Uniform Commercial Code

Plain English Breakdown

The official source material does not provide specific details on how existing transactions and agreements will be affected by these changes.

Changes to Tennessee's Uniform Commercial Code

This bill changes how certain aspects of investment security transactions are governed by law in Tennessee.

What This Bill Does

• Changes the governing law for investment securities from the local jurisdiction's law to Tennessee state law.
• Eliminates provisions that give priority to creditors over entitlement holders when a securities intermediary does not have enough financial assets.
• Removes sections of the Uniform Commercial Code related to perfection and priority of security interests in securities accounts.

Who It Names or Affects

• People who buy or sell investment securities in Tennessee
• Financial institutions that handle investment securities transactions

Terms To Know

Securities Intermediary

A financial institution that holds and manages assets for clients, such as stocks or bonds.

Entitlement Holder

Someone who has a right to receive benefits from an investment security, like dividends or interest.

Limits and Unknowns

• The bill did not pass in the current session.
• It is unclear how this change will affect existing transactions and agreements.
• Some parts of the Uniform Commercial Code remain unchanged by this bill.

Official Summary Text

INVESTMENT SECURITIES UNDER THE UNIFORM COMMERCIAL CODE

Choice of Law

Under present law, the
local law of the securities intermediary's jurisdiction
governs (i) the validity of a security, (ii) the rights and duties of the issuer wit
h respect to registration of transfer, (iii) the effectiveness of registration of transfer by the issuer, (iv) whether the issuer owes any duties to an adverse claimant to a security, and (v) whether an adverse claim can be asserted against a person to wh
o
m transfer of a certified or uncertified security is registered or a person who obtains control of an uncertified security. This bill, instead, requires these items to be governed by the law of this state.

Priority

Present law provides that if
a secu
rities 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 interme
d
iary who has a security interest in that financial asset,
then
the claims of entitlement holders, other than the creditor,
generally
have priority over the claim of the creditor.

However, a
claim of a creditor of a securities intermediary who has a sec
urity 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 fi
n
ancial asset.
Additionally, i
f 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,
then
the claim of the creditor has priority over the claims of entitlement holders.
This bill removes these exception provisions.

SECURED TRANSACTIONS UNDER THE UNIFORM COMMERCIAL
CODE

Governing Law

Under present law,
local law of the securities intermediary's jurisdiction

governs perfection, the effect of perfection or nonperfection, and the priority of a security interest in a security entitlement or securities account.
This
bill removes this provision.

Current Bill Text

SENATE BILL 508
By Walley

HOUSE BILL 443
By Hulsey

HB0443
000789
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 47,
relative to the Uniform Commercial Code.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 47-8-110(b), is amended by deleting
"local law of the securities intermediary's jurisdiction, as specified in subsection (e)," and
substituting "law of this state".
SECTION 2. Tennessee Code Annotated, Section 47-8-110, is amended by deleting
subsections (e) and (f).
SECTION 3. Tennessee Code Annotated, Section 47-8-503(a), is amended by deleting
", except as otherwise provided in § 47-8-511".
SECTION 4. Tennessee Code Annotated, Section 47-8-511, is amended by deleting the
section and substituting:
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, then the claims of
entitlement holders, other than the creditor, have priority over the claim of the creditor.
SECTION 5. Tennessee Code Annotated, Section 47-9-305(a), is amended by deleting
subdivisions (3) and (4) and substituting:
(3) The local law of the commodity intermediary's jurisdiction governs perfection,
the effect of perfection or nonperfection, and the priority of a security interest in a
commodity contract or commodity account.

- 2 - 000789

SECTION 6. This act takes effect July 1, 2025, the public welfare requiring it.