ARTICLE 8*

INVESTMENT SECURITIES

*Cited. 6 CA 530.

Table of Contents

Sec. 42a-8-101. Short title: Uniform Commercial Code–Investment Securities.

Sec. 42a-8-102. Definitions.

Sec. 42a-8-103. Rules for determining whether certain obligations and interests are securities or financial assets.

Sec. 42a-8-104. Acquisition of security or financial asset or interest therein.

Sec. 42a-8-105. Notice of adverse claim.

Sec. 42a-8-106. Control.

Sec. 42a-8-107. Whether endorsement, instruction or entitlement order is effective.

Sec. 42a-8-108. Warranties in direct holding.

Sec. 42a-8-109. Warranties in indirect holding.

Sec. 42a-8-110. Applicability; choice of law.

Sec. 42a-8-111. Clearing corporation rules.

Sec. 42a-8-112. Creditor’s legal process.

Sec. 42a-8-113. Statute of frauds inapplicable.

Sec. 42a-8-114. Evidentiary rules concerning certificated securities.

Sec. 42a-8-115. Securities intermediary and others not liable to adverse claimant.

Sec. 42a-8-116. Securities intermediary as purchaser.

Sec. 42a-8-201. Issuer.

Sec. 42a-8-202. Issuer’s responsibility and defenses; notice of defect or defense.

Sec. 42a-8-203. Staleness as notice of defect or defense.

Sec. 42a-8-204. Effect of issuer’s restriction on transfer.

Sec. 42a-8-205. Effect of unauthorized signature on security certificate.

Sec. 42a-8-206. Completion or alteration of security certificate.

Sec. 42a-8-207. Rights and duties of issuer with respect to registered owners.

Sec. 42a-8-208. Effect of signature of authenticating trustee, registrar or transfer agent.

Sec. 42a-8-209. Issuer’s lien.

Sec. 42a-8-210. Overissue.

Sec. 42a-8-301. Delivery.

Sec. 42a-8-302. Rights of purchaser.

Sec. 42a-8-303. Protected purchaser.

Sec. 42a-8-304. Endorsement.

Sec. 42a-8-305. Instruction.

Sec. 42a-8-306. Effect of guaranteeing signature, endorsement or instruction.

Sec. 42a-8-307. Purchaser’s right to requisites for registration of transfer.

Secs. 42a-8-308 to 42a-8-321. Endorsements; instructions. Effect of endorsement without delivery. Endorsement of certificated security in bearer form. Effect of unauthorized endorsement or instruction. Effect of guaranteeing signature, endorsement or instruction. When transfer to purchaser occurs: Financial intermediary as bona fide purchaser; “financial intermediary”. Duty to transfer, when completed. Action against transferee based upon wrongful transfer. Purchaser’s right to requisites for registration of transfer, pledge or release on books. Creditors’ rights. No conversion by good faith conduct. Statute of frauds. Transfer or pledge within central depository system. Enforceability, attachment, perfection and termination of security interests.

Sec. 42a-8-401. Duty of issuer to register transfer.

Sec. 42a-8-402. Assurance that endorsement or instruction is effective.

Sec. 42a-8-403. Demand that issuer not register transfer.

Sec. 42a-8-404. Wrongful registration.

Sec. 42a-8-405. Replacement of lost, destroyed or wrongfully taken security certificate.

Sec. 42a-8-406. Obligation to notify issuer of lost, destroyed or wrongfully taken security certificate.

Sec. 42a-8-407. Authenticating trustee, transfer agent and registrar.

Sec. 42a-8-408. Statement of uncertificated securities.

Sec. 42a-8-501. Securities account; acquisition of security entitlement from securities intermediary.

Sec. 42a-8-502. Assertion of adverse claim against entitlement holder.

Sec. 42a-8-503. Property interest of entitlement holder in financial asset held by securities intermediary.

Sec. 42a-8-504. Duty of securities intermediary to maintain financial asset.

Sec. 42a-8-505. Duty of securities intermediary with respect to payments and distributions.

Sec. 42a-8-506. Duty of securities intermediary to exercise rights as directed by entitlement holder.

Sec. 42a-8-507. Duty of securities intermediary to comply with entitlement order.

Sec. 42a-8-508. Duty of securities intermediary to change entitlement holder’s position to other form of security holding.

Sec. 42a-8-509. Specification of duties of securities intermediary by other statute or regulation; manner of performance of duties of securities intermediary and exercise of rights of entitlement holder.

Sec. 42a-8-510. Rights of purchaser of security entitlement from entitlement holder.

Sec. 42a-8-511. Priority among security interests and entitlement holders.

Sec. 42a-8-601. Savings clause.


PART 1

SHORT TITLE AND GENERAL MATTERS

Sec. 42a-8-101. Short title: Uniform Commercial Code–Investment Securities. This article may be cited as Uniform Commercial Code–Investment Securities.

(1959, P.A. 133, S. 8-101; P.A. 97-182, S. 1.)

History: P.A. 97-182 deleted “shall be known and” following “article”.

Sec. 42a-8-102. Definitions. (a) In this article:

(1) “Adverse claim” means a claim that a claimant has a property interest in a financial asset and that it is a violation of the rights of the claimant for another person to hold, transfer or deal with the financial asset.

(2) “Bearer form”, as applied to a certificated security, means a form in which the security is payable to the bearer of the security certificate according to its terms but not by reason of an endorsement.

(3) “Broker” means a person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity.

(4) “Certificated security” means a security that is represented by a certificate.

(5) “Clearing corporation” means:

(A) A person that is registered as a “clearing agency” under the federal securities laws;

(B) A federal reserve bank; or

(C) Any other person that provides clearance or settlement services with respect to financial assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including promulgation of rules, are subject to regulation by a federal or state governmental authority.

(6) “Communicate” means to:

(A) Send a signed writing; or

(B) Transmit information by any mechanism agreed upon by the persons transmitting and receiving the information.

(7) “Endorsement” means a signature that alone or accompanied by other words is made on a security certificate in registered form or on a separate document for the purpose of assigning, transferring or redeeming the security or granting a power to assign, transfer or redeem it.

(8) “Entitlement holder” means a person identified in the records of a securities intermediary as the person having a security entitlement against the securities intermediary. If a person acquires a security entitlement by virtue of subdivision (2) or (3) of subsection (b) of section 42a-8-501, that person is the entitlement holder.

(9) “Entitlement order” means a notification communicated to a securities intermediary directing transfer or redemption of a financial asset to which the entitlement holder has a security entitlement.

(10) “Financial asset”, except as otherwise provided in section 42a-8-103, means: (A) A security; (B) an obligation of a person or a share, participation or other interest in a person or in property or an enterprise of a person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment; or (C) any property that is held by a securities intermediary for another person in a securities account if the securities intermediary has expressly agreed with the other person that the property is to be treated as a financial asset under this article. As context requires, the term means either the interest itself or the means by which a person’s claim to it is evidenced, including a certificated or uncertificated security, a security certificate, or a security entitlement.

(11) “Instruction” means a notification communicated to the issuer of an uncertificated security which directs that the transfer of the security be registered or that the security be redeemed.

(12) “Registered form”, as applied to a certificated security, means a form in which:

(A) The security certificate specifies a person entitled to the security; and

(B) A transfer of the security may be registered upon books maintained for that purpose by or on behalf of the issuer, or the security certificate so states.

(13) “Securities intermediary” means:

(A) A clearing corporation; or

(B) A person, including a bank or broker, that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity.

(14) “Security”, except as otherwise provided in section 42a-8-103, means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer:

(A) Which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer;

(B) Which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations; and

(C) Which:

(i) Is, or is of a type, dealt in or traded on securities exchanges or securities markets; or

(ii) Is a medium for investment and by its terms expressly provides that it is a security governed by this article.

(15) “Security certificate” means a certificate representing a security.

(16) “Security entitlement” means the rights and property interest of an entitlement holder with respect to a financial asset specified in part 5.

(17) “Uncertificated security” means a security that is not represented by a certificate.

(b) Other definitions applying to this article and the sections in which they appear are:

“Appropriate person”. Section 42a-8-107.

“Control”. Section 42a-8-106.

“Delivery”. Section 42a-8-301.

“Investment company security”. Section 42a-8-103.

“Issuer”. Section 42a-8-201.

“Overissue”. Section 42a-8-210.

“Protected purchaser”. Section 42a-8-303.

“Securities account”. Section 42a-8-501.

(c) In addition, article 1 contains general definitions and principles of construction and interpretation applicable throughout this article.

(d) The characterization of a person, business or transaction for purposes of this article does not determine the characterization of the person, business or transaction for purposes of any other law, regulation or rule.

(1959, P.A. 133, S. 8-102; 1963, P.A. 526, S. 14; 1972, P.A. 169, S. 1; P.A. 79-435, S. 1; P.A. 97-182, S. 2; P.A. 05-109, S. 37.)

History: 1963 act deleted former Subsec. (2) defining “proper form”, renumbered former Subsec. (3) accordingly, inserted new Subsecs. (3) and (4) defining “clearing corporation” and “custodian bank”, likewise renumbering former Subsecs. (4) to (6) accordingly; 1972 act redefined “clearing corporation” which formerly was considered “a corporation all of the capital stock of which is held by or for a national securities exchange or association registered under a statute of the United States such as the Securities Exchange Act of 1934”; P.A. 79-435 replaced definition of “security” with definitions of “certificated security” and “uncertificated security” and reworded definition of “clearing corporation”; P.A. 97-182 substantially revised and restructured section by redefining or deleting definitions of existing terms and defining additional terms; P.A. 05-109 amended Subsec. (a) by deleting definition of “good faith” and making technical changes to conform to revisions made to article 1 by the same act.

Cited. 6 CA 530.

Sec. 42a-8-103. Rules for determining whether certain obligations and interests are securities or financial assets. (a) A share or similar equity interest issued by a corporation, business trust, joint stock company or similar entity is a security.

