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84-8-507. Duty of securities intermediary to comply with entitlement order. (a) A securities intermediary shall comply with an entitlement order if the entitlement order is originated by the appropriate person, the securities intermediary has had reasonable opportunity to assure itself that the entitlement order is genuine and authorized, and the securities intermediary has had reasonable opportunity to comply with the entitlement order. A securities intermediary satisfies the duty if:

(1) The securities intermediary acts with respect to the duty as agreed upon by the entitlement holder and the securities intermediary; or

(2) in the absence of agreement, the securities intermediary exercises due care in accordance with reasonable commercial standards to comply with the entitlement order.

(b) If a securities intermediary transfers a financial asset pursuant to an ineffective entitlement order, the securities intermediary shall reestablish a security entitlement in favor of the person entitled to it, and pay or credit any payments or distributions that the person did not receive as a result of the wrongful transfer. If the securities intermediary does not reestablish a security entitlement, the securities intermediary is liable to the entitlement holder for damages.

History: L. 1996, ch. 202, ยง 74; July 1.


This section is new and is identical to the 1995 Official Text. The section requires the intermediary to comply with an entitlement order, defined in 84-8-102(a)(8) as an order by an entitlement holder for transfers or redemptions, after the intermediary has had an opportunity to verify the validity of the order. The intermediary can satisfy the duty imposed by this section by action in accordance with an agreement with the entitlement holder, if there is an agreement, or, if there is not, in accordance with reasonable commercial standards. The securities intermediary's compliance with governing statutes, regulations or rules satisfies the duty under 84-8-509(a).

Subsection (b) provides that the intermediary must account for executing an "ineffective" entitlement order by making the entitlement holder whole. There is a distinction, however, between an order by an "appropriate person," mentioned in subsection (a), and an "effective order" in subsection (b), both of which are defined in 84-8-107. Many orders, such as unauthorized orders by agents or representatives, not made by an "appropriate person", in 84-8-107(a), will be "effective" under the terms of 84-8-107(b), (c) and (d).

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