by exercise of the entitlement holder's rights under K.S.A. 84-8-505 through 84-8-508.
(d) An entitlement holder's property interest with respect to a particular financial asset under subsection (a) may be enforced against a purchaser of the financial asset or interest therein only if:
(1) Insolvency proceedings have been initiated by or against the securities intermediary;
(2) the securities intermediary does not have sufficient interests in the financial asset to satisfy the security entitlements of all of its entitlement holders to that financial asset;
(3) the securities intermediary violated its obligations under K.S.A. 84-8-504 by transferring the financial asset or interest therein to the purchaser; and
(4) the purchaser is not protected under subsection (e).
The trustee or other liquidator, acting on behalf of all entitlement holders having security entitlements with respect to a particular financial asset, may recover the financial asset or interest therein from the purchaser. If the trustee or other liquidator elects not to pursue that right, an entitlement holder whose security entitlement remains unsatisfied has the right to recover its interest in the financial asset from the purchaser.
(e) An action based on the entitlement holder's property interest with respect to a particular financial asset under subsection (a), whether framed in conversion, replevin, constructive trust, equitable lien or other theory may not be asserted against any purchaser of a financial asset or interest therein who gives value, obtains control, and does not act in collusion with the securities intermediary in violating the securities intermediary's obligations under K.S.A. 84-8-504.
History: L. 1996, ch. 202, ยง 70; July 1.
KANSAS COMMENT, 1996
This section is new and is identical to the 1995 Official Text. It is subject to 84-8-511, dealing with the priorities of entitlement holders and secured creditors of the securities intermediaries.
Subsection (a) provides that the entitlement holder's interest in the financial asset is not subject to the security intermediary's creditors. The entitlement holder has a pro rata interest in the particular financial asset, and can enforce its rights against the security intermediary regarding payments and distributions (84-8-505), directions to the intermediary (84-8-506), transfers and redemptions of a financial asset (84-8-507) and rights to transfer the form of holding the asset (84-8-508).
Subsection (d) is consistent with 84-8-502 and 84-8-510. It protects the purchaser of a financial asset unless the securities intermediary is insolvent, and the purchaser, in collusion with the intermediary, has breached the duties of 84-8-504. Thus, a former entitlement holder can trace an adverse claim to the entitlement only if the security intermediary is insolvent, has insufficient financial assets to satisfy the entitlement holders, and has breached its duty under 84-8-504, and even then, only if the purchaser has not met the conditions of subsection (e). Subsection (e) protects purchasers who have given value, obtained control of the financial asset and who are not in collusion with the security intermediary in breaching 84-8-504.