(b) An “investment company security” is a security. “Investment company security” means a share or similar equity interest issued by an entity that is registered as an investment company under the federal investment company laws, in interest in a unit investment trust that is so registered, or face-amount certificate issued by a face-amount certificate company that is so registered. Investment company security does not include an insurance policy or endowment policy or annuity contract issued by an insurance company.

(c) An interest in a partnership or limited liability company is not a security unless it is dealt in or traded on securities exchanges or in securities markets, its terms expressly provide that it is a security governed by this article or it is an investment company security. However, an interest in a partnership or limited liability company is a financial asset if it is held in a securities account.

(d) A writing that is a security certificate is governed by this article and not by article 3, even though it also meets the requirements of that article. However, a negotiable instrument governed by article 3 is a financial asset if it is held in a securities account.

(e) An option or similar obligation issued by a clearing corporation to its participants is not a security, but is a financial asset.

(f) A commodity contract, as defined in section 42a-9-102(a)(15), is not a security or a financial asset.

(g) A document of title is not a financial asset unless subdivision (10)(iii) of subsection (a) of section 42a-8-102 applies.

(1959, P.A. 133, S. 8-103; P.A. 79-435, S. 2; P.A. 97-182, S. 3; P.A. 01-132, S. 146; P.A. 04-64, S. 59.)

History: P.A. 79-435 amended section to distinguish between certificated and uncertificated securities, applying former provision to certificated securities and adding provision re uncertificated securities; P.A. 97-182 entirely replaced former provisions re issuer’s lien with provisions re rules for determining whether certain obligations and interests are securities or financial assets; P.A. 01-132 amended Subsec. (f) to replace Sec. 42a-9-115 with Sec. 42a-9-102(a)(15) as the statutory reference for the definition of a “commodity contract”; P.A. 04-64 added Subsec. (g) re document of title to conform to revisions made to article 7 by the same act.

See Sec. 42a-8-209 for successor provisions to Sec. 42a-8-103, revised to 1997, re issuer’s lien.

Sec. 42a-8-104. Acquisition of security or financial asset or interest therein. (a) A person acquires a security or an interest therein, under this article, if:

(1) The person is a purchaser to whom a security is delivered pursuant to section 42a-8-301; or

(2) The person acquires a security entitlement to the security pursuant to section 42a-8-501.

(b) A person acquires a financial asset, other than a security, or an interest therein, under this article, if the person acquires a security entitlement to the financial asset.

(c) A person who acquires a security entitlement to a security or other financial asset has the rights specified in part 5, but is a purchaser of any security, security entitlement, or other financial asset held by the securities intermediary only to the extent provided in section 42a-8-503.

(d) Unless the context shows that a different meaning is intended, a person who is required by other law, regulation, rule or agreement to transfer, deliver, present, surrender, exchange or otherwise put in the possession of another person a security or financial asset satisfies that requirement by causing the other person to acquire an interest in the security or financial asset pursuant to subsection (a) or (b) of this section.

(1959, P.A. 133, S. 8-104; P.A. 79-435, S. 3; P.A. 97-182, S. 4.)

History: P.A. 79-435 amended section to distinguish between actions required for certificated and uncertificated securities, applying previous requirements to certificated securities; P.A. 97-182 entirely replaced former provisions re effect of overissue and defining “overissue” with provisions re acquisition of security or financial asset or an interest therein.

See Sec. 42a-8-210 for successor provisions to Sec. 42a-8-104, revised to 1997, re overissue.

Sec. 42a-8-105. Notice of adverse claim. (a) A person has notice of an adverse claim if:

(1) The person knows of the adverse claim;

(2) The person is aware of facts sufficient to indicate that there is a significant probability that the adverse claim exists and deliberately avoids information that would establish the existence of the adverse claim; or

(3) The person has a duty, imposed by statute or regulation, to investigate whether an adverse claim exists, and the investigation so required would establish the existence of the adverse claim.

(b) Having knowledge that a financial asset or interest therein is or has been transferred by a representative imposes no duty of inquiry into the rightfulness of a transaction and is not notice of an adverse claim. However, a person who knows that a representative has transferred a financial asset or interest therein in a transaction that is, or whose proceeds are being used, for the individual benefit of the representative or otherwise in breach of duty has notice of an adverse claim.

(c) An act or event that creates a right to immediate performance of the principal obligation represented by a security certificate or sets a date on or after which the certificate is to be presented or surrendered for redemption or exchange does not itself constitute notice of an adverse claim except in the case of a transfer more than:

(1) One year after a date set for presentment or surrender for redemption or exchange; or

(2) Six months after a date set for payment of money against presentation or surrender of the certificate, if money was available for payment on that date.

(d) A purchaser of a certificated security has notice of an adverse claim if the security certificate:

(1) Whether in bearer or registered form, has been endorsed “for collection” or “for surrender” or for some other purpose not involving transfer; or

(2) Is in bearer form and has on it an unambiguous statement that it is the property of a person other than the transferor, but the mere writing of a name on the certificate is not such a statement.

(e) Filing of a financing statement under article 9 is not notice of an adverse claim to a financial asset.

(1959, P.A. 133, S. 8-105; P.A. 79-435, S. 4; P.A. 97-182, S. 5.)

History: P.A. 79-435 specified “certificated” securities in Subsec. (1), inserted new Subsec. (2) re uncertificated securities and renumbered and amended former Subsec. (2) accordingly, adding provision re presumption of truth of facts in initial transaction statement; P.A. 97-182 entirely replaced former provisions re status of certificated securities and of statements and instructions with respect to uncertificated securities and procedures and presumptions in an action on a security with provisions re notice of an adverse claim, a restatement in part of Sec. 42a-8-304(1) and (3) and Sec. 42a-8-305, revised to 1997.

See Sec. 42a-8-114 for successor provisions to Sec. 42a-8-105(3), revised to 1997, re rules in an action on a security.

Sec. 42a-8-106. Control. (a) A purchaser has “control” of a certificated security in bearer form if the certificated security is delivered to the purchaser.

(b) A purchaser has “control” of a certificated security in registered form if the certificated security is delivered to the purchaser, and:

(1) The certificate is endorsed to the purchaser or in blank by an effective endorsement; or

(2) The certificate is registered in the name of the purchaser, upon original issue or registration of transfer by the issuer.

(c) A purchaser has “control” of an uncertificated security if:

(1) The uncertificated security is delivered to the purchaser; or

(2) The issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered owner.

(d) A purchaser has “control” of a security entitlement if:

(1) The purchaser becomes the entitlement holder;

(2) The securities intermediary has agreed that it will comply with entitlement orders originated by the purchaser without further consent by the entitlement holder; or

(3) Another person has control of the security entitlement on behalf of the purchaser or, having previously acquired control of the security entitlement, acknowledges that it has control on behalf of the purchaser.

(e) If an interest in a security entitlement is granted by the entitlement holder to the entitlement holder’s own securities intermediary, the securities intermediary has control.

(f) A purchaser who has satisfied the requirements of subsection (c) or (d) of this section has control, even if the registered owner in the case of subsection (c) of this section or the entitlement holder in the case of subsection (d) of this section retains the right to make substitutions for the uncertificated security or security entitlement, to originate instructions or entitlement orders to the issuer or securities intermediary, or otherwise to deal with the uncertificated security or security entitlement.

(g) An issuer or a securities intermediary may not enter into an agreement of the kind described in subsection (c)(2) or (d)(2) of this section without the consent of the registered owner or entitlement holder, but an issuer or a securities intermediary is not required to enter into such an agreement even though the registered owner or entitlement holder so directs. An issuer or securities intermediary that has entered into such an agreement is not required to confirm the existence of the agreement to another party unless requested to do so by the registered owner or entitlement holder.

(1959, P.A. 133, S. 8-106; P.A. 79-435, S. 5; P.A. 97-182, S. 6; P.A. 01-132, S. 147.)

History: P.A. 79-435 rephrased provisions and clarified applicability of law with respect to certificated and uncertificated securities; P.A. 97-182 entirely replaced former provisions re applicable law with provisions re control; P.A. 01-132 added Subsec. (d)(3) re when another person has control of the security entitlement on behalf of the purchaser and amended Subsec. (f) to replace references to Subsec. (c)(2) with Subsec. (c) and references to Subsec. (d)(2) with Subsec. (d) where appearing.

See Sec. 42a-8-110 for successor provisions to Sec. 42a-8-106, revised to 1997, re applicable law.

Sec. 42a-8-107. Whether endorsement, instruction or entitlement order is effective. (a) “Appropriate person” means:

(1) With respect to an endorsement, the person specified by a security certificate or by an effective special endorsement to be entitled to the security;

(2) With respect to an instruction, the registered owner of an uncertificated security;

(3) With respect to an entitlement order, the entitlement holder;

(4) If the person designated in subdivision (1), (2) or (3) of this subsection is deceased, the designated person’s successor taking under other law or the designated person’s personal representative acting for the estate of the decedent; or

(5) If the person designated in subdivision (1), (2) or (3) of this subsection lacks capacity, the designated person’s guardian, conservator or other similar representative who has power under other law to transfer the security or financial asset.

(b) An endorsement, instruction or entitlement order is effective if:

(1) It is made by the appropriate person;

(2) It is made by a person who has power under the law of agency to transfer the security or financial asset on behalf of the appropriate person, including, in the case of an instruction or entitlement order, a person who has control under section 42a-8-106(c)(2) or 42a-8-106(d)(2); or

(3) The appropriate person has ratified it or is otherwise precluded from asserting its ineffectiveness.

(c) An endorsement, instruction or entitlement order made by a representative is effective even if:

(1) The representative has failed to comply with a controlling instrument or with the law of the state having jurisdiction of the representative relationship, including any law requiring the representative to obtain court approval of the transaction; or

(2) The representative’s action in making the endorsement, instruction or entitlement order or using the proceeds of the transaction is otherwise a breach of duty.

(d) If a security is registered in the name of or specially endorsed to a person described as a representative, or if a securities account is maintained in the name of a person described as a representative, an endorsement, instruction or entitlement order made by the person is effective even though the person is no longer serving in the described capacity.

