Date of enactment: June 16, 1998 1997 Senate Bill 308 Date of publication*: June 30, 1998 1997 WISCONSIN ACT 297 AN ACT to repeal 112.06; to renumber 409.105 (3) (a); to amend 71.02 (2) (e), 112.07 (1), 199.12 (4) (d), 401.105 (2) (d), 401.206 (2), 405.114 (2) (intro.), 409.105 (1) (h), 409.105 (1) (i), 409.106, 409.203 (1) (intro.), 409.203 (1) (a), 409.301 (1) (d), 409.302 (1) (b), 409.302 (1) (f), 409.302 (1) (g), 409.303 (1), 409.304 (1), 409.304 (4), 409.304 (5) (intro.), 409.304 (5) (b), 409.305, 409.306 (1), 409.309, 409.312 (1), 409.312 (7), 551.33 (6) and 766.01 (9) (c); to repeal and recreate chapter 408, 409.103 (6), 409.302 (1) (h) and 409.306 (3); and to create 409.105 (2) (an), 409.105 (2) (ap), 409.105 (2) (aq), 409.105 (2) (cb), 409.105 (2) (gm), 409.105 (3) (ac), 409.105 (3) (ag), 409.105 (3) (as), 409.105 (3) (bh), 409.105 (3) (bp), 409.105 (3) (bt), 409.105 (3) (f), 409.105 (3) (g), 409.105 (3) (h), 409.105 (3) (i), 409.105 (3) (j), 409.115, 409.116 and 409.302 (1) (i) of the statutes; relating to: revising the investment secu- rities chapter of the uniform commercial code. The people of the state of Wisconsin, represented in merged and held in bulk in the name of the nominee of the senate and assembly, do enact as follows: clearing corporation with any other such securities de- posited in that clearing corporation by any person regard- SECTION 1. 71.02 (2) (e) of the statutes is amended less of the ownership of the securities, and certificates of to read: small denomination may be merged into one or more cer- 71.02 (2) (e) Retention of professional services of tificates of larger denomination. The records of the fidu- brokers, as defined in s. 408.303 408.102 (1) (c), and of ciary and the records of the bank or trust company acting attorneys and accountants located in this state. as custodian, as managing agent or as custodian for a fi- SECTION 2. 112.06 of the statutes is repealed. duciary shall at all times show the name of the party for SECTION 3. 112.07 (1) of the statutes is amended to whose account the securities are so deposited. Owner- read: ship of, and other interests in, the securities may be trans- 112.07 (1) Notwithstanding any other provision of ferred by bookkeeping entry on the books of the clearing the statutes, any fiduciary, as defined in s. 112.01 (1) (b), corporation without physical delivery of certificates rep- who is holding securities in a fiduciary capacity, any bank resenting the securities. A bank or trust company which or trust company holding securities as a custodian or deposits securities pursuant to this section shall be sub- managing agent, and any bank or trust company holding ject to such rules and regulations as, in the case of state securities as custodian for a fiduciary may deposit or ar- chartered institutions, the division of banking and, in the range for the deposit of such securities in a clearing cor- case of national banking associations, the comptroller of poration as defined in s. 408.102 (1) (c) (e). When the se- the currency may from time to time issue. A bank or trust curities are so deposited, certificates representing company acting as custodian for a fiduciary shall, on de- securities of the same class of the same issuer may be mand by the fiduciary, certify in writing to the fiduciary * Section 991.11, WISCONSIN STATUTES 1995–96: Effective date of acts. “Every act and every portion of an act enacted by the legislature over the governor’s partial veto which does not expressly prescribe the time when it takes effect shall take effect on the day after its date of publication as designated” by the secretary of state [the date of publication may not be more than 10 working days after the date of enactment]. –2– 1997 Senate Bill 308 the securities deposited by the bank or trust company in (c) “Broker” means a person defined as a broker or a clearing corporation pursuant to this section for the ac- dealer under the federal securities laws, but without ex- count of the fiduciary. A fiduciary shall, on demand by cluding a bank acting in that capacity. any party to a judicial proceeding for the settlement of the (d) “Certificated security” means a security that is fiduciary’s account or on demand by the attorney for such represented by a certificate. a party, certify in writing to the party the securities depos- (e) “Clearing corporation” means: ited by the fiduciary in the clearing corporation for its ac- 1. A person that is registered as a “clearing agency” count as such fiduciary. under the federal securities laws; SECTION 4. 199.12 (4) (d) of the statutes is amended 2. A federal reserve bank; or to read: 3. Any other person that provides clearance or settle- 199.12 (4) (d) The name of any corporation in which ment services with respect to financial assets that would the candidate holds a security, as defined under s. 112.06 require it to register as a clearing agency under the federal (1) (f), the current market value of which is $3,000 or securities laws but for an exclusion or exemption from more and the dollar value of such security. In this para- the registration requirement, if its activities as a clearing graph, “security” includes any share of stock, bond, de- corporation, including promulgation of rules, are subject benture, note or other security issued by a corporation to regulation by a federal or state governmental authority. which is registered as to ownership on the books of the (f) “Communicate” means to: corporation. 1. Send a signed writing; or SECTION 5. 401.105 (2) (d) of the statutes is amended 2. Transmit information by any mechanism agreed to read: upon by the persons transmitting and receiving the in- 401.105 (2) (d) Section 408.106 408.110 on applica- formation. bility of ch. 408. (fm) “Endorsement” means a signature that alone or SECTION 6. 401.206 (2) of the statutes is amended to accompanied by other words is made on a security certifi- read: cate in registered form or on a separate document for the 401.206 (2) Subsection (1) does not apply to con- purpose of assigning, transferring or redeeming the secu- tracts for the sale of goods (s. 402.201) nor of securities rity or granting a power to assign, transfer or redeem it. (s. 408.319 408.113) nor to security agreements (s. (g) “Entitlement holder” means a person identified in 409.203). the records of a securities intermediary as the person hav- SECTION 7. 405.114 (2) (intro.) of the statutes is ing a security entitlement against the securities interme- amended to read: diary. If a person acquires a security entitlement by virtue 405.114 (2) (intro.) Unless otherwise agreed when of s. 408.501 (2) (b) or (c), that person is the entitlement documents appear on their face to comply with the terms holder. of a credit but a required document does not in fact con- (h) “Entitlement order” means a notification commu- form to the warranties made on negotiation or transfer of nicated to a securities intermediary directing transfer or a document of title (s. 407.507) or of a certificated securi- redemption of a financial asset to which the entitlement ty (s. 408.306 408.108) or is forged or fraudulent or there holder has a security entitlement. is fraud in the transaction: (i) 1. “Financial asset”, except as otherwise provided SECTION 8. Chapter 408 of the statutes is repealed in s. 408.103, means: and recreated to read: a. A security; CHAPTER 408 b. An obligation of a person or a share, participation, UNIFORM COMMERCIAL CODE — or other interest in a person or in property or an enterprise INVESTMENT SECURITIES of a person, which is, or is of a type, dealt in or traded on SUBCHAPTER I financial markets, or which is recognized in any area in GENERAL MATTERS which it is issued or dealt in as a medium for investment; 408.101 Short title. This chapter may be cited as or uniform commercial code — investment securities. c. Any property that is held by a securities intermedi- 408.102 Definitions. (1) In this chapter: ary for another person in a securities account if the securi- (a) “Adverse claim” means a claim that a claimant ties intermediary has expressly agreed with the other per- has a property interest in a financial asset and that it is a son that the property is to be treated as a financial asset violation of the rights of the claimant for another person under this chapter. to hold, transfer or deal with the financial asset. 2. As context requires, “financial asset” means either (b) “Bearer form”, as applied to a certificated securi- the interest itself or the means by which a person’s claim ty, means a form in which the security is payable to the to it is evidenced, including a certificated or uncertifi- bearer of the security certificate according to its terms but cated security, a security certificate or a security entitle- not by reason of an endorsement. ment. 1997 Senate Bill 308 –3– (j) “Good faith”, for purposes of the obligation of (3) In addition, ch. 401 contains general definitions good faith in the performance or enforcement of con- and principles of construction and interpretation applica- tracts or duties within this chapter, means honesty in fact ble throughout this chapter. and the observance of reasonable commercial standards (4) The characterization of a person, business or of fair dealing. transaction for purposes of this chapter does not deter- (L) “Instruction” means a notification communi- mine the characterization of the person, business or trans- cated to the issuer of an uncertificated security which di- action for purposes of any other law, regulation or rule. rects that the transfer of the security be registered or that 408.103 Rules for determining whether certain the security be redeemed. obligations and interests are securities or financial as- (m) “Registered form”, as applied to a certificated se- sets. (1) A share or similar equity interest issued by a cor- curity, means a form in which: poration, business trust, joint stock company or similar 1. The security certificate specifies a person entitled entity is a security. to the security; and (2) An “investment company security” is a security. 2. A transfer of the security may be registered upon In this chapter, “investment company security” means a books maintained for that purpose by or on behalf of the share or similar equity interest issued by an entity that is issuer, or the security certificate so states. registered as an investment company under the federal (n) “Securities intermediary” means: investment company laws, an interest in a unit invest- 1. A clearing corporation; or ment trust that is so registered, or a face–amount certifi- 2. A person, including a bank or broker, that in the or- cate issued by a face–amount certificate company that is dinary course of its business maintains securities ac- so registered. “Investment company security” does not counts for others and is acting in that capacity. include an insurance policy or endowment policy or an- (o) “Security”, except as otherwise provided in s. nuity contract issued by an insurance company. 408.103, means an obligation of an issuer or a share, par- (3) An interest in a partnership or limited liability ticipation or other interest in an issuer or in property or company is not a security unless it is dealt in or traded on an enterprise of an issuer: securities exchanges or in securities markets, its terms 1. Which is represented by a security certificate in expressly provide that it is a security governed by this bearer or registered form, or the transfer of which may be chapter or it is an investment company security. Howev- registered upon books maintained for that purpose by or er, an interest in a partnership or limited liability compa- on behalf of the issuer; ny is a financial asset if it is held in a securities account. 