2023 New Mexico Statutes › Chapter 55 - Uniform Commercial Code › Article 8 - Investment Securities › Part 1 - SHORT TITLE AND GENERAL MATTERS › Section 55-8-106 - 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 indorsed to the purchaser or in blank by an effective indorsement; 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 Paragraph (2) of Subsection (c) or Paragraph (2) of Subsection (d) 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.
History:
1978 Comp., § 55-8-106, enacted by Laws 1996, ch. 47, § 10; 2001, ch. 139, § 141.
OFFICIAL COMMENTS
UCC Official Comments by ALI & the NCCUSL. Reproduced with permission of the PEB for the UCC. All rights reserved.
1. The concept of "control" plays a key role in various provisions dealing with the rights of purchasers, including secured parties.
See
Sections 8-303 [55-8-303 NMSA 1978] (protected purchasers); 8-503(e) [55-8-503 NMSA 1978] (purchasers from securities intermediaries); 8-510 [55-8-510 NMSA 1978] (purchasers of security entitlements from entitlement holders); 9-203(b)(3)(D) [55-9-203 NMSA 1978] (attachment of security interests); 9-314 [55-9-314 NMSA 1978] (perfection of security interests); 9-328 [55-9-328 NMSA 1978] (priorities among conflicting security interests).
Obtaining "control" means that the purchaser has taken whatever steps are necessary, given the manner in which the securities or other financial assets are held, to place itself in a position where it can have the securities or other financial assets sold, without further action by the owner, registered owner, entitlement holder, transferor, or other person with an interest in the securities or other financial assets.
2. Subsection (a) provides that a purchaser obtains "control" with respect to a certificated security in bearer form by taking "delivery," as defined in Section 8-301 [55-8-301 NMSA 1978]. Subsection (b) provides that a purchaser obtains "control" with respect to a certificated security in registered form by taking "delivery," as defined in Section 8-301, provided that the security certificate has been indorsed to the purchaser or in blank. Section 8-301 provides that delivery of a certificated security occurs when the purchaser obtains possession of the security certificate, or when an agent for the purchaser (other than a securities intermediary) either acquires possession or acknowledges that the agent holds for the purchaser.
3. Subsection (c) specifies the means by which a purchaser can obtain control over uncertificated securities which the transferor holds directly. Two mechanisms are possible.
Under Subsection (c)(1), securities can be "delivered" to a purchaser. Section 8-301(b) [55-8-301 NMSA 1978] provides that "delivery" of an uncertificated security occurs when the purchaser becomes the registered holder. So far as the issuer is concerned, the purchaser would then be entitled to exercise all rights of ownership.
See
Section 8-207 [55-8-207 NMSA 1978]. As between the parties to a purchase transaction, however, the rights of the purchaser are determined by their contract.
Cf.
Section 9-202 [55-9-202 NMSA 1978]. Arrangements covered by this paragraph are analogous to arrangements in which bearer certificates are delivered to a secured party -- so far as the issuer or any other parties are concerned, the secured party appears to be the outright owner, although it is in fact holding as collateral property that belongs to the debtor.
Under Subsection (c)(2), a purchaser has control if the issuer has agreed to act on the instructions of the purchaser, even though the owner remains listed as the registered owner. The issuer, of course, would be acting wrongfully against the registered owner if it entered into such an agreement without the consent of the registered owner. Subsection (g) makes this point explicit. The Subsection (c)(2) provision makes it possible for issuers to offer a service akin to the registered pledge device of the 1978 version of Article 8, without mandating that all issuers offer that service.
4. Subsection (d) specifies the means by which a purchaser can obtain control of a security entitlement. Three mechanisms are possible, analogous to those provided in subsection (c) for uncertificated securities. Under Subsection (d)(1), a purchaser has control if it is the entitlement holder. This subsection would apply whether the purchaser holds through the same intermediary that the debtor used, or has the securities position transferred to its own intermediary. Subsection (d)(2) provides that a purchaser has control if the securities intermediary has agreed to act on entitlement orders originated by the purchaser if no further consent by the entitlement holder is required. Under Subsection (d)(2), control may be achieved even though the original entitlement holder remains as the entitlement holder. Finally, a purchaser may obtain control under Subsection (d)(3) if another person has control and the person acknowledges that it has control on the purchaser's behalf. In general, control under Subsection (d)(3) parallels the delivery of certificated securities and uncertificated securities under Section 8-301 [55-8-301 NMSA 1978]. See the discussion of Subsection (d)(3) in Comment 4A, below.