(e) Effectiveness of an endorsement, instruction or entitlement order is determined as of the date the endorsement, instruction or entitlement order is made, and an endorsement, instruction or entitlement order does not become ineffective by reason of any later change of circumstances.

(1963, P.A. 526, S. 15; P.A. 79-435, S. 6; P.A. 97-182, S. 7.)

History: P.A. 79-435 applied previous provisions to certificated securities, added provisions re uncertificated securities and substituted references to “transfer” of securities for references to delivery of securities; P.A. 97-182 entirely replaced former provisions re transfer of securities and seller’s remedy for breach with provisions re effectiveness of an endorsement, instruction or entitlement order, a restatement in part of Sec. 42a-8-308, revised to 1997.

Sec. 42a-8-108. Warranties in direct holding. (a) A person who transfers a certificated security to a purchaser for value warrants to the purchaser, and an endorser, if the transfer is by endorsement, warrants to any subsequent purchaser, that:

(1) The certificate is genuine and has not been materially altered;

(2) The transferor or endorser does not know of any fact that might impair the validity of the security;

(3) There is no adverse claim to the security;

(4) The transfer does not violate any restriction on transfer;

(5) If the transfer is by endorsement, the endorsement is made by an appropriate person, or if the endorsement is by an agent, the agent has actual authority to act on behalf of the appropriate person; and

(6) The transfer is otherwise effective and rightful.

(b) A person who originates an instruction for registration of transfer of an uncertificated security to a purchaser for value warrants to the purchaser that:

(1) The instruction is made by an appropriate person, or if the instruction is by an agent, the agent has actual authority to act on behalf of the appropriate person;

(2) The security is valid;

(3) There is no adverse claim to the security; and

(4) At the time the instruction is presented to the issuer:

(i) The purchaser will be entitled to the registration of transfer;

(ii) The transfer will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction;

(iii) The transfer will not violate any restriction on transfer; and

(iv) The requested transfer will otherwise be effective and rightful.

(c) A person who transfers an uncertificated security to a purchaser for value and does not originate an instruction in connection with the transfer warrants that:

(1) The uncertificated security is valid;

(2) There is no adverse claim to the security;

(3) The transfer does not violate any restriction on transfer; and

(4) The transfer is otherwise effective and rightful.

(d) A person who endorses a security certificate warrants to the issuer that:

(1) There is no adverse claim to the security; and

(2) The endorsement is effective.

(e) A person who originates an instruction for registration of transfer of an uncertificated security warrants to the issuer that:

(1) The instruction is effective; and

(2) At the time the instruction is presented to the issuer the purchaser will be entitled to the registration of transfer.

(f) A person who presents a certificated security for registration of transfer or for payment or exchange warrants to the issuer that the person is entitled to the registration, payment or exchange, but a purchaser for value and without notice of adverse claims to whom transfer is registered warrants only that the person has no knowledge of any unauthorized signature in a necessary endorsement.

(g) If a person acts as agent of another in delivering a certificated security to a purchaser, the identity of the principal was known to the person to whom the certificate was delivered, and the certificate delivered by the agent was received by the agent from the principal or received by the agent from another person at the direction of the principal, the person delivering the security certificate warrants only that the delivering person has authority to act for the principal and does not know of any adverse claim to the certificated security.

(h) A secured party who redelivers a security certificate received, or after payment and on order of the debtor delivers the security certificate to another person, makes only the warranties of an agent under subsection (g) of this section.

(i) Except as otherwise provided in subsection (g) of this section, a broker acting for a customer makes to the issuer and to a purchaser the warranties provided in subsections (a) to (f), inclusive, of this section. A broker that delivers a security certificate to its customer, or causes its customer to be registered as the owner of an uncertificated security, makes to the customer the warranties provided in subsection (a) or (b) of this section, and has the rights and privileges of a purchaser under this section. The warranties of and in favor of the broker acting as an agent are in addition to applicable warranties given by and in favor of the customer.

(P.A. 79-435, S. 7; P.A. 98-93, S. 1, 15.)

History: P.A. 98-93 entirely replaced former provisions re registration of pledge and release of uncertificated securities with provisions re warranties in direct holding, a restatement in part of Sec. 42a-8-306, revised to 1997, effective July 1, 1998.

Sec. 42a-8-109. Warranties in indirect holding. (a) A person who originates an entitlement order to a securities intermediary warrants to the securities intermediary that:

(1) The entitlement order is made by an appropriate person, or if the entitlement order is by an agent, the agent has actual authority to act on behalf of the appropriate person; and

(2) There is no adverse claim to the security entitlement.

(b) A person who delivers a security certificate to a securities intermediary for credit to a securities account or originates an instruction with respect to an uncertificated security directing that the uncertificated security be credited to a securities account makes to the securities intermediary the warranties specified in subsection (a) or (b) of section 42a-8-108.

(c) If a securities intermediary delivers a security certificate to its entitlement holder or causes its entitlement holder to be registered as the owner of an uncertificated security, the securities intermediary makes to the entitlement holder the warranties specified in subsection (a) or (b) of section 42a-8-108.

(P.A. 97-182, S. 9; P.A. 98-93, S. 2, 15.)

History: P.A. 98-93 made technical changes to statutory references in Subsecs. (b) and (c), effective July 1, 1998 (Revisor’s note: A reference to the phrase “in section subsection (a) or (b) of section 42a-8-108” was replaced editorially by the Revisors with “in subsection (a) or (b) of section 42a-8-108”).

Sec. 42a-8-110. Applicability; choice of law. (a) The local law of the issuer’s jurisdiction, as specified in subsection (d) of this section, governs:

(1) The validity of a security;

(2) The rights and duties of the issuer with respect to registration of transfer;

(3) The effectiveness of registration of transfer by the issuer;

(4) Whether the issuer owes any duties to an adverse claimant to a security; and

(5) Whether an adverse claim can be asserted against a person to whom transfer of a certificated or uncertificated security is registered or a person who obtains control of an uncertificated security.

(b) The local law of the securities intermediary’s jurisdiction, as specified in subsection (e) of this section, governs:

(1) Acquisition of a security entitlement from the securities intermediary;

(2) The rights and duties of the securities intermediary and entitlement holder arising out of a security entitlement;

(3) Whether the securities intermediary owes any duties to an adverse claimant to a security entitlement; and

(4) Whether an adverse claim can be asserted against a person who acquires a security entitlement from the securities intermediary or a person who purchases a security entitlement or interest therein from an entitlement holder.

(c) The local law of the jurisdiction in which a security certificate is located at the time of delivery governs whether an adverse claim can be asserted against a person to whom the security certificate is delivered.

(d) “Issuer’s jurisdiction” means the jurisdiction under which the issuer of the security is organized or, if permitted by the law of that jurisdiction, the law of another jurisdiction specified by the issuer. An issuer organized under the law of this state may specify the law of another jurisdiction as the law governing the matters specified in subdivisions (2) to (5), inclusive, of subsection (a) of this section.

(e) The following rules determine a “securities intermediary’s jurisdiction” for purposes of this section:

(1) If an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that a particular jurisdiction is the securities intermediary’s jurisdiction for purposes of this part, this article or article 9, that jurisdiction is the securities intermediary’s jurisdiction.

(2) If subdivision (1) of this subsection does not apply and an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that the agreement is governed by the law of a particular jurisdiction, that jurisdiction is the securities intermediary’s jurisdiction.

(3) If neither subdivision (1) nor subdivision (2) of this subsection applies and an agreement between the securities intermediary and its entitlement holder governing the securities account expressly provides that the securities account is maintained at an office in a particular jurisdiction, that jurisdiction is the securities intermediary’s jurisdiction.

(4) If none of the preceding subdivisions of this subsection applies, the securities intermediary’s jurisdiction is the jurisdiction in which the office identified in an account statement as the office serving the entitlement holder’s account is located.

(5) If none of the preceding subdivisions of this subsection applies, the securities intermediary’s jurisdiction is the jurisdiction in which the chief executive office of the securities intermediary is located.

(f) A securities intermediary’s jurisdiction is not determined by the physical location of certificates representing financial assets, or by the jurisdiction in which is organized the issuer of the financial asset with respect to which an entitlement holder has a security entitlement, or by the location of facilities for data processing or other record keeping concerning the account.

(P.A. 97-182, S. 10; P.A. 98-93, S. 3, 4, 15; P.A. 01-132, S. 148.)

History: P.A. 98-93 made technical changes in Subsecs. (a) and (e), effective July 1, 1998; P.A. 01-132 amended Subsec. (e) to replace in Subdiv. (1) “specifies that it is governed by the law of a particular jurisdiction” with “governing the securities account expressly provides that a particular jurisdiction is the securities intermediary’s jurisdiction for purposes of this part, this article or article 9”, add new Subdiv. (2) re the jurisdiction of the securities intermediary when the agreement governing the securities account expressly provides that the agreement is governed by the law of a particular jurisdiction, redesignate former Subdiv. (2) as Subdiv. (3) and amend to rephrase provisions and add provision re inapplicability of Subdiv. (2), redesignate former Subdiv. (3) as Subdiv. (4) and amend to rephrase provisions and add provision re inapplicability of all of the preceding Subdivs. rather than Subdiv. (1) or (2) and redesignate former Subdiv. (4) as Subdiv. (5) and amend to rephrase provisions and add provision re inapplicability of all of the preceding Subdivs. rather than Subdiv. (1), (2) or (3).

Sec. 42a-8-111. Clearing corporation rules. A rule adopted by a clearing corporation governing rights and obligations among the clearing corporation and its participants in the clearing corporation is effective even if the rule conflicts with this article and sections 42a-1-301, 42a-4-104(a), 42a-9-103a, 42a-9-105, 42a-9-106, 42a-9-115, 42a-9-116, 42a-9-203(1), 42a-9-301(1), 42a-9-302(1), 42a-9-304, 42a-9-305, 42a-9-306, 42a-9-309 and 42a-9-312 and affects another party who does not consent to the rule.

(P.A. 97-182, S. 11; P.A. 05-109, S. 38.)

