SF2265

This bill, S.F. No. 2265, introduced in the Minnesota Senate, proposes amendments to the state's Uniform Commercial Code (UCC) to modify choice of law provisions as they relate to investment securities, security entitlements, and financial asset transactions.

Key Provisions:

1. Choice of Law for Securities Transactions (Section 336.8110)

   • Establishes that the law governing the validity and transfer of a security is determined by the issuer’s jurisdiction.
   • Specifies that entitlement rights in securities accounts are governed by the securities intermediary's jurisdiction.
   • Defines rules for determining the jurisdiction of a securities intermediary.
   • Clarifies that the governing law applies even if the related transactions do not have any direct connection to the jurisdiction.

2. Property Interest of Entitlement Holders in Financial Assets (Section 336.8503)

   • Ensures that financial assets held by a securities intermediary are for the benefit of entitlement holders and are not subject to the intermediary’s creditors.
   • Defines that entitlement holders have pro rata interests in the financial assets based on their entitlements.
   • Limits when an entitlement holder can assert claims against purchasers of financial assets.
   • Protects purchasers who obtain assets without fraudulent collusion with the securities intermediary.

3. Priority Among Security Interests (Section 336.8511)

   • Gives entitlement holders priority over creditors in cases where a securities intermediary lacks sufficient financial assets.
   • Exceptions allow secured creditors to have priority over entitlement holders if they have control over the assets.
   • Special rules apply to clearing corporations, prioritizing creditor claims over entitlement holders under specific conditions.

4. Law Governing Security Interests in Investment Property (Section 336.9305)

   • Establishes rules for determining the governing law related to security interests in investment property, prioritizing:
     • The location of a security certificate.
     • The issuer’s jurisdiction for uncertificated securities.
     • The securities intermediary’s jurisdiction for securities entitlements.
     • The commodity intermediary’s jurisdiction for commodity contracts.
   • Provides guidelines for determining the jurisdiction governing commodity accounts and the perfection of security interests.

Impact of the Bill

• This bill seeks to provide clarity and consistency in determining which jurisdiction's laws should govern securities and investment property transactions.
• It enhances legal certainty for financial institutions, securities intermediaries, and entitlement holders by solidifying priority structures and property rights.
• It aligns Minnesota’s UCC provisions more closely with modern financial practices and national standards.

Next Steps

• As of March 6, 2025, the bill has been introduced and referred to the Commerce and Consumer Protection committee for further review.