Printable Format84-8-511. Priority among security interests and entitlement holders. (a) Except as otherwise provided in subsections (b) and (c), if a securities intermediary does not have sufficient interests in a particular financial asset to satisfy both its obligations to entitlement holders who have security entitlements to that financial asset and its obligation to a creditor of the securities intermediary who has a security interest in that financial asset, the claims of entitlement holders, other than the creditor, have priority over the claim of the creditor.
(b) A claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary has priority over claims of the securities intermediary's entitlement holders who have security entitlements with respect to that financial asset if the creditor has control over the financial asset.
(c) If a clearing corporation does not have sufficient financial assets to satisfy both its obligations to entitlement holders who have security entitlements with respect to a financial asset and its obligation to a creditor of the clearing corporation who has a security interest in that financial asset, the claim of the creditor has priority over the claims of entitlement holders.
History: L. 1996, ch. 202, ยง 78; July 1.
KANSAS COMMENT, 1996
This section is new and is identical to the Official Text. The section deals with the situation when a securities intermediary or a clearing corporation does not have sufficient financial assets to satisfy the claims of both creditors and entitlement holders. This will usually occur when the intermediary has improperly pledged financial assets of entitlement holders in violation of the duty imposed by 84-8-504(b), or when the intermediary has not received the assets. Subsections (b) and (c) state the general rules. Subsection (b) provides that a secured party with control of a securities entitlement held by a securities intermediary has priority over the entitlement holders. Subsection (c) provides that creditors of a clearing corporation have priority over entitlement holders. Subsection (a) then provides that entitlement holders have priority over other creditors, including secured creditors of the intermediary who have not obtained control.