History: P.A. 05-109 replaced reference to Sec. 42a-1-105 with reference to Sec. 42a-1-301 to conform to revisions made to article 1 by the same act.

Sec. 42a-8-112. Creditor’s legal process. (a) The interest of a debtor in a certificated security may be reached by a creditor only by actual seizure of the security certificate by the officer making the attachment or levy, except as otherwise provided in subsection (d) of this section. However, a certificated security for which the certificate has been surrendered to the issuer may be reached by a creditor by legal process upon the issuer.

(b) The interest of a debtor in an uncertificated security may be reached by a creditor only by legal process upon the issuer at its chief executive office in the United States, except as otherwise provided in subsection (d) of this section.

(c) The interest of a debtor in a security entitlement may be reached by a creditor only by legal process upon the securities intermediary with whom the debtor’s securities account is maintained, except as otherwise provided in subsection (d) of this section.

(d) The interest of a debtor in a certificated security for which the certificate is in the possession of a secured party, or in an uncertificated security registered in the name of a secured party, or a security entitlement maintained in the name of a secured party, may be reached by a creditor by legal process upon the secured party.

(e) A creditor whose debtor is the owner of a certificated security, uncertificated security or security entitlement is entitled to aid from a court of competent jurisdiction, by injunction or otherwise, in reaching the certificated security, uncertificated security or security entitlement or in satisfying the claim by means allowed at law or in equity in regard to property that cannot readily be reached by other legal process.

(P.A. 97-182, S. 12.)

Sec. 42a-8-113. Statute of frauds inapplicable. A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.

(P.A. 97-182, S. 13.)

Sec. 42a-8-114. Evidentiary rules concerning certificated securities. The following rules apply in an action on a certificated security against the issuer:

(1) Unless specifically denied in the pleadings, each signature on a security certificate or in a necessary endorsement is admitted.

(2) If the effectiveness of a signature is put in issue, the burden of establishing effectiveness is on the party claiming under the signature, but the signature is presumed to be genuine or authorized.

(3) If signatures on a security certificate are admitted or established, production of the certificate entitles a holder to recover on it unless the defendant establishes a defense or a defect going to the validity of the security.

(4) If it is shown that a defense or defect exists, the plaintiff has the burden of establishing that the plaintiff or some person under whom the plaintiff claims is a person against whom the defense or defect cannot be asserted.

(P.A. 97-182, S. 14.)

Sec. 42a-8-115. Securities intermediary and others not liable to adverse claimant. A securities intermediary that has transferred a financial asset pursuant to an effective entitlement order, or a broker or other agent or bailee that has dealt with a financial asset at the direction of its customer or principal, is not liable to a person having an adverse claim to the financial asset, unless the securities intermediary, or broker or other agent or bailee:

(1) Took the action after it had been served with an injunction, restraining order or other legal process enjoining it from doing so, issued by a court of competent jurisdiction; or

(2) Acted in collusion with the wrongdoer in violating the rights of the adverse claimant; or

(3) In the case of a security certificate that has been stolen, acted with notice of the adverse claim.

(P.A. 97-182, S. 15.)

Sec. 42a-8-116. Securities intermediary as purchaser. A securities intermediary that receives a financial asset and establishes a security entitlement to the financial asset in favor of an entitlement holder is a purchaser for value of the financial asset. A securities intermediary that acquires a security entitlement to a financial asset from another securities intermediary acquires the security entitlement for value if the securities intermediary acquiring the security entitlement establishes a security entitlement to the financial asset in favor of an entitlement holder.

(P.A. 97-182, S. 16.)

PART 2

ISSUE AND ISSUER

Sec. 42a-8-201. Issuer. (a) With respect to an obligation on or a defense to a security, an “issuer” includes a person that:

(1) Places or authorizes the placing of its name on a security certificate, other than as authenticating trustee, registrar, transfer agent, or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate;

(2) Creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an uncertificated security;

(3) Directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a security certificate; or

(4) Becomes responsible for, or in place of, another person described as an issuer in this section.

(b) With respect to an obligation on or defense to a security, a guarantor is an issuer to the extent of its guaranty, whether or not its obligation is noted on a security certificate.

(c) With respect to a registration of a transfer, issuer means a person on whose behalf transfer books are maintained.

(1959, P.A. 133, S. 8-201; P.A. 79-435, S. 8; P.A. 97-182, S. 17.)

History: P.A. 79-435 applied previous provisions to certificated securities, added provisions specifically applicable to uncertificated securities and added reference to registration of pledge or release in Subsec. (3); P.A. 97-182 replaced numeric with alphabetic Subsec. indicators and rephrased provisions.

Sec. 42a-8-202. Issuer’s responsibility and defenses; notice of defect or defense. (a) Even against a purchaser for value and without notice, the terms of a certificated security include terms stated on the certificate and terms made part of the security by reference on the certificate to another instrument, indenture or document or to a constitution, statute, ordinance, rule, regulation, order or the like, to the extent the terms referred to do not conflict with terms stated on the certificate. A reference under this subsection does not of itself charge a purchaser for value with notice of a defect going to the validity of the security, even if the certificate expressly states that a person accepting it admits notice. The terms of an uncertificated security include those stated in any instrument, indenture or document or in a constitution, statute, ordinance, rule, regulation, order or the like, pursuant to which the security is issued.

(b) The following rules apply if an issuer asserts that a security is not valid:

(1) A security other than one issued by a government or governmental subdivision, agency or instrumentality, even though issued with a defect going to its validity, is valid in the hands of a purchaser for value and without notice of the particular defect unless the defect involves a violation of a constitutional provision. In that case, the security is valid in the hands of a purchaser for value and without notice of the defect, other than one who takes by original issue.

(2) Subdivision (1) of this subsection applies to an issuer that is a government or governmental subdivision, agency or instrumentality only if there has been substantial compliance with the legal requirements governing the issue or the issuer has received a substantial consideration for the issue as a whole or for the particular security and a stated purpose of the issue is one for which the issuer has power to borrow money or issue the security.

(c) Except as otherwise provided in section 42a-8-205, lack of genuineness of a certificated security is a complete defense, even against a purchaser for value and without notice.

(d) All other defenses of the issuer of a security, including nondelivery and conditional delivery of a certificated security, are ineffective against a purchaser for value who has taken the certificated security without notice of the particular defense.

(e) This section does not affect the right of a party to cancel a contract for a security “when, as and if issued” or “when distributed” in the event of a material change in the character of the security that is the subject of the contract or in the plan or arrangement pursuant to which the security is to be issued or distributed.

(f) If a security is held by a securities intermediary against whom an entitlement holder has a security entitlement with respect to the security, the issuer may not assert any defense that the issuer could not assert if the entitlement holder held the security directly.

(1959, P.A. 133, S. 8-202; P.A. 79-435, S. 9; P.A 97-182, S. 18.)

History: P.A. 79-435 applied previous provisions to certificated securities, added provisions specifically applicable to uncertificated securities and reworded provisions for clarity; P.A. 97-182 revised and rephrased section, replaced numeric with alphabetic Subsec. indicators and added Subsec. (f) re assertion of defense when security held by a securities intermediary.

Sec. 42a-8-203. Staleness as notice of defect or defense. After an act or event, other than a call that has been revoked, creating a right to immediate performance of the principal obligation represented by a certificated security or setting a date on or after which the security is to be presented or surrendered for redemption or exchange, a purchaser is charged with notice of any defect in its issue or defense of the issuer, if the act or event:

(1) Requires the payment of money, the delivery of a certificated security, the registration of transfer of an uncertificated security, or any of them on presentation or surrender of the security certificate, the money or security is available on the date set for payment or exchange, and the purchaser takes the security more than one year after that date; or

(2) Is not covered by subdivision (1) of this section and the purchaser takes the security more than two years after the date set for surrender or presentation or the date on which performance became due.

(1959, P.A. 133, S. 8-203; P.A. 79-435, S. 10; P.A. 97-182, S. 19.)

History: P.A. 79-435 reworded provisions to distinguish between certificated and uncertificated securities; P.A. 97-182 rephrased and restructured section.

Sec. 42a-8-204. Effect of issuer’s restriction on transfer. A restriction on transfer of a security imposed by the issuer, even if otherwise lawful, is ineffective against a person without knowledge of the restriction unless:

(1) The security is certificated and the restriction is noted conspicuously on the security certificate; or

(2) The security is uncertificated and the registered owner has been notified of the restriction.

(1959, P.A. 133, S. 8-204; P.A. 79-435, S. 11; P.A. 97-182, S. 20.)

History: P.A. 79-435 added Subdivs. (a) and (b) to distinguish between certificated and uncertificated securities and rephrased previous provision which read “Unless noted conspicuously on the security a restriction on transfer imposed by the issuer, even though otherwise lawful, is ineffective except against a person with actual knowledge of it”; P.A. 97-182 rephrased provisions, replaced alphabetic with numeric Subdiv. indicators and revised Subdiv. (2) by deleting requirement that notice of the restriction be contained in the initial transaction statement.

Sec. 42a-8-205. Effect of unauthorized signature on security certificate. An unauthorized signature placed on a security certificate before or in the course of issue is ineffective, but the signature is effective in favor of a purchaser for value of the certificated security if the purchaser is without notice of the lack of authority and the signing has been done by:

(1) An authenticating trustee, registrar, transfer agent or other person entrusted by the issuer with the signing of the security certificate or of similar security certificates, or the immediate preparation for signing of any of them; or

(2) An employee of the issuer, or of any of the persons listed in subdivision (1) of this section, entrusted with responsible handling of the security certificate.

(1959, P.A. 133, S. 8-205; P.A. 79-435, S. 12; P.A. 97-182, S. 21.)

History: P.A. 79-435 specified applicability to signatures on “certificated” securities and extended applicability to signatures on initial transaction statements; P.A. 97-182 rephrased provisions, replaced alphabetic with numeric Subdiv. indicators and deleted references to initial transaction statements.