2. Which is one of a class or series or by its terms is (4) A writing that is a security certificate is governed divisible into a class or series of shares, participations, in- by this chapter and not by ch. 403, even though it also terests or obligations; and 3. Which: meets the requirements of that chapter. However, a nego- a. Is, or is of a type, dealt in or traded on securities tiable instrument governed by ch. 403 is a financial asset exchanges or securities markets; or if it is held in a securities account. b. Is a medium for investment and by its terms ex- (5) An option or similar obligation issued by a clear- pressly provides that it is a security governed by this ing corporation to its participants is not a security, but is chapter. a financial asset. (p) “Security certificate” means a certificate repre- (6) A commodity contract, as defined in s. 409.115 senting a security. (1) (b), is not a security or a financial asset. (q) “Security entitlement” means the rights and prop- 408.104 Acquisition of security or financial asset erty interest of an entitlement holder with respect to a fi- or interest therein. (1) A person acquires a security or nancial asset specified in subch. V. an interest therein, under this chapter, if: (r) “Uncertificated security” means a security that is (a) The person is a purchaser to whom a security is not represented by a certificate. delivered pursuant to s. 408.301; or (2) Other definitions applying to this chapter and the (b) The person acquires a security entitlement to the sections in which they appear are: security pursuant to s. 408.501. (a) “Appropriate person” — s. 408.107 (1). (2) A person acquires a financial asset, other than a (b) “Control” — s. 408.106. security, or an interest therein, under this chapter, if the (c) “Delivery” — s. 408.301. person acquires a security entitlement to the financial as- (d) “Investment company security” — s. 408.103 set. (2). (3) A person who acquires a security entitlement to (e) “Issuer” — s. 408.201. a security or other financial asset has the rights specified (f) “Overissue” — s. 408.210 (1). in subch. V, but is a purchaser of any security, security en- (g) “Protected purchaser” — s. 408.303 (1). titlement or other financial asset held by the securities in- (h) “Securities account” — s. 408.501 (1). termediary only to the extent provided in s. 408.503. –4– 1997 Senate Bill 308 (4) Unless the context shows that a different meaning (a) The certificate is endorsed to the purchaser or in is intended, a person who is required by other law, regula- blank by an effective endorsement; or tion, rule or agreement to transfer, deliver, present, sur- (b) The certificate is registered in the name of the pur- render, exchange or otherwise put in the possession of chaser, upon original issue or registration of transfer by another person a security or financial asset satisfies that the issuer. requirement by causing the other person to acquire an in- (3) A purchaser has “control” of an uncertificated se- terest in the security or financial asset pursuant to sub. (1) curity if: or (2). (a) The uncertificated security is delivered to the pur- 408.105 Notice of adverse claim. (1) A person has chaser; or notice of an adverse claim if: (b) The issuer has agreed that it will comply with (a) The person knows of the adverse claim; instructions originated by the purchaser without further (b) The person is aware of facts sufficient to indicate consent by the registered owner. that there is a significant probability that the adverse (4) A purchaser has “control” of a security entitle- claim exists and deliberately avoids information that ment if: would establish the existence of the adverse claim; or (a) The purchaser becomes the entitlement holder; or (c) The person has a duty, imposed by statute or regu- (b) The securities intermediary has agreed that it will lation, to investigate whether an adverse claim exists, and comply with entitlement orders originated by the pur- the investigation so required would establish the exis- chaser without further consent by the entitlement holder. tence of the adverse claim. (5) If an interest in a security entitlement is granted (2) Having knowledge that a financial asset or inter- by the entitlement holder to the entitlement holder’s own est therein is or has been transferred by a representative securities intermediary, the securities intermediary has imposes no duty of inquiry into the rightfulness of a trans- control. action and is not notice of an adverse claim. However, a (6) A purchaser who has satisfied the requirements person who knows that a representative has transferred a of sub. (3) (b) or (4) (b) has control even if the registered financial asset or interest therein in a transaction that is, owner in the case of sub. (3) (b) or the entitlement holder or whose proceeds are being used, for the individual in the case of sub. (4) (b) retains the right to make sub- benefit of the representative or otherwise in breach of stitutions for the uncertificated security or security en- duty has notice of an adverse claim. titlement, to originate instructions or entitlement orders (3) An act or event that creates a right to immediate to the issuer or securities intermediary or otherwise to performance of the principal obligation represented by a deal with the uncertificated security or security entitle- security certificate or sets a date on or after which the cer- ment. tificate is to be presented or surrendered for redemption (7) An issuer or a securities intermediary may not en- or exchange does not itself constitute notice of an adverse ter into an agreement of the kind described in sub. (3) (b) claim except in the case of a transfer more than: or (4) (b) without the consent of the registered owner or (a) One year after a date set for presentment or sur- entitlement holder, but an issuer or a securities intermedi- render for redemption or exchange; or ary is not required to enter into such an agreement even (b) Six months after a date set for payment of money though the registered owner or entitlement holder so di- against presentation or surrender of the certificate, if rects. An issuer or securities intermediary that has en- money was available for payment on that date. tered into such an agreement is not required to confirm (4) A purchaser of a certificated security has notice the existence of the agreement to another party unless re- of an adverse claim if the security certificate: quested to do so by the registered owner or entitlement (a) Whether in bearer or registered form, has been en- holder. dorsed “for collection” or “for surrender” or for some 408.107 Whether endorsement, instruction or en- other purpose not involving transfer; or titlement order is effective. (1) In this chapter, “ap- (b) Is in bearer form and has on it an unambiguous propriate person” means: statement that it is the property of a person other than the (a) With respect to an endorsement, the person speci- transferor, but the mere writing of a name on the certifi- fied by a security certificate or by an effective special en- cate is not such a statement. dorsement to be entitled to the security; (5) Filing of a financing statement under ch. 409 is (b) With respect to an instruction, the registered own- not notice of an adverse claim to a financial asset. er of an uncertificated security; 408.106 Control. (1) A purchaser has “control” of (c) With respect to an entitlement order, the entitle- a certificated security in bearer form if the certificated se- ment holder; curity is delivered to the purchaser. (d) If the person designated in par. (a), (b) or (c) is de- (2) A purchaser has “control” of a certificated securi- ceased, the designated person’s successor taking under ty in registered form if the certificated security is deliv- other law or the designated person’s personal representa- ered to the purchaser and: tive acting for the estate of the decedent; or 1997 Senate Bill 308 –5– (e) If the person designated in par. (a), (b) or (c) lacks (2) A person who originates an instruction for regis- capacity, the designated person’s guardian, conservator tration of transfer of an uncertificated security to a pur- or other similar representative who has power under oth- chaser for value warrants to the purchaser that: er law to transfer the security or financial asset. (a) The instruction is made by an appropriate person, (2) An endorsement, instruction or entitlement order or if the instruction is by an agent, the agent has actual au- is effective if: thority to act on behalf of the appropriate person; (a) It is made by the appropriate person; (b) The security is valid; (b) It is made by a person who has power under the (c) There is no adverse claim to the security; and law of agency to transfer the security or financial asset on (d) At the time the instruction is presented to the issu- behalf of the appropriate person, including, in the case of er: an instruction or entitlement order, a person who has con- 1. The purchaser will be entitled to the registration of trol under s. 408.106 (3) (b) or (4) (b); or transfer; (c) The appropriate person has ratified it or is other- 2. The transfer will be registered by the issuer free wise precluded from asserting its ineffectiveness. from all liens, security interests, restrictions and claims (3) An endorsement, instruction or entitlement order other than those specified in the instruction; made by a representative is effective even if: 3. The transfer will not violate any restriction on (a) The representative has failed to comply with a transfer; and controlling instrument or with the law of the state having 4. The requested transfer will otherwise be effective jurisdiction of the representative relationship, including and rightful. any law requiring the representative to obtain court ap- (3) A person who transfers an uncertificated security proval of the transaction; or to a purchaser for value and does not originate an instruc- (b) The representative’s action in making the en- tion in connection with the transfer warrants that: dorsement, instruction or entitlement order or using the (a) The uncertificated security is valid; proceeds of the transaction is otherwise a breach of duty. (b) There is no adverse claim to the security; (4) If a security is registered in the name of or special- (c) The transfer does not violate any restriction on ly endorsed to a person described as a representative, or transfer; and if a securities account is maintained in the name of a per- (d) The transfer is otherwise effective and rightful. son described as a representative, an endorsement, (4) A person who endorses a security certificate war- instruction or entitlement order made by the person is ef- rants to the issuer that: fective even though the person is no longer serving in the (a) There is no adverse claim to the security; and described capacity. (b) The endorsement is effective. (5) Effectiveness of an endorsement, instruction or entitlement order is determined as of the date the en- (5) A person who originates an instruction for regis- dorsement, instruction or entitlement order is made, and tration of transfer of an uncertificated security warrants an endorsement, instruction or entitlement order does not to the issuer that: become ineffective by reason of any later change of cir- (a) The instruction is effective; and cumstances. (b) At the time the instruction is presented to the issu- 408.108 Warranties in direct holding. (1) A per- er the purchaser will be entitled to the registration of son who transfers a certificated security to a purchaser for transfer. value warrants to the purchaser, and an endorser, if the (6) A person who presents a certificated security for transfer is by endorsement, warrants to any subsequent registration of transfer or for payment or exchange war- purchaser, that: rants to the issuer that the person is entitled to the registra- (a) The certificate is genuine and has not been materi- tion, payment or exchange, but a purchaser for value and ally altered; without notice of adverse claims to whom transfer is reg- (b) The transferor or endorser does not know of any istered warrants only that the person has no knowledge of fact that might impair the validity of the security; any unauthorized signature in a necessary endorsement. (c) There is no adverse claim to the security; (7) If a person acts as agent of another in delivering (d) The transfer does not violate any restriction on a certificated security to a purchaser, the identity of the transfer; principal was known to the person to whom the certifi- (e) If the transfer is by endorsement, the endorsement cate was delivered, and the certificate delivered by the is made by an appropriate person, or if the endorsement agent was received by the agent from the principal or re- is by an agent, the agent has actual authority to act on be- ceived by the agent from another person at the direction half of the appropriate person; and of the principal, the person delivering the security certifi- (f) The transfer is otherwise effective and rightful. cate warrants only that the delivering person has author- –6– 1997 Senate Bill 308 ity to act for the principal and does not know of any ad- (a) Acquisition of a security entitlement from the se- verse claim to the certificated security. curities intermediary; (8) A secured party who redelivers a security certifi- (b) The rights and duties of the securities intermedi- cate received, or after payment and on order of the debtor ary and entitlement holder arising out of a security en- delivers the security certificate to another person, makes titlement; only the warranties of an agent