‘Best Practices’ Securing: Continued from 53 >>>
not own a security or an interest in a secu- rity. Te custodian will own an interest in an account held by your bank. Your security interest in a security entitlement is perfected when the securities intermediary maintaining the account indicates by book entry that the security entitlement has been credited to an account in the name of your custodian (and you, the bank and your custodian enter into the agreement described above). Based on this arrangement, the intermediary will com- ply with orders originated by you and your custodian without the consent of the bank.
Bear in mind: A security entitlement is not a claim to a specific identifiable thing; it is a package of rights and interests that a person has against the person’s securities intermedi- ary (e.g., broker) and the property held by the intermediary.
Uniform Commercial Code Official Text and Comments, § 8-503. Te UCC makes
clear the priority of a protected purchaser of a security over the holder of a security entitle- ment. A protected purchaser is one that ac- quires a security for value without the notice of another claim. It is theoretically possible for a protected purchaser to trump the inter- est of a public depositor’s claim to a security entitlement that is maintained by the DTC system. However, that would clearly require a very unusual security transfer to a holder other than DTC. Surprisingly, there is little precedent and guidance in that regard. But logic would suggest that the FDIC, as receiv- er of the depository bank, should recognize a properly perfected security interest in a secu- rity entitlement as a perfected security inter- est in the underlying securities, as the deposi- tory bank has lost control of those securities.
No magazine article can cover every trans- action or serve as a substitute for consultation with your counsel. See GFOA’s Recommend- ed Practice on this topic (
www.treasurer.
mo.gov/link/GFOApolicycollateralization. pdf). It has similar information on the re-
quirements of FIRREA and also includes some recommendations on related matters such as collateral valuation.
In fact, officials charged with the responsi- bility of securing deposits in excess of FDIC coverage should, as appropriate, consult with the county’s banker or lawyer – or both. Te list of eligible securities is now long and the requirements of both state and federal law are strict. You want to be secure against an FDIC claim and be able to liquidate your securities without FDIC consent. It would be hard to be too careful.
Jim Buttry is a partner in the Friday, El-
dredge & Clark, LLP law firm. He has prac- ticed municipal bond law since 1967. He is a graduate of the University of Arkansas (LL.B., 1963) and Georgetown University (LL.M., 1966). He is a member of the National Associa- tion of Bond Lawyers and has been recognized in BEST LAWYERS IN AMERICA and in CHAMBERS USA 2010 as among “Leaders in Teir Field.”
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