Sec. 42a-8-206. Completion or alteration of security certificate. (a) If a security certificate contains the signatures necessary to its issue or transfer but is incomplete in any other respect:

(1) Any person may complete it by filling in the blanks as authorized; and

(2) Even if the blanks are incorrectly filled in, the security certificate as completed is enforceable by a purchaser who took it for value and without notice of the incorrectness.

(b) A complete security certificate that has been improperly altered, even if fraudulently, remains enforceable, but only according to its original terms.

(1959, P.A. 133, S. 8-206; P.A. 79-435, S. 13; P.A. 97-182, S. 22.)

History: P.A. 79-435 applied previous provisions to “certificated” securities, slightly changing wording, and added Subsecs. (3) and (4) re initial transaction statements; P.A. 97-182 replaced numeric with alphabetic Subsec. indicators, replaced alphabetic with numeric Subdiv. indicators, replaced “certificated security” with “security certificate” where appearing and deleted former Subsecs. (3) and (4) re initial transaction statements.

Sec. 42a-8-207. Rights and duties of issuer with respect to registered owners. (a) Before due presentment for registration of transfer of a certificated security in registered form or of an instruction requesting registration of transfer of an uncertificated security, the issuer or indenture trustee may treat the registered owner as the person exclusively entitled to vote, receive notifications and otherwise exercise all the rights and powers of an owner.

(b) This article does not affect the liability of the registered owner of a security for a call, assessment or the like.

(1959, P.A. 133, S. 8-207; 1961, P.A. 116, S. 8; P.A. 79-435, S. 14; P.A. 96-271, S. 214, 254; P.A. 97-182, S. 23.)

History: 1961 act added reference to Sec. 33-310 in Subsec. (1); P.A. 79-435 specified “certificated” securities in Subsec. (1), inserted new Subsecs. (2) to (6) re uncertificated securities and renumbered former Subsec. (2) as Subsec. (7); P.A. 96-271 amended Subsec. (1) to delete provision that made provisions of said Subsec. subject to Sec. 33-310, effective January 1, 1997; P.A. 97-182 redesignated former Subsec. (1) as Subsec. (a) and amended said Subsec. to rephrase provisions and add reference to “an instruction requesting registration of transfer of an uncertificated security”, deleted former Subsecs. (2) to (6) re uncertificated securities and redesignated former Subsec. (7) as Subsec. (b) and amended said Subsec. to rephrase provisions.

Subsec. (1):

Cited. 181 C. 101.

Sec. 42a-8-208. Effect of signature of authenticating trustee, registrar or transfer agent. (a) A person signing a security certificate as authenticating trustee, registrar, transfer agent, or the like, warrants to a purchaser for value of the certificated security, if the purchaser is without notice of a particular defect that:

(1) The certificate is genuine;

(2) The person’s own participation in the issue of the security is within the person’s capacity and within the scope of the authority received by the person from the issuer; and

(3) The person has reasonable grounds to believe that the certificated security is in the form and within the amount the issuer is authorized to issue.

(b) Unless otherwise agreed, a person signing under subsection (a) of this section does not assume responsibility for the validity of the security in other respects.

(1959, P.A. 133, S. 8-208; 1963, P.A. 526, S. 16; P.A. 79-435, S. 15; P.A 97-182, S. 24.)

History: 1963 act deleted reference to “proper form” in Subsec. (1)(a) and added reference to authorized form in Subsec. (1)(c); P.A. 79-435 amended section to distinguish between certificated and uncertificated securities; P.A. 97-182 replaced numeric with alphabetic Subsec. indicators, amended Subsec. (a) to rephrase provisions, delete references to initial transaction statements and uncertificated securities and replace alphabetic with numeric Subdiv. indicators and amended Subsec. (b) to rephrase provisions.

Sec. 42a-8-209. Issuer’s lien. A lien in favor of an issuer upon a certificated security is valid against a purchaser only if the right of the issuer to the lien is noted conspicuously on the security certificate.

(P.A. 97-182, S. 25.)

Sec. 42a-8-210. Overissue. (a) In this section, “overissue” means the issue of securities in excess of the amount the issuer has corporate power to issue, but an overissue does not occur if appropriate action has cured the overissue.

(b) Except as otherwise provided in subsections (c) and (d) of this section, the provisions of this article which validate a security or compel its issue or reissue do not apply to the extent that validation, issue, or reissue would result in overissue.

(c) If an identical security not constituting an overissue is reasonably available for purchase, a person entitled to issue or validation may compel the issuer to purchase the security and deliver it if certificated or register its transfer if uncertificated, against surrender of any security certificate the person holds.

(d) If a security is not reasonably available for purchase, a person entitled to issue or validation may recover from the issuer the price the person or the last purchaser for value paid for it with interest from the date of the person’s demand.

(P.A. 97-182, S. 26.)

PART 3

TRANSFER OF CERTIFICATED AND UNCERTIFICATED SECURITIES

Sec. 42a-8-301. Delivery. (a) Delivery of a certificated security to a purchaser occurs when:

(1) The purchaser acquires possession of the security certificate;

(2) Another person, other than a securities intermediary, either acquires possession of the security certificate on behalf of the purchaser or, having previously acquired possession of the certificate, acknowledges that it holds for the purchaser; or

(3) A securities intermediary acting on behalf of the purchaser acquires possession of the security certificate, only if the certificate is in registered form and is (i) registered in the name of the purchaser, (ii) payable to the order of the purchaser, or (iii) specially endorsed to the purchaser by an effective endorsement and has not been endorsed to the securities intermediary or in blank.

(b) Delivery of an uncertificated security to a purchaser occurs when:

(1) The issuer registers the purchaser as the registered owner, upon original issue or registration of transfer; or

(2) Another person, other than a securities intermediary, either becomes the registered owner of the uncertificated security on behalf of the purchaser or, having previously become the registered owner, acknowledges that it holds for the purchaser.

(1959, P.A. 133, S. 8-301; P.A. 79-435, S. 16; P.A 97-182, S. 27; P.A. 01-132, S. 149.)

History: P.A. 79-435 made provisions of Subsec. (1) conditional re Secs. 42a-8-313 and 42a-8-302, deleting former provisions which had limited provisions with respect to purchasers party to fraud or illegality or who, as prior holders, had notice of adverse claim, deleted Subsec. (2) which had granted bona fide purchaser acquisition of security free of adverse claim, renumbered former Subsec. (3) as Subsec. (2), substituting “transferee” for “purchaser” and stating that creation or release of security interest is transfer of a limited interest; P.A. 97-182 entirely replaced former provisions re rights in a security acquired by a purchaser with provisions re when the delivery of a security occurs, a restatement in part of Sec. 42a-8-313(1), revised to 1997; P.A. 01-132 amended Subsec. (a) to add Subdiv. (3)(i) re condition that the certificate is registered in the name of the purchaser, add Subdiv. (3)(ii) re condition that the certificate is payable to the order of the purchaser and designate existing condition re special endorsement as Subdiv. (3)(iii) and amend to add condition that the certificate has not been endorsed to the securities intermediary or in blank.

See Sec. 42a-8-302(a) and (b) for successor provisions to Sec. 42a-8-301, revised to 1997, re rights in a security acquired by a purchaser.

Former section cited. 16 CS 269.

Sec. 42a-8-302. Rights of purchaser. (a) Except as otherwise provided in subsections (b) and (c) of this section, a purchaser of a certificated or uncertificated security acquires all rights in the security that the transferor had or had power to transfer.

(b) A purchaser of a limited interest acquires rights only to the extent of the interest purchased.

(c) A purchaser of a certificated security who as a previous holder had notice of an adverse claim does not improve its position by taking from a protected purchaser.

(1959, P.A. 133, S. 8-302; P.A. 79-435, S. 17; P.A. 90-230, S. 56, 101; P.A. 97-182, S. 28; P.A. 01-132, S. 150.)

History: P.A. 79-435 applied previous provisions to certificated securities, adding provisions re uncertificated securities, and added Subsecs. (2) to (4) containing provisions formerly found in Sec. 42a-8-301; P.A. 90-230 corrected an internal reference; P.A. 97-182 replaced former Subsecs. (1) to (3), inclusive, defining “bona fide purchaser” and “adverse claim” and specifying the interest in a security acquired by a bona fide purchaser with Subsecs. (a) and (b) re rights in a security acquired by a purchaser, a restatement of Sec. 42a-8-301, revised to 1997, and redesignated former Subsec. (4) as Subsec. (c) and amended said Subsec. by deleting provision re a transferee who has been a party to any fraud or illegality affecting the security; P.A. 01-132 amended Subsec. (a) to delete provisions that the purchaser’s acquisition of the transferor’s rights occurs “upon delivery” of the security to the purchaser.

See Sec. 42a-8-303(a) and (b) for successor provisions to Sec. 42a-8-302(1) and (3), respectively, revised to 1997, re definition of “bona fide purchaser” and the interest in a security acquired by a bona fide purchaser.

See Sec. 42a-8-102(a)(1) for successor provisions to Sec. 42a-8-302(2), revised to 1997, re definition of “adverse claim”.

Sec. 42a-8-303. Protected purchaser. (a) “Protected purchaser” means a purchaser of a certificated or uncertificated security, or of an interest therein, who:

(1) Gives value;

(2) Does not have notice of any adverse claim to the security; and

(3) Obtains control of the certificated or uncertificated security.

(b) In addition to acquiring the rights of a purchaser, a protected purchaser also acquires its interest in the security free of any adverse claim.

(1959, P.A. 133, S. 8-303; P.A. 79-435, S. 18; P.A. 97-182, S. 29.)

History: P.A. 79-435 made technical corrections; P.A. 97-182 entirely replaced former provisions defining “broker” with provisions defining “protected purchaser” and specifying that the interest in a security acquired by a protected purchaser is free of any adverse claim, a restatement of Sec. 42a-8-302(1) and (3), revised to 1997.

See Sec. 42a-8-102(a)(3) for successor provisions to Sec. 42a-8-303, revised to 1997, re definition of “broker”.