under sub. (7). (c) Whether the securities intermediary owes any du- (9) Except as otherwise provided in sub. (7), a broker ties to an adverse claimant to a security entitlement; and acting for a customer makes to the issuer and a purchaser (d) Whether an adverse claim can be asserted against the warranties provided in subs. (1) to (6). A broker that a person who acquires a security entitlement from the se- delivers a security certificate to its customer, or causes its curities intermediary or a person who purchases a securi- customer to be registered as the owner of an uncertifi- ty entitlement or interest therein from an entitlement cated security, makes to the customer the warranties pro- holder. vided in sub. (1) or (2), and has the rights and privileges (3) The local law of the jurisdiction in which a securi- of a purchaser under this section. The warranties of and ty certificate is located at the time of delivery governs in favor of the broker acting as an agent are in addition to whether an adverse claim can be asserted against a person applicable warranties given by and in favor of the cus- to whom the security certificate is delivered. tomer. (4) In this section, “issuer’s jurisdiction” means the 408.109 Warranties in indirect holding. (1) A per- jurisdiction under which the issuer of the security is orga- son who originates an entitlement order to a securities in- nized or, if permitted by the law of that jurisdiction, the termediary warrants to the securities intermediary that: law of another jurisdiction specified by the issuer. An is- (a) The entitlement order is made by an appropriate suer organized under the law of this state may specify the person, or if the entitlement order is by an agent, the agent law of another jurisdiction as the law governing the mat- has actual authority to act on behalf of the appropriate ters specified in sub. (1) (b) to (e). person; and (5) The following rules determine a “securities inter- (b) There is no adverse claim to the security entitle- mediary’s jurisdiction” for purposes of this section: ment. (a) If an agreement between the securities intermedi- (2) A person who delivers a security certificate to a ary and its entitlement holder specifies that it is governed securities intermediary for credit to a securities account by the law of a particular jurisdiction, that jurisdiction is or originates an instruction with respect to an uncertifi- the securities intermediary’s jurisdiction. cated security directing that the uncertificated security be (b) If an agreement between the securities intermedi- credited to a securities account makes to the securities in- ary and its entitlement holder does not specify the gov- termediary the warranties specified in s. 408.108 (1) or erning law as provided in par. (a), but expressly specifies (2). that the securities account is maintained at an office in a (3) If a securities intermediary delivers a security cer- particular jurisdiction, that jurisdiction is the securities tificate to its entitlement holder or causes its entitlement intermediary’s jurisdiction. holder to be registered as the owner of an uncertificated (c) If an agreement between the securities intermedi- security, the securities intermediary makes to the entitle- ary and its entitlement holder does not specify a jurisdic- ment holder the warranties specified in s. 408.108 (1) or tion as provided in par. (a) or (b), the securities intermedi- (2). ary’s jurisdiction is the jurisdiction in which is located the 408.110 Applicability; choice of law. (1) The local office identified in an account statement as the office law of the issuer’s jurisdiction, as specified in sub. (4), serving the entitlement holder’s account. governs: (d) If an agreement between the securities intermedi- (a) The validity of a security; ary and its entitlement holder does not specify a jurisdic- (b) The rights and duties of the issuer with respect to tion as provided in par. (a) or (b) and an account statement registration of transfer; does not identify an office serving the entitlement hold- (c) The effectiveness of registration of transfer by the er’s account as provided in par. (c), the securities interme- issuer; diary’s jurisdiction is the jurisdiction in which is located (d) Whether the issuer owes any duties to an adverse the chief executive office of the securities intermediary. claimant to a security; and (6) A securities intermediary’s jurisdiction is not de- (e) Whether an adverse claim can be asserted against termined by the physical location of certificates repre- a person to whom transfer of a certificated or uncertifi- senting financial assets, or by the jurisdiction in which is cated security is registered or a person who obtains con- organized the issuer of the financial asset with respect to trol of an uncertificated security. which an entitlement holder has a security entitlement, or (2) The local law of the securities intermediary’s ju- by the location of facilities for data processing or other re- risdiction, as specified in sub. (5), governs: cord keeping concerning the account. 1997 Senate Bill 308 –7– 408.111 Clearing corporation rules. A rule holder to recover on it unless the defendant establishes a adopted by a clearing corporation governing rights and defense or a defect going to the validity of the security. obligations among the clearing corporation and its partic- (4) If it is shown that a defense or defect exists, the ipants in the clearing corporation is effective even if the plaintiff has the burden of establishing that the plaintiff rule conflicts with chs. 401 to 411 and affects another or some person under whom the plaintiff claims is a per- party who does not consent to the rule. son against whom the defense or defect cannot be as- 408.112 Creditor’s legal process. (1) The interest serted. of a debtor in a certificated security may be reached by a 408.115 Securities intermediary and others not li- creditor only by actual seizure of the security certificate able to adverse claimant. A securities intermediary that by the officer making the attachment or levy, except as has transferred a financial asset pursuant to an effective otherwise provided in sub. (4). However, a certificated entitlement order, or a broker or other agent or bailee that security for which the certificate has been surrendered to has dealt with a financial asset at the direction of its cus- the issuer may be reached by a creditor by legal process tomer or principal, is not liable to a person having an ad- upon the issuer. verse claim to the financial asset, unless the securities in- (2) The interest of a debtor in an uncertificated secu- termediary, or broker or other agent or bailee: rity may be reached by a creditor only by legal process (1) Took the action after it had been served with an upon the issuer at its chief executive office in the United injunction, restraining order, or other legal process en- States, except as otherwise provided in sub. (4). joining it from doing so, issued by a court of competent (3) The interest of a debtor in a security entitlement jurisdiction, and had a reasonable opportunity to act on may be reached by a creditor only by legal process upon the injunction, restraining order or other legal process; or the securities intermediary with whom the debtor’s secu- (2) Acted in collusion with the wrongdoer in violat- rities account is maintained, except as otherwise pro- ing the rights of the adverse claimant; or vided in sub. (4). (3) In the case of a security certificate that has been (4) The interest of a debtor in a certificated security stolen, acted with notice of the adverse claim. for which the certificate is in the possession of a secured 408.116 Securities intermediary as purchaser for party, or in an uncertificated security registered in the value. A securities intermediary that receives a financial name of a secured party, or a security entitlement main- asset and establishes a security entitlement to the finan- tained in the name of a secured party, may be reached by cial asset in favor of an entitlement holder is a purchaser a creditor by legal process upon the secured party. for value of the financial asset. A securities intermediary (5) A creditor whose debtor is the owner of a certifi- that acquires a security entitlement to a financial asset cated security, uncertificated security or security entitle- from another securities intermediary acquires the securi- ment is entitled to aid from a court of competent jurisdic- ty entitlement for value if the securities intermediary ac- tion, by injunction or otherwise, in reaching the quiring the security entitlement establishes a security en- certificated security, uncertificated security or security titlement to the financial asset in favor of an entitlement entitlement or in satisfying the claim by means allowed holder. at law or in equity in regard to property that cannot readi- SUBCHAPTER II ly be reached by other legal process. ISSUE AND ISSUER 408.113 Statute of frauds inapplicable. A contract 408.201 Issuer. (1) With respect to an obligation on or modification of a contract for the sale or purchase of or a defense to a security, an “issuer” includes a person a security is enforceable whether or not there is a writing that: signed or record authenticated by a party against whom (a) Places or authorizes the placing of its name on a enforcement is sought, even if the contract or modifica- security certificate, other than as authenticating trustee, tion is not capable of performance within one year of its registrar, transfer agent or the like, to evidence a share, making. participation or other interest in its property or in an en- 408.114 Evidentiary rules concerning certificated terprise, or to evidence its duty to perform an obligation securities. The following rules apply in an action on a represented by the certificate; certificated security against the issuer: (b) Creates a share, participation or other interest in (1) Unless specifically denied in the pleadings, each its property or in an enterprise, or undertakes an obliga- signature on a security certificate or in a necessary en- tion, that is an uncertificated security; dorsement is admitted. (c) Directly or indirectly creates a fractional interest (2) If the effectiveness of a signature is put in issue, in its rights or property, if the fractional interest is repre- the burden of establishing effectiveness is on the party sented by a security certificate; or claiming under the signature, but the signature is pre- (d) Becomes responsible for, or in place of, another sumed to be genuine or authorized. person described as an issuer in this section. (3) If signatures on a security certificate are admitted (2) With respect to an obligation on or defense to a or established, production of the certificate entitles a security, a guarantor is an issuer to the extent of its guar- –8– 1997 Senate Bill 308 anty, whether or not its obligation is noted on a security (6) If a security is held by a securities intermediary certificate. against whom an entitlement holder has a security entitle- (3) With respect to a registration of a transfer, “issu- ment with respect to the security, the issuer may not assert er” means a person on whose behalf transfer books are any defense that the issuer could not assert if the entitle- maintained. ment holder held the security directly. 