Okla. Stat. tit. 12A § 8-507

Current through Laws 2024, c. 453.

Section 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.

Okla. Stat. tit. 12A, § 8-507

Added by Laws 1995, SB 522, c. 242, § 47, eff. 2/1/1996.

Oklahoma Code Comment

One of the main reasons for holding securities through securities intermediaries is to facilitate rapid transfer in settlement of trades. The entitlement order (a notification directing transfer, see sub section 8- 102(a)(8)) is the mechanism of transfer for securities held through intermediaries, just as indorsements and instructions are the mechanism for securities held directly. This Section requires the securities intermediary to comply with an entitlement order but only if the order is originated by an appropriate person. An appropriate person is the entitlement holder (the person identified in the records of the intermediary, see sub section 8- 102(a)(7)), or if the entitlement holder is deceased or lacks legal capacity, then the holder's successor, estate representative, administrator, guardian, conservator, or other similar representative. See UCC § 8-107(a).

Thus, the intermediary has no duty to comply with an entitlement order originated by an authorized agent of the entitlement holder unless agreed to by the intermediary. However, such an entitlement order is "effective," see UCC § 8-107(b)(2), and therefore, the intermediary is not liable for a wrongful transfer if it does act on such an order. See UCC § 8-507(b). One important application of this principle is that if an entitlement holder grants a security interest in its security entitlements to a third-party lender, then the intermediary owes no duties to the secured party unless the intermediary has entered into a "control" agreement in which it agrees to act on entitlement orders originated by the secured party. See UCC § 8-106.

If the intermediary does transfer a financial asset pursuant to an ineffective entitlement order, then the intermediary is liable to reestablish the security entitlement or for damages. Compliance with applicable other law constitutes compliance with Section 8-507 . See UCC § 8-509(a).

Prior Statutory Provisions:

None.