Sec. 42a-8-304. Endorsement. (a) An endorsement may be in blank or special. An endorsement in blank includes an endorsement to bearer. A special endorsement specifies to whom a security is to be transferred or who has power to transfer it. A holder may convert a blank endorsement to a special endorsement.

(b) An endorsement purporting to be only of part of a security certificate representing units intended by the issuer to be separately transferable is effective to the extent of the endorsement.

(c) An endorsement, whether special or in blank, does not constitute a transfer until delivery of the certificate on which it appears or, if the endorsement is on a separate document, until delivery of both the document and the certificate.

(d) If a security certificate in registered form has been delivered to a purchaser without a necessary endorsement, the purchaser may become a protected purchaser only when the endorsement is supplied. However, against a transferor, a transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary endorsement supplied.

(e) An endorsement of a security certificate in bearer form may give notice of an adverse claim to the certificate, but it does not otherwise affect a right to registration that the holder possesses.

(f) Unless otherwise agreed, a person making an endorsement assumes only the obligations provided in section 42a-8-108, and not an obligation that the security will be honored by the issuer.

(1959, P.A. 133, S. 8-304; P.A. 79-435, S. 19; P.A. 97-182, S. 30; P.A. 98-93, S. 5, 15.)

History: P.A. 79-435 applied existing Subsec. (1) to certificated securities, inserted new Subsec. (2) and renumbered former Subsec. (2) as Subsec. (3) specifying purchasers of “certificated or uncertificated” securities and “constructive” notice of adverse claims; P.A. 97-182 entirely replaced former provisions re when a purchaser is charged with notice of adverse claims with provisions re endorsement, a restatement of Secs. 42a-8-307, 42a-8-308(2), (3) and (9), 42a-8-309 and 42a-8-310, revised to 1997; P.A. 98-93 amended Subsec. (f) to make a technical change, effective July 1, 1998.

See Sec. 42a-8-105(b) for successor provisions to Sec. 42a-8-304(3), revised to 1997, re duty of inquiry into rightfulness of a transaction.

See Sec. 42a-8-105(d) for successor provisions to Sec. 42a-8-304(1), revised to 1997, re when a purchaser of a certificated security has notice of an adverse claim.

Sec. 42a-8-305. Instruction. (a) If an instruction has been originated by an appropriate person but is incomplete in any other respect, any person may complete it as authorized and the issuer may rely on it as completed, even though it has been completed incorrectly.

(b) Unless otherwise agreed, a person initiating an instruction assumes only the obligations imposed by section 42a-8-108, and not an obligation that the security will be honored by the issuer.

(1959, P.A. 133, S. 8-305; P.A. 79-435, S. 20; P.A. 97-182, S. 31; P.A. 98-93, S. 6, 15.)

History: P.A. 79-435 specified applicability of provisions to “certificated” securities and substituted “transfer” for “purchase”; P.A. 97-182 entirely replaced former provisions re “staleness” as notice of adverse claims with provisions re an instruction, a restatement in part of Sec. 42a-8-308(5) and (9), revised to 1997; P.A. 98-93 amended Subsec. (b) to make a technical change, effective July 1, 1998.

See Sec. 42a-8-105(c) for successor provisions to Sec. 42a-8-305, revised to 1997, re “staleness” as notice of adverse claims.

Sec. 42a-8-306. Effect of guaranteeing signature, endorsement or instruction. (a) A person who guarantees a signature of an endorser of a security certificate warrants that at the time of signing:

(1) The signature was genuine;

(2) The signer was an appropriate person to endorse, or if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person; and

(3) The signer had legal capacity to sign.

(b) A person who guarantees a signature of the originator of an instruction warrants that at the time of signing:

(1) The signature was genuine;

(2) The signer was an appropriate person to originate the instruction, or if the signature is by an agent, the agent had actual authority to act on behalf of the appropriate person, if the person specified in the instruction as the registered owner was, in fact, the registered owner, as to which fact the signature guarantor does not make a warranty; and

(3) The signer had legal capacity to sign.

(c) A person who specially guarantees the signature of an originator of an instruction makes the warranties of a signature guarantor under subsection (b) of this section and also warrants that at the time the instruction is presented to the issuer:

(1) The person specified in the instruction as the registered owner of the uncertificated security will be the registered owner; and

(2) The transfer of the uncertificated security requested in the instruction will be registered by the issuer free from all liens, security interests, restrictions and claims other than those specified in the instruction.

(d) A guarantor under subsections (a) and (b) of this section or a special guarantor under subsection (c) of this section does not otherwise warrant the rightfulness of the transfer.

(e) A person who guarantees an endorsement of a security certificate makes the warranties of a signature guarantor under subsection (a) of this section and also warrants the rightfulness of the transfer in all respects.

(f) A person who guarantees an instruction requesting the transfer of an uncertificated security makes the warranties of a special signature guarantor under subsection (c) of this section and also warrants the rightfulness of the transfer in all respects.

(g) An issuer may not require a special guaranty of signature, a guaranty of endorsement, or a guaranty of instruction as a condition to registration of transfer.

(h) The warranties under this section are made to a person taking or dealing with the security in reliance on the guaranty, and the guarantor is liable to the person for loss resulting from their breach. An endorser or originator of an instruction whose signature, endorsement or instruction has been guaranteed is liable to a guarantor for any loss suffered by the guarantor as a result of breach of the warranties of the guarantor.

(1959, P.A. 133, S. 8-306; 1963, P.A. 526, S. 17; P.A. 79-435, S. 21; P.A. 97-182, S. 32.)

History: 1963 act deleted provision in Subsec. (3) which had specified that broker is not an intermediary within meaning of Subsec.; P.A. 79-435 applied previous provisions to certificated securities, adding provision re receipt of initial transaction statement in Subsec. (1), inserted new Subsecs. (5) to (9) and renumbered former Subsec. (5) as Subsec. (10); P.A. 97-182 entirely replaced former provisions re warranties on presentment and transfer of certificated securities and warranties of originators of instructions with provisions re the effect of guaranteeing signature, endorsement or instruction, a restatement of Sec. 42a-8-312, revised to 1997.

See Sec. 42a-8-108 for successor provisions to Sec. 42a-8-306, revised to 1997, re warranties in direct holding.

Sec. 42a-8-307. Purchaser’s right to requisites for registration of transfer. Unless otherwise agreed, the transferor of a security on due demand shall supply the purchaser with proof of authority to transfer or with any other requisite necessary to obtain registration of the transfer of the security, but if the transfer is not for value, a transferor need not comply unless the purchaser pays the necessary expenses. If the transferor fails within a reasonable time to comply with the demand, the purchaser may reject or rescind the transfer.

(1959, P.A. 133, S. 8-307; P.A. 79-435, S. 22; P.A. 97-182, S. 33.)

History: P.A. 79-435 specified applicability to “certificated” securities; P.A. 97-182 entirely replaced former provisions re effect of delivery without endorsement and the right of the purchaser to compel endorsement with provisions re the right of the purchaser to demand that the transferor supply requisites necessary to obtain registration of the transfer, a restatement of Sec. 42a-8-316, revised to 1997.

See Sec. 42a-8-304(d) for successor provisions to Sec. 42a-8-307, revised to 1997, re effect of delivery without endorsement and the right of the purchaser to compel endorsement.

Secs. 42a-8-308 to 42a-8-321. Endorsements; instructions. Effect of endorsement without delivery. Endorsement of certificated security in bearer form. Effect of unauthorized endorsement or instruction. Effect of guaranteeing signature, endorsement or instruction. When transfer to purchaser occurs: Financial intermediary as bona fide purchaser; “financial intermediary”. Duty to transfer, when completed. Action against transferee based upon wrongful transfer. Purchaser’s right to requisites for registration of transfer, pledge or release on books. Creditors’ rights. No conversion by good faith conduct. Statute of frauds. Transfer or pledge within central depository system. Enforceability, attachment, perfection and termination of security interests. Sections 42a-8-308 to 42a-8-321, inclusive, are repealed, effective October 1, 1997.

(1959, P.A. 133, S. 8-308–8-319; 1963, P.A. 526, S. 18–20; P.A. 79-435, S. 23–36; P.A. 97-182, S. 68.)

PART 4

REGISTRATION

Sec. 42a-8-401. Duty of issuer to register transfer. (a) If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented to an issuer with a request to register transfer of an uncertificated security, the issuer shall register the transfer as requested if:

(1) Under the terms of the security the person seeking registration of transfer is eligible to have the security registered in its name;

(2) The endorsement or instruction is made by the appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;

(3) Reasonable assurance is given as provided in section 42a-8-402 that the endorsement or instruction is genuine and authorized;

(4) Any applicable law relating to the collection of taxes has been complied with;

(5) The transfer does not violate any restriction on transfer imposed by the issuer in accordance with section 42a-8-204;

(6) A demand that the issuer not register transfer has not become effective under section 42a-8-403, or the issuer has complied with subsection (b) of section 42a-8-403 but no legal process or indemnity bond is obtained as provided in subsection (d) of section 42a-8-403; and

(7) The transfer is in fact rightful or is to a protected purchaser.

(b) If an issuer is under a duty to register a transfer of a security, the issuer is liable to a person presenting a certificated security or an instruction for registration or to the person’s principal for loss resulting from unreasonable delay in registration or failure or refusal to register the transfer.

(1959, P.A. 133, S. 8-401; P.A. 79-435, S. 37; P.A. 97-182, S. 34; P.A. 98-93, S. 7, 15.)

History: P.A. 79-435 specified “certificated” securities and made provisions applicable with respect to instructions requesting registration of transfer, pledge or release; P.A. 97-182 redesignated Subsec. (1) as Subsec. (a) and substantially revised said Subsec. and redesignated Subsec. (2) as Subsec. (b) and rephrased said Subsec.; P.A. 98-93 amended Subsec. (a)(3) to make a technical change, effective July 1, 1998.

Cited. 6 CA 530.