408.202 Issuer’s responsibility and defenses; no- 408.203 Staleness as notice of defect or defense. tice of defect or defense. (1) Even against a purchaser After an act or event, other than a call that has been re- for value and without notice, the terms of a certificated voked, creating a right to immediate performance of the security include terms stated on the certificate and terms principal obligation represented by a certificated security made part of the security by reference on the certificate or setting a date on or after which the security is to be to another instrument, indenture or document or to a presented or surrendered for redemption or exchange, a constitution, statute, ordinance, rule, regulation, order or purchaser is charged with notice of any defect in its issue the like, to the extent that the terms referred to do not con- or defense of the issuer, if the act or event: flict with terms stated on the certificate. A reference un- (1) Requires the payment of money, the delivery of der this subsection does not of itself charge a purchaser a certificated security, the registration of transfer of an for value with notice of a defect going to the validity of uncertificated security, or any of them on presentation or the security, even if the certificate expressly states that a surrender of the security certificate, the money or securi- person accepting it admits notice. The terms of an uncer- ty is available on the date set for payment or exchange, tificated security include those stated in any instrument, and the purchaser takes the security more than one year indenture or document or in a constitution, statute, ordi- after that date; or nance, rule, regulation, order or the like, pursuant to (2) Is not covered by sub. (1) and the purchaser takes which the security is issued. the security more than 2 years after the date set for surren- (2) The following rules apply if an issuer asserts that der or presentation or the date on which performance be- a security is not valid: came due. (a) A security other than one issued by a government 408.204 Effect of issuer’s restriction on transfer. or governmental subdivision, agency or instrumentality, A restriction on the transfer of a security imposed by the even though issued with a defect going to its validity, is issuer, even if otherwise lawful, is ineffective against a valid in the hands of a purchaser for value and without no- person without knowledge of the restriction unless: tice of the particular defect unless the defect involves a (1) The security is certificated and the restriction is violation of a constitutional provision. In that case, the noted conspicuously on the security certificate; or security is valid in the hands of a purchaser for value and (2) The security is uncertificated and the registered without notice of the defect, other than one who takes by original issue. owner has been notified of the restriction. (b) Paragraph (a) applies to an issuer that is a govern- 408.205 Effect of unauthorized signature on secu- ment or governmental subdivision, agency or instrumen- rity certificate. An unauthorized signature placed on a tality only if there has been substantial compliance with security certificate before or in the course of issue is inef- the legal requirements governing the issue or the issuer fective, but the signature is effective in favor of a pur- has received a substantial consideration for the issue as chaser for value of the certificated security if the purchas- a whole or for the particular security and a stated purpose er is without notice of the lack of authority and the of the issue is one for which the issuer has power to bor- signing has been done by: row money or issue the security. (1) An authenticating trustee, registrar, transfer agent (3) Except as otherwise provided in s. 408.205, lack or other person entrusted by the issuer with the signing of of genuineness of a certificated security is a complete de- the security certificate or of similar security certificates, fense, even against a purchaser for value and without no- or the immediate preparation for signing of any of them; tice. or (4) All other defenses of the issuer of a security, in- (2) An employe of the issuer, or of any of the persons cluding nondelivery and conditional delivery of a certifi- listed in sub. (1), entrusted with responsible handling of cated security, are ineffective against a purchaser for val- the security certificate. ue who has taken the certificated security without notice 408.206 Completion or alteration of security cer- of the particular defense. tificate. (1) If a security certificate contains the signa- (5) This section does not affect the right of a party to tures necessary to its issue or transfer but is incomplete cancel a contract for a security “when, as and if issued” in any other respect: or “when distributed” in the event of a material change in (a) Any person may complete it by filling in the the character of the security that is the subject of the con- blanks as authorized; and tract or in the plan or arrangement pursuant to which the (b) Even if the blanks are incorrectly filled in, the se- security is to be issued or distributed. curity certificate as completed is enforceable by a pur- 1997 Senate Bill 308 –9– chaser who took it for value and without notice of the in- chaser for value paid for it with interest from the date of correctness. the person’s demand. (2) A complete security certificate that has been im- SUBCHAPTER III properly altered, even if fraudulently, remains enforce- TRANSFER OF CERTIFICATED AND able, but only according to its original terms. UNCERTIFICATED SECURITIES 408.207 Rights and duties of issuer with respect to 408.301 Delivery. (1) Delivery of a certificated se- registered owners. (1) Before due presentment for reg- curity to a purchaser occurs when: istration of transfer of a certificated security in registered (a) The purchaser acquires possession of the security form or of an instruction requesting registration of trans- certificate; fer of an uncertificated security, the issuer or indenture (b) Another person, other than a securities intermedi- trustee may treat the registered owner as the person ex- ary, either acquires possession of the security certificate clusively entitled to vote, receive notifications, and on behalf of the purchaser or, having previously acquired otherwise exercise all the rights and powers of an owner. possession of the certificate, acknowledges that it holds (2) This chapter does not affect the liability of the for the purchaser; or registered owner of a security for a call, assessment or the (c) A securities intermediary acting on behalf of the like. purchaser acquires possession of the security certificate, 408.208 Effect of signature of authenticating only if the certificate is in registered form and has been trustee, registrar or transfer agent. (1) A person sign- specially endorsed to the purchaser by an effective en- ing a security certificate as authenticating trustee, regis- dorsement. trar, transfer agent or the like, warrants to a purchaser for (2) Delivery of an uncertificated security to a pur- value of the certificated security, if the purchaser is with- chaser occurs when: out notice of a particular defect, that: (a) The issuer registers the purchaser as the registered (a) The certificate is genuine; owner, upon original issue or registration of transfer; or (b) The person’s own participation in the issue of the (b) Another person, other than a securities intermedi- security is within the person’s capacity and within the ary, either becomes the registered owner of the uncertifi- scope of the authority received by the person from the is- cated security on behalf of the purchaser or, having pre- suer; and viously become the registered owner, acknowledges that (c) The person has reasonable grounds to believe that it holds for the purchaser. the certificated security is in the form and within the 408.302 Rights of purchaser. (1) Except as other- amount that the issuer is authorized to issue. wise provided in subs. (2) and (3), upon delivery of a cer- (2) Unless otherwise agreed, a person signing under tificated or uncertificated security to a purchaser, the pur- sub. (1) does not assume responsibility for the validity of the security in other respects. chaser acquires all rights in the security that the transferor 408.209 Issuer’s lien. A lien in favor of an issuer had or had power to transfer. upon a certificated security is valid against a purchaser (2) A purchaser of a limited interest acquires rights only if the right of the issuer to the lien is noted conspicu- only to the extent of the interest purchased. ously on the security certificate. (3) A purchaser of a certificated security who as a 408.210 Overissue. (1) In this chapter, “overissue” previous holder had notice of an adverse claim does not means the issue of securities in excess of the amount that improve its position by taking from a protected purchas- the issuer has corporate power to issue, but an overissue er. does not occur if appropriate action has cured the overis- 408.303 Protected purchaser. (1) In this chapter, sue. “protected purchaser” means a purchaser of a certificated (2) Except as otherwise provided in subs. (3) and (4), or uncertificated security, or of an interest therein, who: the provisions of this chapter which validate a security or (a) Gives value; compel its issue or reissue do not apply to the extent that (b) Does not have notice of any adverse claim to the validation, issue or reissue would result in overissue. security; and (3) If an identical security not constituting an overis- (c) Obtains control of the certificated or uncertifi- sue is reasonably available for purchase, a person entitled cated security. to issue or validation may compel the issuer to purchase (2) In addition to acquiring the rights of a purchaser, the security and deliver it if certificated or register its a protected purchaser also acquires its interest in the secu- transfer if uncertificated, against surrender of any securi- rity free of any adverse claim. ty certificate the person holds. 408.304 Endorsement. (1) An endorsement may be (4) If a security is not reasonably available for pur- in blank or special. An endorsement in blank includes an chase, a person entitled to issue or validation may recover endorsement to bearer. A special endorsement specifies from the issuer the price that the person or the last pur- to whom a security is to be transferred or who has power – 10 – 1997 Senate Bill 308 to transfer it. A holder may convert a blank endorsement (3) A person who specially guarantees the signature to a special endorsement. of an originator of an instruction makes the warranties of (2) An endorsement purporting to be only an en- a signature guarantor under sub. (2) and also warrants dorsement of part of a security certificate representing that at the time the instruction is presented to the issuer: units intended by the issuer to be separately transferable (a) The person specified in the instruction as the reg- is effective to the extent of the endorsement. istered owner of the uncertificated security will be the (3) An endorsement, whether special or in blank, registered owner; and does not constitute a transfer until delivery of the certifi- (b) The transfer of the uncertificated security re- cate on which it appears or, if the endorsement is on a sep- quested in the instruction will be registered by the issuer arate document, until delivery of both the document and free from all liens, security interests, restrictions and the certificate. claims other than those specified in the instruction. (4) If a security certificate in registered form has been (4) A guarantor under subs. (1) and (2) or a special delivered to a purchaser without a necessary endorse- guarantor under sub. (3) does not otherwise warrant the ment, the purchaser may become a protected purchaser rightfulness of the transfer. only when the endorsement is supplied. However, (5) A person who guarantees an endorsement of a se- against a transferor, a transfer is complete upon delivery curity certificate makes the warranties of a signature and the purchaser has a specifically enforceable right to guarantor under sub. (1) and also warrants the rightful- have any necessary endorsement supplied. ness of the transfer in all respects. (5) An endorsement of a security certificate in bearer (6) A person who guarantees an instruction request- form may give notice of an adverse claim to the certifi- ing the transfer of an uncertificated security makes the cate, but it does not otherwise affect a right to registration warranties of a special signature guarantor under sub. (3) that the holder possesses. and also warrants the rightfulness of the transfer in all re- (6) Unless otherwise agreed, a person making an en- spects. dorsement assumes only the obligations provided in s. (7) An issuer may not require a special guaranty of 408.108 and not an obligation that the security will be signature, a guaranty of endorsement or a guaranty of honored by the issuer. instruction as a condition to registration of transfer. 408.305 Instruction. (1) If an instruction has been (8) The warranties under this section are made to a originated by an appropriate person but is incomplete in person taking or dealing with the security in reliance on any other respect, any person may complete it as autho- the guaranty, and the guarantor is liable to the person for rized and the issuer may rely on it as completed, even loss resulting from their breach. An endorser or origina- though it has been completed incorrectly. tor of an instruction whose signature, endorsement or (2) Unless otherwise agreed, a person initiating an instruction has been guaranteed is liable to a guarantor instruction assumes only the obligations imposed by s. for any loss suffered by the guarantor as a result of breach 408.108 and not an obligation that the security will be of the warranties of the guarantor. honored by the issuer. 