Uniform Commercial Code

Plain English Breakdown

The candidate explanation included details about creditor priority exceptions that were only partially supported by the official source material.

Changes to Tennessee's Uniform Commercial Code

This bill changes parts of Tennessee's laws about investment securities and secured transactions by making certain aspects governed by Tennessee state law instead of local jurisdiction laws.

What This Bill Does

• Changes the law so that issues related to investment securities are now governed by Tennessee state law, not the local jurisdiction where the security intermediary is located.
• Removes provisions giving priority to creditors over entitlement holders when a securities intermediary does not have enough financial assets to cover both its obligations and those of its creditors.
• Eliminates provisions about how perfection, effect of perfection or nonperfection, and priority of security interests in investment accounts are governed by local law.

Who It Names or Affects

• People who buy and sell investment securities
• Financial institutions that handle these transactions

Terms To Know

security intermediary

A financial institution that holds or controls securities for others.

entitlement holder

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

Limits and Unknowns

• The bill does not specify how the changes will affect existing transactions.
• It is unclear what impact these changes might have on international transactions involving Tennessee-based securities intermediaries.

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

HOUSE BILL 443
By Hulsey

SENATE BILL 508
By Walley

SB0508
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.