Sec. 42a-8-402. Assurance that endorsement or instruction is effective. (a) An issuer may require the following assurance that each necessary endorsement or each instruction is genuine and authorized:

(1) In all cases, a guaranty of the signature of the person making an endorsement or originating an instruction including, in the case of an instruction, reasonable assurance of identity;

(2) If the endorsement is made or the instruction is originated by an agent, appropriate assurance of actual authority to sign;

(3) If the endorsement is made or the instruction is originated by a fiduciary pursuant to subdivision (4) or (5) of subsection (a) of section 42a-8-107, appropriate evidence of appointment or incumbency;

(4) If there is more than one fiduciary, reasonable assurance that all who are required to sign have done so; and

(5) If the endorsement is made or the instruction is originated by a person not covered by another provision of this subsection, assurance appropriate to the case corresponding as nearly as may be to the provisions of this subsection.

(b) An issuer may elect to require reasonable assurance beyond that specified in this section.

(c) In this section:

(1) “Guaranty of the signature” means a guaranty signed by or on behalf of a person reasonably believed by the issuer to be responsible. An issuer may adopt standards with respect to responsibility if they are not manifestly unreasonable.

(2) “Appropriate evidence of appointment or incumbency” means:

(i) In the case of a fiduciary appointed or qualified by a court, a certificate issued by or under the direction or supervision of the court or an officer thereof and dated within sixty days before the date of presentation for transfer; or

(ii) In any other case, a copy of a document showing the appointment or a certificate issued by or on behalf of a person reasonably believed by an issuer to be responsible or, in the absence of that document or certificate, other evidence the issuer reasonably considers appropriate.

(1959, P.A. 133, S. 8-402; P.A. 79-435, S. 38; P.A. 97-182, S. 35.)

History: P.A. 79-435 specified applicability to certificated securities and instructions, adding references to pledge or release of securities in Subsecs. (3) and (4); P.A. 97-182 substantially revised and restructured section including redesignating Subsec. (1) as Subsec. (a) and amending said Subsec. to replace alphabetic with numeric Subdiv. indicators and rephrase provisions, redesignating Subsec. (2) defining “guaranty of the signature” as Subsec. (c)(1), redesignating Subsec. (3) defining “appropriate evidence of appointment or incumbency” as Subsec. (c)(2) and deleting from said Subdiv. provisions that authorized the adoption of standards with respect to the evidence and specified the extent to which the issuer is charged with notice of the contents of a document and redesignating the provisions of Subsec. (4) that authorize the issuer to elect to require reasonable assurance beyond that specified in the section as Subsec. (b) and deleting from said Subsec. provisions re when the issuer is charged with notice of all matters contained in certain documents.

Sec. 42a-8-403. Demand that issuer not register transfer. (a) A person who is an appropriate person to make an endorsement or originate an instruction may demand that the issuer not register transfer of a security by communicating to the issuer a notification that identifies the registered owner and the issue of which the security is a part and provides an address for communications directed to the person making the demand. The demand is effective only if it is received by the issuer at a time and in a manner affording the issuer reasonable opportunity to act on it.

(b) If a certificated security in registered form is presented to an issuer with a request to register transfer or an instruction is presented to an issuer with a request to register transfer of an uncertificated security after a demand that the issuer not register a transfer has become effective, the issuer shall promptly communicate to the person who initiated the demand at the address provided in the demand and the person who presented the security for registration of transfer or initiated the instruction requesting registration of transfer a notification stating that:

(1) The certificated security has been presented for registration of transfer or the instruction for registration of transfer of the uncertificated security has been received;

(2) A demand that the issuer not register transfer had previously been received; and

(3) The issuer will withhold registration of transfer for a period of time stated in the notification in order to provide the person who initiated the demand an opportunity to obtain legal process or an indemnity bond.

(c) The period described in subdivision (3) of subsection (b) of this section may not exceed thirty days after the date of communication of the notification. A shorter period may be specified by the issuer if it is not manifestly unreasonable.

(d) An issuer is not liable to a person who initiated a demand that the issuer not register transfer for any loss the person suffers as a result of registration of a transfer pursuant to an effective endorsement or instruction if the person who initiated the demand does not, within the time stated in the issuer’s communication, either:

(1) Obtain an appropriate restraining order, injunction or other process from a court of competent jurisdiction enjoining the issuer from registering the transfer; or

(2) File with the issuer an indemnity bond, sufficient in the issuer’s judgment to protect the issuer and any transfer agent, registrar or other agent of the issuer involved from any loss it or they may suffer by refusing to register the transfer.

(e) This section does not relieve an issuer from liability for registering transfer pursuant to an endorsement or instruction that was not effective.

(1959, P.A. 133, S. 8-403; 1961, P.A. 116, S. 9; P.A. 79-435, S. 39; P.A. 97-182, S. 36; P.A. 98-93, S. 8, 15.)

History: 1961 act inserted receipting requirement of Subsec. (2); P.A. 79-435 specified applicability of previous provisions to “certificated” securities and added Subsecs. (4) to (7) re uncertificated securities; P.A. 97-182 substantially revised section including replacing provisions re the duty of the issuer as to adverse claims with provisions authorizing certain persons to demand that the issuer not register transfer; P.A. 98-93 amended Subsec. (b) to make a technical change, effective July 1, 1998.

Sec. 42a-8-404. Wrongful registration. (a) Except as otherwise provided in section 42a-8-406, an issuer is liable for wrongful registration of transfer if the issuer has registered a transfer of a security to a person not entitled to it, and the transfer was registered:

(1) Pursuant to an ineffective endorsement or instruction;

(2) After a demand that the issuer not register transfer became effective under subsection (a) of section 42a-8-403 and the issuer did not comply with subsection (b) of section 42a-8-403;

(3) After the issuer had been served with an injunction, restraining order or other legal process enjoining it from registering the transfer, issued by a court of competent jurisdiction, and the issuer had a reasonable opportunity to act on the injunction, restraining order or other legal process; or

(4) By an issuer acting in collusion with the wrongdoer.

(b) An issuer that is liable for wrongful registration of transfer under subsection (a) of this section on demand shall provide the person entitled to the security with a like certificated or uncertificated security, and any payments or distributions that the person did not receive as a result of the wrongful registration. if an overissue would result, the issuer’s liability to provide the person with a like security is governed by section 42a-8-210.

(c) Except as otherwise provided in subsection (a) of this section or in a law relating to the collection of taxes, an issuer is not liable to an owner or other person suffering loss as a result of the registration of a transfer of a security if registration was made pursuant to an effective endorsement or instruction.

(1959, P.A. 133, S. 8-404; P.A. 79-435, S. 40; P.A. 97-182, S. 37.)

History: P.A. 79-435 specified applicability to “certificated” securities and to instructions, added reference to “pledge or release” of security and added Subsec. (3) re improper registration of uncertificated securities; P.A. 97-182 substantially revised section.

Sec. 42a-8-405. Replacement of lost, destroyed or wrongfully taken security certificate. (a) If an owner of a certificated security, whether in registered or bearer form, claims that the certificate has been lost, destroyed or wrongfully taken, the issuer shall issue a new certificate if the owner:

(1) So requests before the issuer has notice that the certificate has been acquired by a protected purchaser;

(2) Files with the issuer a sufficient indemnity bond; and

(3) Satisfies other reasonable requirements imposed by the issuer.

(b) If, after the issue of a new security certificate, a protected purchaser of the original certificate presents it for registration of transfer, the issuer shall register the transfer unless an overissue would result. In that case, the issuer’s liability is governed by section 42a-8-210. In addition to any rights on the indemnity bond, an issuer may recover the new certificate from a person to whom it was issued or any person taking under that person, except a protected purchaser.

(1959, P.A. 133, S. 8-405; P.A. 79-435, S. 41; P.A. 97-182, S. 38.)

History: P.A. 79-435 applied previous provisions to “certificated” securities and added provisions specifically applicable to “uncertificated” securities; P.A. 97-182 deleted former Subsec. (1) re consequences of an owner failing to notify the issuer of lost, destroyed or stolen securities, redesignated former Subsecs. (2) and (3) as Subsecs. (a) and (b), respectively, and revised and rephrased said Subsecs.

See Sec. 42a-8-406 for successor provisions to Sec. 42a-8-405(1), revised to 1997, re obligation to notify issuer of lost, destroyed or wrongfully taken security certificates.

Sec. 42a-8-406. Obligation to notify issuer of lost, destroyed or wrongfully taken security certificate. If a security certificate has been lost, apparently destroyed, or wrongfully taken, and the owner fails to notify the issuer of that fact within a reasonable time after the owner has notice of it and the issuer registers a transfer of the security before receiving notification, the owner may not assert against the issuer a claim for registering the transfer under section 42a-8-404, or a claim to a new security certificate under section 42a-8-405.

(1959, P.A. 133, S. 8-406; P.A. 79-435, S. 42; P.A. 97-182, S. 39.)

History: P.A. 79-435 distinguished between certificated and uncertificated securities; P.A. 97-182 replaced former provisions re duty of authenticating trustee, transfer agent or registrar with provisions re consequences of an owner failing to notify the issuer of a lost, destroyed or wrongfully taken security certificate, a restatement of Sec. 42a-8-405(1), revised to 1997.

See Sec. 42a-8-407 for successor provisions to Sec. 42a-8-406, revised to 1997, re duty of authenticating trustee, transfer agent and registrar.

Sec. 42a-8-407. Authenticating trustee, transfer agent and registrar. A person acting as authenticating trustee, a transfer agent, registrar or other agent for an issuer in the registration of transfer of its securities, in the issue of new security certificates or uncertificated securities, or in the cancellation of surrendered security certificates has the same obligation to the holder or owner of a certificated or uncertificated security with regard to the particular functions performed as the issuer has in regard to those functions.

(P.A. 79-435, S. 43; P.A. 97-182, S. 40.)

History: P.A. 97-182 entirely replaced former provisions re exchangeability of securities with provisions re obligation of authenticating trustee, transfer agent, registrar or other agent, a restatement in part of Sec. 42a-8-406, revised to 1997.

Sec. 42a-8-408. Statement of uncertificated securities. Section 42a-8-408 is repealed, effective October 1, 1997.