408.307 Purchaser’s right to requisites for regis- 408.306 Effect of guaranteeing signature, en- tration of transfer. Unless otherwise agreed, the trans- dorsement or instruction. (1) A person who guarantees feror of a security on due demand shall supply the pur- a signature of an endorser of a security certificate war- chaser with proof of authority to transfer or with any rants that at the time of signing: other requisite necessary to obtain registration of the (a) The signature was genuine; transfer of the security, but if the transfer is not for value, (b) The signer was an appropriate person to endorse, a transferor need not comply unless the purchaser pays or, if the signature is by an agent, the agent had actual au- the necessary expenses. If the transferor fails within a thority to act on behalf of the appropriate person; and reasonable time to comply with the demand, the purchas- (c) The signer had legal capacity to sign. er may reject or rescind the transfer. (2) A person who guarantees a signature of the origi- SUBCHAPTER IV nator of an instruction warrants that at the time of signing: REGISTRATION (a) The signature was genuine; 408.401 Duty of issuer to register transfer. (1) If (b) The signer was an appropriate person to originate a certificated security in registered form is presented to the instruction, or, if the signature is by an agent, the agent an issuer with a request to register transfer or an instruc- had actual authority to act on behalf of the appropriate tion is presented to an issuer with a request to register person, if the person specified in the instruction as the transfer of an uncertificated security, the issuer shall reg- registered owner was, in fact, the registered owner, as to ister the transfer as requested if: which fact the signature guarantor does not make a war- (a) Under the terms of the security the person seeking ranty; and registration of transfer is eligible to have the security reg- (c) The signer had legal capacity to sign. istered in its name; 1997 Senate Bill 308 – 11 – (b) The endorsement or instruction is made by the ap- (c) If the endorsement is made or the instruction is propriate person or by an agent who has actual authority originated by a fiduciary pursuant to s. 408.107 (1) (d) or to act on behalf of the appropriate person; (e), appropriate evidence of appointment or incumbency; (c) Reasonable assurance is given that the endorse- (d) If there is more than one fiduciary, reasonable as- ment or instruction is genuine and authorized under s. surance that all who are required to sign have done so; 408.402; and (d) Any applicable law relating to the collection of (e) If the endorsement is made or the instruction is taxes has been complied with; originated by a person not covered by another provision (e) The transfer does not violate any restriction on of this subsection, assurance appropriate to the case cor- transfer imposed by the issuer in accordance with s. responding as nearly as may be to the provisions of this 408.204; subsection. (f) A demand that the issuer not register transfer has (2) An issuer may elect to require reasonable assur- not become effective under s. 408.403, or the issuer has ance beyond that specified in this section. complied with s. 408.403 (2) but no legal process or in- 408.403 Demand that issuer not register transfer. demnity bond is obtained as provided in s. 408.403 (4); (1) A person who is an appropriate person to make an en- and dorsement or originate an instruction may demand that (g) The transfer is in fact rightful or is to a protected the issuer not register transfer of a security by communi- purchaser. cating to the issuer a notification that identifies the regis- (2) If an issuer is under a duty to register a transfer of tered owner and the issue of which the security is a part a security, the issuer is liable to a person presenting a cer- and provides an address for communications directed to tificated security or an instruction for registration or to the person making the demand. The demand is effective the person’s principal for loss resulting from unreason- only if it is received by the issuer at a time and in a manner able delay in registration or failure or refusal to register affording the issuer reasonable opportunity to act on it. the transfer. (2) If a certificated security in registered form is pres- 408.402 Assurance that endorsement or instruc- ented to an issuer with a request to register transfer or an tion is effective. instruction is presented to an issuer with a request to reg- (1) In this section: ister transfer of an uncertificated security after a demand (a) “Guaranty of the signature” means a guaranty that the issuer not register transfer has become effective, signed by or on behalf of a person reasonably believed by the issuer shall promptly communicate to the person who the issuer to be responsible. An issuer may adopt stan- initiated the demand at the address provided in the de- dards with respect to responsibility if they are not mani- mand and to the person who presented the security for festly unreasonable. registration of transfer or initiated the instruction re- (b) “Appropriate evidence of appointment or incum- questing registration of transfer, a notification stating bency” means: that: 1. In the case of a fiduciary appointed or qualified by (a) The certificated security has been presented for a court, a certificate issued by or under the direction or su- registration of transfer or the instruction for registration pervision of the court or an officer thereof and dated with- of transfer of the uncertificated security has been re- in 60 days before the date of presentation for transfer; or ceived; 2. In any other case, a copy of a document showing (b) A demand that the issuer not register transfer had the appointment or a certificate issued by or on behalf of previously been received; and a person reasonably believed by an issuer to be responsi- (c) The issuer will withhold registration of transfer ble or, in the absence of that document or certificate, other for a period of time stated in the notification in order to evidence that the issuer reasonably considers appropri- provide the person who initiated the demand an opportu- ate. nity to obtain legal process or an indemnity bond. (1m) An issuer may require the following assurance (3) The period described in sub. (2) (c) may not ex- that each necessary endorsement or each instruction is ceed 30 days after the date of communication of the noti- genuine and authorized: fication. A shorter period may be specified by the issuer (a) In all cases, a guaranty of the signature of the per- if it is not manifestly unreasonable. son making an endorsement or originating an instruction (4) An issuer is not liable to a person who initiated a including, in the case of an instruction, reasonable assur- demand that the issuer not register transfer for any loss ance of identity; the person suffers as a result of registration of a transfer (b) If the endorsement is made or the instruction is pursuant to an effective endorsement or instruction if the originated by an agent, appropriate assurance of actual person who initiated the demand does not, within the time authority to sign; stated in the issuer’s communication, either: – 12 – 1997 Senate Bill 308 (a) Obtain an appropriate restraining order, injunc- (2) If, after the issue of a new security certificate, a tion or other process from a court of competent jurisdic- protected purchaser of the original certificate presents it tion enjoining the issuer from registering the transfer; or for registration of transfer, the issuer shall register the (b) File with the issuer an indemnity bond, sufficient transfer unless an overissue would result. In that case, the in the issuer’s judgment to protect the issuer and any issuer’s liability is governed by s. 408.210. In addition transfer agent, registrar or other agent of the issuer in- to any rights on the indemnity bond, an issuer may recov- volved from any loss it or they may suffer by refusing to er the new certificate from a person to whom it was issued register the transfer. or any person taking under that person, except a protected (5) This section does not relieve an issuer from liabil- purchaser. ity for registering transfer pursuant to an endorsement or 408.406 Obligation to notify issuer of lost, de- instruction that was not effective. stroyed or wrongfully taken security certificate. If a 408.404 Wrongful registration. (1) Except as security certificate has been lost, apparently destroyed or otherwise provided in s. 408.406, an issuer is liable for wrongfully taken, and the owner fails to notify the issuer wrongful registration of transfer if the issuer has regis- of that fact within a reasonable time after the owner has tered a transfer of a security to a person not entitled to it, notice of it and the issuer registers a transfer of the securi- and the transfer was registered: ty before receiving notification, the owner may not assert (a) Pursuant to an ineffective endorsement or instruc- against the issuer a claim for registering the transfer un- tion; der s. 408.404 or a claim to a new security certificate un- (b) After a demand that the issuer not register transfer der s. 408.405. became effective under s. 408.403 (1) and the issuer did 408.407 Authenticating trustee, transfer agent not comply with s. 408.403 (2); and registrar. A person acting as authenticating trustee, (c) After the issuer had been served with an injunc- transfer agent, registrar or other agent for an issuer in the tion, restraining order, or other legal process enjoining it registration of a transfer of its securities, in the issue of from registering the transfer, issued by a court of compe- new security certificates or uncertificated securities, or in tent jurisdiction, and the issuer had a reasonable opportu- the cancellation of surrendered security certificates has nity to act on the injunction, restraining order or other le- the same obligation to the holder or owner of a certifi- gal process; or cated or uncertificated security with regard to the particu- (d) By an issuer acting in collusion with the wrongdo- lar functions performed as the issuer has in regard to er. those functions. (2) An issuer that is liable for wrongful registration SUBCHAPTER V of transfer under sub. (1) on demand shall provide the SECURITY ENTITLEMENTS person entitled to the security with a like certificated or 408.501 Securities account; acquisition of securi- uncertificated security, and any payments or distributions ty entitlement from securities intermediary. (1) In that the person did not receive as a result of the wrongful this chapter, “securities account” means an account to registration. If an overissue would result, the issuer’s li- which a financial asset is or may be credited in accor- ability to provide the person with a like security is gov- dance with an agreement under which the person main- erned by s. 408.210. taining the account undertakes to treat the person for (3) Except as otherwise provided in sub. (1) or in a whom the account is maintained as entitled to exercise law relating to the collection of taxes, an issuer is not li- the rights that comprise the financial asset. able to an owner or other person suffering loss as a result (2) Except as otherwise provided in subs. (4) and (5), of the registration of a transfer of a security if registration a person acquires a security entitlement if a securities in- was made pursuant to an effective endorsement or termediary: instruction. (a) Indicates by book entry that a financial asset has 408.405 Replacement of lost, destroyed or wrong- been credited to the person’s securities account; fully taken security certificate. (1) If an owner of a cer- (b) Receives a financial asset from the person or ac- tificated security, whether in registered or bearer form, quires a financial asset for the person and, in either case, claims that the certificate has been lost, destroyed or accepts it for credit to the person’s securities account; or wrongfully taken, the issuer shall issue a new certificate (c) Becomes obligated under other law, regulation or if the owner: rule to credit a financial asset to the person’s securities ac- (a) So requests before the issuer has notice that the count. certificate has been acquired by a protected purchaser; (3) If a condition of sub. (2) has been met, a person (b) Files with the issuer a sufficient indemnity bond; has a security entitlement even though the securities in- and termediary does not itself hold the financial asset. (c) Satisfies other reasonable requirements imposed (4) If a securities intermediary holds a financial asset by the issuer. for another person, and the