Subsection (d) specifies only the minimum requirements that such an arrangement must meet to confer "control" of a security entitlement; the details of the arrangement can be specified by agreement. The arrangement might cover all of the positions in a particular account or subaccount, or only specified positions. There is no requirement that the control party's right to give entitlement orders be exclusive. The arrangement might provide, for example, that only the control party can give entitlement orders, that either the entitlement holder or the control party can give entitlement orders, that more than one person has unilateral control, or that two or more persons share control. The essential factor is whether a person may originate entitlement orders without further consent of the entitlement holder.
See
Subsection (f).
The following examples illustrate the application of Subsection (d):
Example 1.
Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Alpha Bank also has an account with Able. Debtor instructs Able to transfer the shares to Alpha Bank, and Able does so. Alpha Bank has control of the 1000 shares under Subsection (d)(1), because Alpha Bank is the entitlement holder.
Example 2.
Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Alpha Bank does not have an account with Able. Alpha Bank uses Beta Bank as its securities custodian. Debtor instructs Able to transfer the shares to Beta Bank, for the account of Alpha Bank, and Able does so. Alpha Bank has control of the 1000 shares under Subsection (d)(1), because Alpha Bank is the entitlement holder.
Example 3.
Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Debtor, Able, and Alpha Bank enter into an agreement under which Debtor will continue to receive dividends and distributions, and will continue to have the right to direct dispositions, but Alpha Bank also has the right to direct dispositions. Alpha Bank has control of the 1000 shares under Subsection (d)(2).
Example 4.
Able & Co., a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into Alpha Bank's account at Clearing Corporation. Alpha Bank has control of the 1000 shares under subsection (d)(1).
Example 5.
Able & Co., a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Alpha Bank does not have an account with Clearing Corporation. It holds its securities through Beta Bank, which does have an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into Beta Bank's account at Clearing Corporation. Beta Bank credits the position to Alpha Bank's account with Beta Bank. Alpha Bank has control of the 1000 shares under Subsection (d)(1).
Example 6.
Able & Co. a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into a pledge account, pursuant to an agreement under which Able will continue to receive dividends, distributions, and the like, but Alpha Bank has the right to direct dispositions. Alpha Bank has control of the 1000 shares under Subsection (d)(2).
Example 7.
Able & Co. a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able, Alpha, and Clearing Corporation enter into an agreement under which Clearing Corporation will act on instructions from Alpha with respect to the XYZ Co. stock carried in Able's account, but Able will continue to receive dividends, distributions, and the like, and will also have the right to direct dispositions. Alpha Bank has control of the 1000 shares under Subsection (d)(2).
Example 8.
Able & Co. a securities dealer, holds a wide range of securities through its account at Clearing Corporation. Able enters into an arrangement with Alpha Bank pursuant to which Alpha provides financing to Able secured by securities identified as the collateral on lists provided by Able to Alpha on a daily or other periodic basis. Able, Alpha, and Clearing Corporation enter into an agreement under which Clearing Corporation agrees that if at any time Alpha directs Clearing Corporation to do so, Clearing Corporation will transfer any securities from Able's account at Alpha's instructions. Because Clearing Corporation has agreed to act on Alpha's instructions with respect to any securities carried in Able's account, at the moment that Alpha's security interest attaches to securities listed by Able, Alpha obtains control of those securities under Subsection (d)(2). There is no requirement that Clearing Corporation be informed of which securities Able has pledged to Alpha.
Example 9.
Debtor grants Alpha Bank a security interest in a security entitlement that includes 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Beta Bank agrees with Alpha to act as Alpha's collateral agent with respect to the security entitlement. Debtor, Able, and Beta enter into an agreement under which Debtor will continue to receive dividends and distributions, and will continue to have the right to direct dispositions, but Beta also has the right to direct dispositions. Because Able has agreed that it will comply with entitlement orders originated by Beta without further consent by Debtor, Beta has control of the security entitlement (
see
Example 3). Because Beta has acknowledged that it has control on behalf of Alpha, Alpha also has control under Subsection (d)(3). It is not necessary for Able to enter into an agreement directly with Alpha or for Able to be aware of Beta's relationship with Alpha.
4A. Pursuant to the 2022 Amendments, Subsection (d)(3) was revised to conform the provision for control through another person to the corresponding provisions for control of other types of assets.
See
Section 12-105 [55-12-105 NMSA 1978], Comment 8;
see also
Sections 7-106(g) [55-7-106 NMSA 1978] (control of electronic document of title); 9-104(a)(4) [55-9-104 NMSA 1978] (control of deposit account); 9-105(g) [55-9-105 NMSA 1978] (control of authoritative electronic copy of a record evidencing chattel paper); 9-105A(e) (control of electronic money). Control based on an acknowledgment under subsection (d)(3) by another person having control continues only while the other person retains control. This result necessarily follows because such control derives solely from the other person's continued control. Under subsection (d)(3), for an acknowledgment to be effective to confer control, it must be made by a person "other than the transferor of an interest in the security entitlement."