(P.A. 79-435, S. 44; P.A. 97-182, S. 68.)

PART 5

SECURITY ENTITLEMENTS

Sec. 42a-8-501. Securities account; acquisition of security entitlement from securities intermediary. (a) “Securities account” means an account to which a financial asset is or may be credited in accordance with an agreement under which the person maintaining the account undertakes to treat the person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset.

(b) Except as otherwise provided in subsections (d) and (e) of this section, a person acquires a security entitlement if a securities intermediary:

(1) Indicates by book entry that a financial asset has been credited to the person’s securities account;

(2) Receives a financial asset from the person or acquires a financial asset for the person and, in either case, accepts it for credit to the person’s securities account; or

(3) Becomes obligated under other law, regulation or rule to credit a financial asset to the person’s securities account.

(c) If a condition of subsection (b) of this section has been met, a person has a security entitlement even though the securities intermediary does not itself hold the financial asset.

(d) If a securities intermediary holds a financial asset for another person, and the financial asset is registered in the name of, payable to the order of, or specially endorsed to the other person, and has not been endorsed to the securities intermediary or in blank, the other person is treated as holding the financial asset directly rather than as having a security entitlement with respect to the financial asset.

(e) Issuance of a security is not establishment of a security entitlement.

(P.A. 97-182, S. 41.)

Sec. 42a-8-502. Assertion of adverse claim against entitlement holder. An action based on an adverse claim to a financial asset, whether framed in conversion, replevin, constructive trust, equitable lien or other theory, may not be asserted against a person who acquires a security entitlement under section 42a-8-501 for value and without notice of the adverse claim.

(P.A. 97-182, S. 42.)

Sec. 42a-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 by 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 section 42a-8-511.

(b) An entitlement holder’s property interest with respect to a particular financial asset under subsection (a) of this section 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) of this section may be enforced against the securities intermediary only by exercise of the entitlement holder’s rights under sections 42a-8-505 to 42a-8-508, inclusive.

(d) An entitlement holder’s property interest with respect to a particular financial asset under subsection (a) of this section 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 section 42a-8-504 transferring the financial asset or interest therein to the purchaser; and

(4) The purchaser is not protected under subsection (e) of this section. 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) of this section, 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 section 42a-8-504.

(P.A. 97-182, S. 43; P.A. 98-93, S. 9, 10, 15.)

History: P.A. 98-93 amended Subsec. (a) to add “except as otherwise provided in Sec. 42a-8-511” and amended Subsec. (e) to replace “buyer” with “purchaser” and include requirement that the purchaser obtain control, effective July 1, 1998.

Sec. 42a-8-504. Duty of securities intermediary to maintain financial asset. (a) A securities intermediary shall promptly obtain and thereafter maintain a financial asset in a quantity corresponding to the aggregate of all security entitlements it has established in favor of its entitlement holders with respect to that financial asset. The securities intermediary may maintain those financial assets directly or through one or more other securities intermediaries.

(b) Except to the extent otherwise agreed by its entitlement holder, a securities intermediary may not grant any security interests in a financial asset it is obligated to maintain pursuant to subsection (a) of this section.

(c) A securities intermediary satisfies the duty in subsection (a) of this section 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 obtain and maintain the financial asset.

(d) This section does not apply to a clearing corporation that is itself the obligor of an option or similar obligation to which its entitlement holders have security entitlements.

(P.A. 97-182, S. 44.)

Sec. 42a-8-505. Duty of securities intermediary with respect to payments and distributions. (a) A securities intermediary shall take action to obtain a payment or distribution made by the issuer of a financial asset. 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 attempt to obtain the payment or distribution.

(b) A securities intermediary is obligated to its entitlement holder for a payment or distribution made by the issuer of a financial asset if the payment or distribution is received by the securities intermediary.

(P.A. 97-182, S. 45.)

Sec. 42a-8-506. Duty of securities intermediary to exercise rights as directed by entitlement holder. A securities intermediary shall exercise rights with respect to a financial asset if directed to do so by an entitlement holder. 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 either places the entitlement holder in a position to exercise the rights directly or exercises due care in accordance with reasonable commercial standards to follow the direction of the entitlement holder.

(P.A. 97-182, S. 46.)

Sec. 42a-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.

(P.A. 97-182, S. 47.)

Sec. 42a-8-508. Duty of securities intermediary to change entitlement holder’s position to other form of security holding. A securities intermediary shall act at the direction of an entitlement holder to change a security entitlement into another available form of holding for which the entitlement holder is eligible, or to cause the financial asset to be transferred to a securities account of the entitlement holder with another securities intermediary. A securities intermediary satisfies the duty if:

(1) The securities intermediary acts 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 follow the direction of the entitlement holder.

(P.A. 97-182, S. 48.)

Sec. 42a-8-509. Specification of duties of securities intermediary by other statute or regulation; manner of performance of duties of securities intermediary and exercise of rights of entitlement holder. (a) If the substance of a duty imposed upon a securities intermediary by sections 42a-8-504 to 42a-8-508, inclusive, is the subject of other statute, regulation or rule, compliance with that statute, regulation or rule satisfies the duty.

(b) To the extent that specific standards for the performance of the duties of a securities intermediary or the exercise of the rights of an entitlement holder are not specified by other statute, regulation or rule or by agreement between the securities intermediary and entitlement holder, the securities intermediary shall perform its duties and the entitlement holder shall exercise its rights in a commercially reasonable manner.

(c) The obligation of a securities intermediary to perform the duties imposed by sections 42a-8-504 to 42a-8-508, inclusive, is subject to:

(1) Rights of the securities intermediary arising out of a security interest under a security agreement with the entitlement holder or otherwise; and

(2) Rights of the securities intermediary under other law, regulation, rule or agreement to withhold performance of its duties as a result of unfulfilled obligations of the entitlement holder to the securities intermediary.

(d) Sections 42a-8-504 to 42a-8-508, inclusive, do not require a securities intermediary to take any action that is prohibited by other statute, regulation or rule.

(P.A. 97-182, S. 49.)

Sec. 42a-8-510. Rights of purchaser of security entitlement from entitlement holder. (a) In a case not covered by the priority rules in article 9 or the rules stated in subsection (c) of this section, an action based on an adverse claim to a financial asset or security entitlement, whether framed in conversion, replevin, constructive trust, equitable lien or other theory, may not be asserted against a person who purchases a security entitlement, or an interest therein, from an entitlement holder if the purchaser gives value, does not have notice of the adverse claim and obtains control.

(b) If an adverse claim could not have been asserted against an entitlement holder under section 42a-8-502, the adverse claim cannot be asserted against a person who purchases a security entitlement, or an interest therein, from the entitlement holder.

(c) In a case not covered by the priority rules in article 9, a purchaser for value of a security entitlement, or an interest therein, who obtains control has priority over a purchaser of a security entitlement, or an interest therein, who does not obtain control. Except as otherwise provided in subsection (d) of this section, purchasers who have control rank according to priority in time of:

(1) The purchaser’s becoming the person for whom the securities account, in which the security entitlement is carried, is maintained, if the purchaser obtained control under subsection (d)(1) of section 42a-8-106;

(2) The securities intermediary’s agreement to comply with the purchaser’s entitlement orders with respect to security entitlements carried or to be carried in the securities account in which the security entitlement is carried, if the purchaser obtained control under subsection (d)(2) of section 42a-8-106; or

(3) If the purchaser obtained control through another person under subsection (d)(3) of section 42a-8-106, the time on which priority would be based under this subsection if the other person were the secured party.

(d) A securities intermediary as purchaser has priority over a conflicting purchaser who has control unless otherwise agreed by the securities intermediary.

(P.A. 97-182, S. 50; P.A. 98-93, S. 11, 15; P.A. 01-132, S. 151.)

History: P.A. 98-93 amended Subsec. (a) to replace “buys” with “purchases”, effective July 1, 1998; P.A. 01-132 amended Subsec. (a) to make provisions applicable “In a case not covered by the priority rules in article 9 or the rules stated in subsection (c) of this section”, amended Subsec. (c) to replace default rule that purchasers who have control rank equally with default rule that, except as provided in Subsec. (d), priority among purchasers who have control is determined by the time of certain events and add Subdivs. (1), (2) and (3) re such events, and designate as Subsec. (d) existing exception re the priority of a securities intermediary as purchaser over a conflicting purchaser who has control.

Sec. 42a-8-511. Priority among security interests and entitlement holders. (a) Except as otherwise provided in subsections (b) and (c) of this section, 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.

(P.A. 97-182, S. 51; P.A. 98-93, S. 12, 15.)

History: P.A. 98-93 amended Subsec. (a) to replace “subsection (b)” with “subsections (b) and (c)” and added new Subsec. (b) re the priority of the claim of a creditor of a securities intermediary who has a security interest in a financial asset held by a securities intermediary and has control over the financial asset, relettering former Subsec. (b) as Subsec. (c), effective July 1, 1998.

PART 6

TRANSITION PROVISIONS

Sec. 42a-8-601. Savings clause. (a) Public act 97-182* does not affect an action or proceeding commenced before October 1, 1997.

(b) If a security interest in a security is perfected as of October 1, 1997, and the action by which the security interest was perfected would suffice to perfect a security interest under public act 97-182*, no further action is required to continue perfection. If a security interest in a security is perfected as of October 1, 1997, but the action by which the security interest was perfected would not suffice to perfect a security interests under public act 97-182*, the security interest remains perfected for a period of four months after October 1, 1997, and continues perfected thereafter if appropriate action to perfect under public act 97-182* is taken within that period. If a security interest is perfected as of October 1, 1997, and the security interest can be perfected by filing under public act 97-182*, a financing statement signed by the secured party instead of the debtor may be filed within that period to continue perfection or thereafter to perfect.

(P.A. 97-182, S. 67.)

*Note: Public act 97-182 is entitled “An Act Revising Article 8 of the Uniform Commercial Code Concerning Investment Securities”. (See Reference Table captioned “Public Acts of 1997” in Volume 16 which lists the sections amended, created or repealed by the act.)