financial asset is registered in 1997 Senate Bill 308 – 13 – the name of, payable to the order of, or specially endorsed right, an entitlement holder whose security entitlement to the other person, and has not been endorsed to the secu- remains unsatisfied has the right to recover its interest in rities intermediary or in blank, the other person is treated the financial asset from the purchaser. as holding the financial asset directly rather than as hav- (5) An action based on the entitlement holder’s prop- ing a security entitlement with respect to the financial as- erty interest with respect to a particular financial asset un- set. der sub. (1), whether framed in conversion, replevin, (5) Issuance of a security is not establishment of a se- constructive trust, equitable lien, or other theory, may not curity entitlement. be asserted against any purchaser of a financial asset or 408.502 Assertion of adverse claim against entitle- interest therein who gives value, obtains control, and ment holder. An action based on an adverse claim to a does not act in collusion with the securities intermediary financial asset, whether framed in conversion, replevin, in violating the securities intermediary’s obligations un- constructive trust, equitable lien or other theory, may not der s. 408.504. be asserted against a person who acquires a security en- 408.504 Duty of securities intermediary to main- titlement under s. 408.501 for value and without notice of tain financial asset. (1) A securities intermediary shall the adverse claim. promptly obtain and thereafter maintain a financial asset 408.503 Property interest of entitlement holder in in a quantity corresponding to the aggregate of all securi- financial asset held by securities intermediary. (1) To ty entitlements it has established in favor of its entitle- the extent necessary for a securities intermediary to satis- ment holders with respect to that financial asset. The se- fy all security entitlements with respect to a particular fi- curities intermediary may maintain those financial assets nancial asset, all interests in that financial asset held by directly or through one or more other securities interme- the securities intermediary are held by the securities in- diaries. termediary for the entitlement holders, are not property (2) Except to the extent otherwise agreed by its en- of the securities intermediary, and are not subject to titlement holder, a securities intermediary may not grant claims of creditors of the securities intermediary, except any security interests in a financial asset it is obligated to as otherwise provided in s. 408.511. maintain pursuant to sub. (1). (2) An entitlement holder’s property interest with re- (3) A securities intermediary satisfies the duty in sub. spect to a particular financial asset under sub. (1) is a pro- (1) if: rated property interest in all interests in that financial as- (a) The securities intermediary acts with respect to set held by the securities intermediary, without regard to the duty as agreed upon by the entitlement holder and the the time the entitlement holder acquired the security en- securities intermediary; or titlement or the time the securities intermediary acquired (b) In the absence of agreement, the securities inter- the interest in that financial asset. mediary exercises due care in accordance with reason- (3) An entitlement holder’s property interest with re- able commercial standards to obtain and maintain the fi- spect to a particular financial asset under sub. (1) may be nancial asset. enforced against the securities intermediary only by ex- (4) This section does not apply to a clearing corpora- ercise of the entitlement holder’s rights under ss. 408.505 tion that is itself the obligor of an option or similar obliga- to 408.508. tion to which its entitlement holders have security entitle- (4) (a) An entitlement holder’s property interest with ments. respect to a particular financial asset under sub. (1) may 408.505 Duty of securities intermediary with re- be enforced against a purchaser of the financial asset or spect to payments and distributions. (1) A securities interest therein only if: intermediary shall take action to obtain a payment or dis- 1. Insolvency proceedings have been initiated by or tribution made by the issuer of a financial asset. A securi- against the securities intermediary; ties intermediary satisfies the duty if: 2. The securities intermediary does not have suffi- (a) The securities intermediary acts with respect to cient interests in the financial asset to satisfy the security the duty as agreed upon by the entitlement holder and the entitlements of all of its entitlement holders to that finan- securities intermediary; or cial asset; (b) In the absence of agreement, the securities inter- 3. The securities intermediary violated its obligations mediary exercises due care in accordance with reason- under s. 408.504 by transferring the financial asset or in- able commercial standards to attempt to obtain the pay- terest therein to the purchaser; and ment or distribution. 4. The purchaser is not protected under sub. (5). (2) A securities intermediary is obligated to its en- (b) The trustee or other liquidator, acting on behalf titlement holder for a payment or distribution made by of all entitlement holders having security entitlements the issuer of a financial asset if the payment or distribu- with respect to a particular financial asset, may recover tion is received by the securities intermediary. the financial asset, or interest therein, from the purchaser. 408.506 Duty of securities intermediary to exer- If the trustee or other liquidator elects not to pursue that cise rights as directed by entitlement holder. A securi- – 14 – 1997 Senate Bill 308 ties intermediary shall exercise rights with respect to a fi- stance of a duty imposed upon a securities intermediary nancial asset if directed to do so by an entitlement holder. by ss. 408.504 to 408.508 is the subject of any other stat- A securities intermediary satisfies the duty if: ute, regulation or rule, compliance with that statute, regu- (1) The securities intermediary acts with respect to lation or rule satisfies the duty. the duty as agreed upon by the entitlement holder and the (2) To the extent that specific standards for the per- securities intermediary; or formance of the duties of a securities intermediary or the (2) In the absence of agreement, the securities inter- exercise of the rights of an entitlement holder are not spe- mediary either places the entitlement holder in a position cified by other statute, regulation or rule or by agreement to exercise the rights directly or exercises due care in ac- between the securities intermediary and entitlement cordance with reasonable commercial standards to fol- holder, the securities intermediary shall perform its du- low the direction of the entitlement holder. ties and the entitlement holder shall exercise its rights in 408.507 Duty of securities intermediary to comply a commercially reasonable manner. with entitlement order. (1) A securities intermediary (3) The obligation of a securities intermediary to per- shall comply with an entitlement order if the entitlement form the duties imposed by ss. 408.504 to 408.508 is sub- order is originated by the appropriate person, the securi- ject to: ties intermediary has had reasonable opportunity to as- (a) Rights of the securities intermediary arising out sure itself that the entitlement order is genuine and autho- of a security interest under a security agreement with the rized, and the securities intermediary has had reasonable entitlement holder or otherwise; and opportunity to comply with the entitlement order. A se- (b) Rights of the securities intermediary under any curities intermediary satisfies the duty if: other law, regulation, rule or agreement to withhold per- (a) The securities intermediary acts with respect to formance of its duties as a result of unfulfilled obligations the duty as agreed upon by the entitlement holder and the of the entitlement holder to the securities intermediary. securities intermediary; or (4) Sections 408.504 to 408.508 do not require a se- (b) In the absence of agreement, the securities inter- curities intermediary to take any action that is prohibited mediary exercises due care in accordance with reason- by any other statute, regulation or rule. able commercial standards to comply with the entitle- 408.510 Rights of purchaser of security entitle- ment order. ment from entitlement holder. (1) An action based on (2) If a securities intermediary transfers a financial an adverse claim to a financial asset or security entitle- asset pursuant to an ineffective entitlement order, the se- ment, whether framed in conversion, replevin, construc- curities intermediary shall reestablish a security entitle- tive trust, equitable lien or other theory, may not be as- ment in favor of the person entitled to it, and pay or credit serted against a person who purchases a security any payments or distributions that the person did not re- entitlement, or an interest therein, from an entitlement ceive as a result of the wrongful transfer. If the securities holder if the purchaser gives value, does not have notice intermediary does not reestablish a security entitlement, of the adverse claim and obtains control. the securities intermediary is liable to the entitlement (2) If an adverse claim could not have been asserted holder for damages. against an entitlement holder under s. 408.502, the ad- 408.508 Duty of securities intermediary to change verse claim cannot be asserted against a person who pur- entitlement holder’s position to other form of security chases a security entitlement, or an interest therein, from holding. A securities intermediary shall act at the direc- the entitlement holder. tion of an entitlement holder to change a security entitle- (3) In a case not covered by the priority rules in ch. ment into another available form of holding for which the 409, a purchaser for value of a security entitlement, or an entitlement holder is eligible, or to cause the financial as- interest therein, who obtains control has priority over a set to be transferred to a securities account of the entitle- purchaser of a security entitlement, or an interest therein, ment holder with another securities intermediary. A se- who does not obtain control. Purchasers who have con- curities intermediary satisfies the duty if: trol rank equally, except that a securities intermediary as (1) The securities intermediary acts as agreed upon purchaser has priority over a conflicting purchaser who by the entitlement holder and the securities intermediary; has control unless otherwise agreed by the securities in- or termediary. (2) In the absence of agreement, the securities inter- 408.511 Priority among security interests and en- mediary exercises due care in accordance with reason- titlement holders. (1) Except as otherwise provided in able commercial standards to follow the direction of the subs. (2) and (3), if a securities intermediary does not entitlement holder. have sufficient interests in a particular financial asset to 408.509 Specification of duties of securities inter- satisfy both its obligations to entitlement holders who mediary by other statute or regulation; manner of have security entitlements to that financial asset and its performance of duties of securities intermediary; and obligation to a creditor of the securities intermediary who exercise of rights of entitlement holder. (1) If the sub- has a security interest in that financial asset, the claims of 1997 Senate Bill 308 – 15 – entitlement holders, other than the creditor, have priority rity entitlement or securities account are governed by the over the claim of the creditor. local law of the securities intermediary’s jurisdiction as (2) A claim of a creditor of a securities intermediary specified in s. 408.110 (5). who has a security interest in a financial asset held by a (e) Except as otherwise provided in par. (f), perfec- securities intermediary has priority over claims of the se- tion of a security interest, the effect of perfection or non- curities intermediary’s entitlement holders who have se- perfection, and the priority of a security interest in a com- curity entitlements with respect to that financial asset if modity contract or commodity account are governed by the creditor has control over the financial asset. the local law of the commodity intermediary’s jurisdic- (3) If a clearing corporation does not have sufficient tion. The following rules determine a “commodity inter- financial assets to satisfy both its obligations to entitle- mediary’s jurisdiction” for purposes of this paragraph: ment holders who have security entitlements with respect 1. If an agreement between the commodity interme- to a financial asset and its obligation to a creditor of the diary and commodity customer specifies that it is gov- clearing corporation who has a security interest in that fi- erned by the law of a particular jurisdiction, that jurisdic- nancial asset, the claim of the creditor has priority over tion is the commodity intermediary’s jurisdiction. the claims of entitlement holders. 