See
Section 12-105, Comment 9 (discussing the rationale for this requirement). Subsections (h) and (i) derive from Section 9-313(f) and (g) [55-9-313 NMSA 1978]. Subsection (h) makes clear that a person that has control under this section has no duty to acknowledge that it has or will obtain control on behalf of a purchaser. Arrangements for a person to acknowledge that it has or will obtain control on behalf of another person are not standardized. Accordingly, Subsection (i) leaves to the agreement of the parties and to any other applicable law (other than this Article or Article 9) any duties of a person that does acknowledge that it has or will obtain control on behalf of a purchaser and provides that a person making an acknowledgment is not required to confirm the acknowledgment to any other person.
5. For a purchaser to have "control" under Subsection (c)(2) or (d)(2), it is essential that the issuer or securities intermediary, as the case may be, actually be a party to the agreement. If a debtor gives a secured party a power of attorney authorizing the secured party to act in the name of the debtor, but the issuer or securities intermediary does not specifically agree to this arrangement, the secured party does not have "control" within the meaning of Subsection (c)(2) or (d)(2) because the issuer or securities intermediary is not a party to the agreement. The secured party does not have control under Subsection (c)(1) or (d)(1) because, although the power of attorney might give the secured party authority to act on the debtor's behalf as an agent, the secured party has not actually become the registered owner or entitlement holder.
6. Subsection (e) provides that if an interest in a security entitlement is granted by an entitlement holder to the securities intermediary through which the security entitlement is maintained, the securities intermediary has control. A common transaction covered by this provision is a margin loan from a broker to its customer.
7. The term "control" is used in a particular defined sense. The requirements for obtaining control are set out in this section. The concept is not to be interpreted by reference to similar concepts in other bodies of law. In particular, the requirements for "possession" derived from the common law of pledge are not to be used as a basis for interpreting Subsection (c)(2) or (d)(2). Those provisions are designed to supplant the concepts of "constructive possession" and the like. A principal purpose of the "control" concept is to eliminate the uncertainty and confusion that results from attempting to apply common law possession concepts to modern securities holding practices.
The key to the control concept is that the purchaser has the present ability to have the securities sold or transferred without further action by the transferor. There is no requirement that the powers held by the purchaser be exclusive. For example, in a secured lending arrangement, if the secured party wishes, it can allow the debtor to retain the right to make substitutions, or to direct the disposition of the uncertificated security or security entitlement. Subsection (f) is included to make clear the general point stated in Subsection (c) that the test of control is whether the purchaser has obtained the requisite power, not whether the debtor has retained other powers. There is no implication that retention by the debtor of powers other than those mentioned in Subsection (f) is inconsistent with the purchaser having control.
"Bearer form" Section 8-102(a)(2) [55-8-102(a)(2) NMSA 1978]
"Certificated security" Section 8-102(a)(4)
"Delivery" Section 8-301 [55-8-301 NMSA 1978]
"Effective" Section 8-107 [55-8-107 NMSA 1978]
"Entitlement holder" Section 8-102(a)(7) [55-8-102(a)(7) NMSA 1978]
"Entitlement order" Section 8-102(a)(8) [55-8-102(a)(8) NMSA 1978]
"Indorsement" Section 8-102(a)(11) [55-8-102(a)(11) NMSA 1978]
"Instruction" Section 8-102(a)(12) [55-8-102(a)(12) NMSA 1978]
"Purchaser" Sections 1-201(33) & 8-116 [55-1-201(33) and 55-8-116 NMSA 1978]
"Registered form" Section 8-102(a)(13) [55-8-102(a)(13) NMSA 1978]
"Securities intermediary" Section 8-102(a)(14) [55-8-102(a)(14) NMSA 1978]
"Security entitlement" Section 8-102(a)(17) [55-8-102(a)(17) NMSA 1978]
"Uncertificated security" Section 8-102(a)(18) [55-8-102(a)(18) NMSA 1978]
ANNOTATIONS
Repeals and reenactments.
— Laws 1996, ch. 47, § 10 repealed former 55-8-106 NMSA 1978, as amended by Laws 1987, ch. 248, § 7, relating to application of laws, and enacted a new section, effective May 15, 1996. For provisions of former section,
see
the 1995 NMSA 1978 on
NMOneSource.com
.
The 2001 amendment,
effective July 1, 2001, added Paragraph (d)(3); in Subsection (f), substituted "Subsection (c) or (d) of this section" for "Subsection (c)(2) or (d)(2)", "Subsection (c) of this section" for "Subsection (c)(2)" and "Subsection (d) of this section" for "Subsection (d)(2)".