2. If an agreement between the commodity interme- SUBCHAPTER VI diary and commodity customer does not specify the gov- TRANSITIONAL PROVISIONS erning law as provided in subd. 1., but expressly specifies 408.603 Saving provision. (1) If a security interest that the commodity account is maintained at an office in in a security is perfected on or before the effective date a particular jurisdiction, that jurisdiction is the commod- of this subsection .... [revisor inserts date], and the action ity intermediary’s jurisdiction. by which the security interest was perfected would suf- 3. If an agreement between the commodity interme- fice to perfect a security interest under this chapter, no diary and commodity customer does not specify a juris- further action is required to continue perfection. diction as provided in subd. 1. or 2., the commodity inter- (2) If a security interest in a security is perfected on mediary’s jurisdiction is the jurisdiction in which is or before the effective date of this subsection .... [revisor located the office identified in an account statement as the inserts date], under ch. 408, 1995 stats., but the action by office serving the commodity customer’s account. which the security interest was perfected would not suf- 4. If an agreement between the commodity interme- fice to perfect a security interest under this chapter, the diary and commodity customer does not specify a juris- security interest remains perfected for a period of 4 diction as provided in subd. 1. or 2. and an account state- months after the effective date of this subsection .... [revi- ment does not identify an office serving the commodity sor inserts date], and continues perfected thereafter if ap- customer’s account as provided in subd. 3., the commod- propriate action to perfect under this chapter is taken ity intermediary’s jurisdiction is the jurisdiction in which within that period. If a security interest is perfected on or is located the chief executive office of the commodity in- before the effective date of this subsection .... [revisor in- termediary. serts date], and the security interest can be perfected by (f) Perfection of a security interest by filing, automat- filing under this chapter, a financing statement signed by ic perfection of a security interest in investment property the secured party instead of the debtor may be filed within granted by a broker or securities intermediary, and auto- that period to continue perfection or thereafter to perfect. matic perfection of a security interest in a commodity SECTION 9. 409.103 (6) of the statutes is repealed and contract or commodity account granted by a commodity recreated to read: intermediary are governed by the local law of the juris- 409.103 (6) INVESTMENT PROPERTY. (a) This subsec- diction in which the debtor is located. tion applies to investment property. SECTION 10. 409.105 (1) (h) of the statutes is (b) Except as otherwise provided in par. (f), during amended to read: the time that a security certificate is located in a jurisdic- 409.105 (1) (h) “Goods” includes all things which are tion, perfection of a security interest, the effect of perfec- movable at the time the security interest attaches or tion or nonperfection, and the priority of a security inter- which are fixtures (s. 409.313), but does not include est in the certificated security represented thereby are money, documents, instruments, investment property, governed by the local law of that jurisdiction. accounts, chattel paper, general intangibles or minerals (c) Except as otherwise provided in par. (f), perfec- or the like (including oil and gas) before extraction. tion of a security interest, the effect of perfection or non- “Goods” also includes standing timber which is to be cut perfection, and the priority of a security interest in an un- and removed under a conveyance or contract for sale, the certificated security are governed by the local law of the unborn young of animals and growing crops. issuer’s jurisdiction as specified in s. 408.110 (4). SECTION 11. 409.105 (1) (i) of the statutes is amended (d) Except as otherwise provided in par. (f), perfec- to read: tion of a security interest, the effect of perfection or non- 409.105 (1) (i) “Instrument” means a negotiable perfection, and the priority of a security interest in a secu- instrument as defined in s. 403.104 or a certificated secu- – 16 – 1997 Senate Bill 308 rity as defined in s. 408.102 or any other writing which SECTION 26. 409.105 (3) (h) of the statutes is created evidences a right to the payment of money and is not itself to read: a security agreement or lease and is of a type which is in 409.105 (3) (h) “Security certificate” — s. 408.102 ordinary course of business transferred by delivery with (1) (p). any necessary endorsement or assignment. SECTION 27. 409.105 (3) (i) of the statutes is created SECTION 12. 409.105 (2) (an) of the statutes is created to read: to read: 409.105 (3) (i) “Security entitlement” — s. 408.102 409.105 (2) (an) “Commodity contract” — s. (1) (q). 409.115 (1) (b). SECTION 28. 409.105 (3) (j) of the statutes is created SECTION 13. 409.105 (2) (ap) of the statutes is created to read: to read: 409.105 (3) (j) “Uncertificated security” — s. 409.105 (2) (ap) “Commodity customer” — s. 408.102 (1) (r). 409.115 (1) (c). SECTION 29. 409.106 of the statutes is amended to SECTION 14. 409.105 (2) (aq) of the statutes is created read: to read: 409.106 Definitions: “account”; “general intangi- 409.105 (2) (aq) “Commodity intermediary” — s. bles”. “Account” means any right to payment for goods 409.115 (1) (d). sold or leased or for services rendered which is not evi- SECTION 15. 409.105 (2) (cb) of the statutes is created denced by an instrument or chattel paper, whether or not to read: it has been earned by performance. “General intangibles” 409.105 (2) (cb) “Control” — s. 409.115 (1) (e). means any personal property (including things in action) SECTION 16. 409.105 (2) (gm) of the statutes is other than goods, accounts, chattel paper, documents, created to read: instruments, investment property and money. All rights 409.105 (2) (gm) “Investment property” — s. to payment earned or unearned under a charter or other 409.115 (1) (f). contract involving the use or hire of a vessel and all rights SECTION 17. 409.105 (3) (a) of the statutes is renum- incident to the charter or contract are accounts. bered 409.105 (3) (am). SECTION 30. 409.115 of the statutes is created to read: SECTION 18. 409.105 (3) (ac) of the statutes is created 409.115 Investment property. (1) In this chapter: to read: (a) “Commodity account” means an account main- 409.105 (3) (ac) “Broker” — s. 408.102 (1) (c). tained by a commodity intermediary in which a commod- SECTION 19. 409.105 (3) (ag) of the statutes is created ity contract is carried for a commodity customer. to read: (b) “Commodity contract” means a commodity fu- 409.105 (3) (ag) “Certificated security” — s. tures contract, an option on a commodity futures con- 408.102 (1) (d). tract, a commodity option or other contract that, in each SECTION 20. 409.105 (3) (as) of the statutes is created case, is: to read: 1. Traded on or subject to the rules of a board of trade 409.105 (3) (as) “Clearing corporation” — s. that has been designated as a contract market for such a 408.102 (1) (e). contract pursuant to the federal commodities laws; or SECTION 21. 409.105 (3) (bh) of the statutes is 2. Traded on a foreign commodity board of trade, ex- created to read: change or market, and is carried on the books of a com- 409.105 (3) (bh) “Delivery” — s. 408.301. modity intermediary for a commodity customer. SECTION 22. 409.105 (3) (bp) of the statutes is (c) “Commodity customer” means a person for created to read: whom a commodity intermediary carries a commodity 409.105 (3) (bp) “Entitlement holder” — s. 408.102 contract on its books. (1) (g). (d) “Commodity intermediary” means: SECTION 23. 409.105 (3) (bt) of the statutes is created 1. A person who is registered as a futures commission to read: merchant under the federal commodities laws; or 409.105 (3) (bt) “Financial asset” — s. 408.102 (1) 2. A person who in the ordinary course of its business (i). provides clearance or settlement services for a board of SECTION 24. 409.105 (3) (f) of the statutes is created trade that has been designated as a contract market pur- to read: suant to the federal commodities laws. 409.105 (3) (f) “Securities intermediary” — s. (e) “Control” with respect to a certificated security, 408.102 (1) (n). uncertificated security, or security entitlement has the SECTION 25. 409.105 (3) (g) of the statutes is created meaning specified in s. 408.106. A secured party has to read: control over a commodity contract if, by agreement 409.105 (3) (g) “Security” — s. 408.102 (1) (o). among the commodity customer, the commodity inter- 1997 Senate Bill 308 – 17 – mediary, and the secured party, the commodity interme- ing statement with respect to a security interest in a diary has agreed that it will apply any value distributed commodity contract or a commodity account granted by on account of the commodity contract as directed by the a commodity intermediary has no effect for purposes of secured party without further consent by the commodity perfection or priority with respect to that security inter- customer. If a commodity customer grants a security in- est. terest in a commodity contract to its own commodity in- (5) Priority between conflicting security interests in termediary, the commodity intermediary as secured party the same investment property is governed by the follow- has control. A secured party has control over a securities ing rules: account or commodity account if the secured party has (a) A security interest of a secured party who has con- control over all security entitlements or commodity con- trol over investment property has priority over a security tracts carried in the securities account or commodity ac- interest of a secured party who does not have control over count. the investment property. (f) “Investment property” means: (b) Except as otherwise provided in pars. (c) and (d), 1. A security, whether certificated or uncertificated; conflicting security interests of secured parties each of 2. A security entitlement; whom has control rank equally. 3. A securities account; (c) Except as otherwise agreed by the securities inter- 4. A commodity contract; or mediary, a security interest in a security entitlement or a 5. A commodity account. securities account granted to the debtor’s own securities (2) Attachment or perfection of a security interest in intermediary has priority over any security interest a securities account is also attachment or perfection of a granted by the debtor to another secured party. security interest in all security entitlements carried in the (d) Except as otherwise agreed by the commodity in- securities account. Attachment or perfection of a securi- termediary, a security interest in a commodity contract or ty interest in a commodity account is also attachment or a commodity account granted to the debtor’s own com- perfection of a security interest in all commodity con- modity intermediary has priority over any security inter- tracts carried in the commodity account. est granted by the debtor to another secured party. (3) A description of collateral in a security agreement (e) Conflicting security interests granted by a broker, or financing statement is sufficient to create or perfect a a securities intermediary or a commodity intermediary security interest in a certificated security, uncertificated which are perfected without control rank equally. security, security entitlement, securities account, com- (f) In all other cases, priority between conflicting se- modity contract or commodity account whether it de- curity interests in investment property is governed by s. scribes the collateral by those terms, or as investment 409.312 (5), (6) and (7). Section 409.312 (4) does not ap- property, or by description of the underlying security, fi- ply to investment property. nancial asset or commodity contract. A description of in- (6) If a security certificate in registered form is deliv- vestment property collateral in a security agreement or fi- ered to a secured party pursuant to agreement, a written nancing statement is sufficient if it identifies the security agreement is not required for attachment or en- collateral by specific listing, by category, by quantity, by forceability of the security interest, delivery suffices for a computational or allocational formula or procedure, or perfection of the security interest, and the security inter- by any other method, if the identity of the collateral is ob- est has priority over a conflicting security interest per- jectively determinable. fected by means other than control, even if a necessary (4) Perfection of a security interest in investment endorsement is lacking. property is governed by the following rules: SECTION 31. 409.116 of the statutes is created to read: (a) A security interest in investment property may be 409.116 Security interest arising in purchase or perfected by control. delivery of financial asset. (1) If a person buys a finan- (b) Except as otherwise provided in pars. (c) and (d), cial asset through a securities intermediary in a transac- a security interest in investment property may be per- tion in which the buyer is obligated to pay the purchase fected by filing. price to the securities intermediary at the time of the pur- (c) If the debtor is a broker or securities intermediary, chase, and the securities intermediary credits the finan- a security interest in investment property is perfected cial asset to the buyer’s securities account before the buy- when it attaches. The filing of a financing statement with er pays the securities intermediary, the securities respect to a security interest in investment property intermediary has a security interest in the buyer’s securi- granted by a broker or securities intermediary has no ef- ty entitlement securing the buyer’s obligation to pay. A fect for purposes of perfection or priority with respect to security agreement is not required for attachment or en- that security interest. forceability of the security interest, and the security inter- (d) If a debtor is a commodity intermediary, a securi- est is automatically perfected. ty interest in a commodity contract or a commodity ac- (2) If a certificated security, or other financial asset count is perfected when it attaches. The filing of a financ- represented by a writing which in the ordinary course of – 18 – 1997 Senate Bill 308 business is transferred by delivery with any necessary en- 409.302 (1) (h) A security interest in investment dorsement or assignment is delivered pursuant to an property which is perfected without filing under s. agreement between persons in the business of dealing 409.115 or 409.116; or with such securities or financial assets and the agreement SECTION 39. 409.302 (1) (i) of the statutes is created calls for delivery rather than payment, the person deliver- to read: ing the certificate or other financial asset has a security 409.302 (1) (i) A security interest created by a master interest in the certificated security or other financial asset lease entered into by the state under s. 16.76 (4). securing the seller’s right to receive payment. A security SECTION 40. 409.303 (1) of the statutes is amended agreement is not required for attachment or enforceabili- to read: ty of the security interest, and the security interest is auto- 409.303 (1) A security interest is perfected when it matically perfected. has attached and when all of the applicable steps required SECTION 32. 409.203 (1) (intro.) of the statutes is for perfection have been taken. Such steps are specified amended to read: in ss. 409.115, 409.302, 409.304, 409.305 and 409.306. 409.203 (1) (intro.) Subject to s. 404.210 on the secu- If such steps are taken before the security interest at- rity interest of a collecting bank, s. 408.321 on security taches, it is perfected at the time when it attaches. interests in securities ss. 409.115 and 409.116 on security SECTION 41. 409.304 (1) of the statutes is amended interests in investment property, and s. 409.113 on a secu- to read: rity interest arising under ch. 402 or 411, a security inter- 409.304 (1) A security interest in chattel paper or ne- est is not enforceable against the debtor or 3rd parties gotiable documents may be perfected by filing. A securi- with respect to the collateral and does not attach unless: ty interest in money or instruments, other than certifi- SECTION 33. 409.203 (1) (a) of the statutes is cated securities or instruments which constitute part of amended to read: chattel paper, can be perfected only by the secured party’s 409.203 (1) (a) The collateral is in the possession of taking possession, except as provided in subs. (4) and (5) the secured party pursuant to agreement, the collateral is and s. 409.306 (2) and (3) on proceeds. investment property and the secured party has control SECTION 42. 409.304 (4) of the statutes is amended pursuant to agreement, or the debtor has signed a security to read: agreement which contains a description of the collateral 409.304 (4) A security interest in instruments, other and in addition, when the security interest covers crops than certificated securities, or negotiable documents is growing or to be grown or timber to be cut, a description perfected without filing or the taking of possession for a of the land concerned; period of 21 days from the time it attaches to the extent SECTION 34. 409.301 (1) (d) of the statutes is that it arises for new value given under a written security amended to read: agreement. 409.301 (1) (d) In the case of accounts and, general SECTION 43. 409.304 (5) (intro.) of the statutes is intangibles, and investment property, a person who is not amended to read: a secured party and who is a transferee to the extent that 409.304 (5) (intro.) A security interest remains per- that person gives value without knowledge of the security fected for a period of 21 days without filing where a se- interest and before it is perfected. cured party having a perfected security interest in an SECTION 35. 409.302 (1) (b) of the statutes is instrument (other than, a certificated security), a negotia- amended to read: ble document or goods in possession of a bailee other 409.302 (1) (b) A security interest temporarily per- than one who has issued a negotiable document therefor: fected in instruments, certificated securities, or docu- SECTION 44. 409.304 (5) (b) of the statutes is ments without delivery under s. 409.304 or in proceeds amended to read: for a 10–day period under s. 409.306; 409.304 (5) (b) Delivers the instrument or certifi- SECTION 36. 409.302 (1) (f) of the statutes is cated security to the debtor for the purpose of ultimate amended to read: sale or exchange or of presentation, collection, renewal 409.302 (1) (f) A security interest of a collecting or registration of transfer. bank (s. 404.210) or in securities (s. 408.321) or arising SECTION 45. 409.305 of the statutes is amended to under ch. 402 or 411 (see s. 409.113) or covered in sub. read: (3); 409.305 When possession by secured party per- SECTION 37. 409.302 (1) (g) of the statutes is fects security interest without filing. A security interest amended to read: in letters of credit and advices of credit (s. 405.116 (2) 409.302 (1) (g) An assignment for the benefit of all (a)), goods, instruments (other than certificated securi- the creditors of the transferor, and subsequent transfers ties), money, negotiable documents or chattel paper may by the assignee thereunder; or be perfected by the secured party’s taking possession of SECTION 38. 409.302 (1) (h) of the statutes is re- the collateral. If such collateral other than goods covered pealed and recreated to read: by a negotiable document is held by a bailee, the secured 1997 Senate Bill 308 – 19 – party is deemed to have possession from the time the bai- its the rights of a holder in due course of a negotiable lee receives notification of the secured party’s interest. instrument (s. 403.302) or a holder to whom a negotiable A security interest is perfected by possession from the document of title has been duly negotiated (s. 407.501) time possession is taken without relation back and con- or a bona fide protected purchaser of a security (s. tinues only so long as possession is retained, unless other- 408.302 408.303) and such holders or purchasers take wise specified in this chapter. The security interest may priority over an earlier security interest even though per- be otherwise perfected as provided in this chapter before fected. Filing under this chapter does not constitute no- or after the period of possession by the secured party. tice of the security interest to such holders or purchasers. SECTION 46. 409.306 (1) of the statutes is amended SECTION 49. 409.312 (1) of the statutes is amended to read: to read: 409.306 (1) “Proceeds” includes whatever is re- 409.312 (1) The rules of priority stated in ss. 409.301 ceived upon the sale, exchange, collection or other dis- to 409.311 and 409.313 to 409.318 and in the following position of collateral or proceeds. Insurance payable by sections shall govern when applicable: s. 404.210 with reason of loss or damage to the collateral is proceeds, ex- respect to the security interests of collecting banks in cept to the extent that it is payable to a person other than items being collected, accompanying documents and a party to the security agreement. Any payments or dis- proceeds; s. 409.103 on security interests related to other tributions made with respect to investment property jurisdictions; s. 409.114 on consignments; and s. 409.115 collateral are proceeds. Money, checks, deposit ac- on security interests in investment property. counts, and the like are “cash proceeds”. All other pro- SECTION 50. 409.312 (7) of the statutes is amended ceeds are “noncash proceeds”. to read: SECTION 47. 409.306 (3) of the statutes is repealed 409.312 (7) If future advances are made while a secu- and recreated to read: rity interest is perfected by filing, the taking of posses- 409.306 (3) (a) Subject to sub. (3m), the security in- sion, or under s. 408.321 on securities, 409.115 or terest in proceeds is a continuously perfected security in- 409.116 on investment property, the security interest has terest if the interest in the original collateral was per- the same priority for the purposes of sub. (5) or s. 409.115 fected but it ceases to be a perfected security interest and (5) with respect to the future advances as it does with re- becomes unperfected 10 days after receipt of the pro- spect to the first advance. If a commitment is made be- ceeds by the debtor unless: fore or while the security interest is so perfected, the se- 1. A filed financing statement covers the original curity interest has the same priority with respect to collateral and the proceeds are collateral in which a secu- advances made pursuant thereto. In other cases a per- rity interest may be perfected by filing in the office or of- fected security interest has priority from the date the ad- fices where the financing statement has been filed and, if vance is made. the proceeds are acquired with cash proceeds, the de- SECTION 51. 551.33 (6) of the statutes is amended to scription of collateral in the financing statement indicates read: the types of property constituting the proceeds; 551.33 (6) The division may by rule establish stan- 2. A filed financing statement covers the original dards for the conduct of business by broker–dealers, collateral and the proceeds are identifiable cash pro- agents, investment advisers and clearing corporations as ceeds; defined in s. 408.102 (1) (c) (e). 3. The original collateral was investment property SECTION 52. 766.01 (9) (c) of the statutes is amended and the proceeds are identifiable cash proceeds; or to read: 4. The security interest in the proceeds is perfected 766.01 (9) (c) An uncertificated security, as defined before the expiration of the 10–day period. under s. 408.102 (1) (h) (r), is “held” by the person identi- (b) Except as provided in this section, a security in- fied as the registered owner of the security upon books terest in proceeds may be perfected only by the methods maintained for that purpose by or on behalf of the issuer. or under the circumstances permitted in this chapter for If the registered owner of an uncertificated security is original collateral of the same type. identified as a brokerage account, the security is “held” SECTION 48. 409.309 of the statutes is amended to as provided under par. (b). read: SECTION 53. Initial applicability. 0 409.309 Protection of purchasers of instruments, (1) This act first applies to actions or proceedings documents and securities. Nothing in this chapter lim- commenced on the effective date of this subsection.