CHAPTER 8. INVESTMENT SECURITIES

Statutes > Texas Statutes > BUSINESS AND COMMERCE CODE > TITLE 1. UNIFORM COMMERCIAL CODE > CHAPTER 8. INVESTMENT SECURITIES

BUSINESS AND COMMERCE CODE

TITLE 1. UNIFORM COMMERCIAL CODE

SUBCHAPTER A. SHORT TITLE AND GENERAL MATTERS

Sec. 8.101. SHORT TITLE. This chapter may be cited as Uniform

Commercial Code--Investment Securities.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.102. DEFINITIONS. (a) In this chapter:

(1) "Adverse claim" means a claim that a claimant has a property

interest in a financial asset and that it is a violation of the

rights of the claimant for another person to hold, transfer, or

deal with the financial asset.

(2) "Bearer form," as applied to a certificated security, means

a form in which the security is payable to the bearer of the

security certificate according to its terms but not by reason of

an indorsement.

(3) "Broker" means a person defined as a broker or dealer under

the federal securities laws, but without excluding a bank acting

in that capacity.

(4) "Certificated security" means a security that is represented

by a certificate.

(5) "Clearing corporation" means:

(A) a person that is registered as a "clearing agency" under the

federal securities laws;

(B) a federal reserve bank; or

services with respect to financial assets that would require it

to register as a clearing agency under the federal securities

laws but for an exclusion or exemption from the registration

requirement, if its activities as a clearing corporation,

including promulgation of rules, are subject to regulation by a

federal or state governmental authority.

(6) "Communicate" means to:

(A) send a signed writing; or

(B) transmit information by any mechanism agreed on by the

persons transmitting and receiving the information.

(7) "Entitlement holder" means a person identified in the

records of a securities intermediary as the person having a

security entitlement against the securities intermediary. If a

person acquires a security entitlement by virtue of Section

8.501(b)(2) or (3), that person is the entitlement holder.

(8) "Entitlement order" means a notification communicated to a

securities intermediary directing transfer or redemption of a

financial asset to which the entitlement holder has a security

entitlement.

(9) "Financial asset," except as otherwise provided in Section

8.103, means:

(A) a security;

(B) an obligation of a person or a share, participation, or

other interest in a person or in property or an enterprise of a

person that is, or is of a type, dealt in or traded on financial

markets or that is recognized in any area in which it is issued

or dealt in as a medium for investment; or

another person in a securities account if the securities

intermediary has expressly agreed with the other person that the

property is to be treated as a financial asset under this

chapter.

As context requires, the term means either the interest itself or

the means by which a person's claim to it is evidenced, including

a certificated or uncertificated security, a security

certificate, or a security entitlement.

(10) Reserved.

(11) "Indorsement" means a signature that alone or accompanied

by other words is made on a security certificate in registered

form or on a separate document for the purpose of assigning,

transferring, or redeeming the security or granting a power to

assign, transfer, or redeem it.

(12) "Instruction" means a notification communicated to the

issuer of an uncertificated security that directs that the

transfer of the security be registered or that the security be

redeemed.

(13) "Registered form," as applied to a certificated security,

means a form in which:

(A) the security certificate specifies a person entitled to the

security; and

(B) a transfer of the security may be registered on books

maintained for that purpose by or on behalf of the issuer, or the

security certificate so states.

(14) "Securities intermediary" means:

(A) a clearing corporation; or

(B) a person, including a bank or broker, that in the ordinary

course of its business maintains securities accounts for others

and is acting in that capacity.

(15) "Security," except as otherwise provided in Section 8.103,

means an obligation of an issuer or a share, participation, or

other interest in an issuer or in property or an enterprise of an

issuer:

(A) that is represented by a security certificate in bearer or

registered form, or the transfer of which may be registered on

books maintained for that purpose by or on behalf of the issuer;

(B) that is one of a class or series or by its terms is

divisible into a class or series of shares, participations,

interests, or obligations; and

(i) is, or is of a type, dealt in or traded on securities

exchanges or securities markets; or

(ii) is a medium for investment and by its terms expressly

provides that it is a security governed by this chapter.

(16) "Security certificate" means a certificate representing a

security.

(17) "Security entitlement" means the rights and property

interest of an entitlement holder with respect to a financial

asset specified in Subchapter E.

(18) "Uncertificated security" means a security that is not

represented by a certificate.

(b) Other definitions applying to this chapter and the sections

in which they appear are:

Appropriate person

Section 8.107

Control

Section 8.106

Delivery

Section 8.301

Investment company security

Section 8.103

Issuer

Section 8.201

Overissue

Section 8.210

Protected purchaser

Section 8.303

Securities account

Section 8.501

principles of construction and interpretation applicable

throughout this chapter.

(d) The characterization of a person, business, or transaction

for purposes of this chapter does not determine the

characterization of the person, business, or transaction for

purposes of any other law, regulation, or rule.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995; Acts 2003, 78th Leg., ch. 542, Sec. 18, eff. Sept. 1, 2003.

Sec. 8.103. RULES FOR DETERMINING WHETHER CERTAIN OBLIGATIONS

AND INTERESTS ARE SECURITIES OR FINANCIAL ASSETS. (a) A share

or similar equity interest issued by a corporation, business

trust, joint stock company, or similar entity is a security.

(b) An investment company security is a security. "Investment

company security" means a share or similar equity interest issued

by an entity that is registered as an investment company under

the federal investment company laws, an interest in a unit

investment trust that is so registered, or a face-amount

certificate issued by a face-amount certificate company that is

so registered. "Investment company security" does not include an

insurance policy or endowment policy or annuity contract issued

by an insurance company.

not a security unless it is dealt in or traded on securities

exchanges or in securities markets, its terms expressly provide

that it is a security governed by this chapter, or it is an

investment company security. However, an interest in a

partnership or limited liability company is a financial asset if

it is held in a securities account.

(d) A writing that is a security certificate is governed by this

chapter and not by Chapter 3, even though it also meets the

requirements of that chapter. However, a negotiable instrument

governed by Chapter 3 is a financial asset if it is held in a

securities account.

(e) An option or similar obligation issued by a clearing

corporation to its participants is not a security, but is a

financial asset.

(f) A commodity contract, as defined in Section 9.102(a)(15), is

not a security or a financial asset.

(g) A document of title, as defined in Section 1.201(b)(16), is

not a financial asset unless Section 8.102(a)(9)(C) applies.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 414, Sec. 2.26, eff. July 1,

2001.

Amended by:

Acts 2005, 79th Leg., Ch.

122, Sec. 18, eff. September 1, 2005.

Sec. 8.104. ACQUISITION OF SECURITY OR FINANCIAL ASSET OR

INTEREST THEREIN. (a) A person acquires a security or an

interest therein under this chapter if:

(1) the person is a purchaser to whom a security is delivered

pursuant to Section 8.301; or

(2) the person acquires a security entitlement to the security

pursuant to Section 8.501.

(b) A person acquires a financial asset, other than a security,

or an interest therein, under this chapter, if the person

acquires a security entitlement to the financial asset.

or other financial asset has the rights specified in Subchapter

E, but is a purchaser of any security, security entitlement, or

other financial asset held by the securities intermediary only to

the extent provided in Section 8.503.

(d) Unless the context shows that a different meaning is

intended, a person who is required by other law, regulation,

rule, or agreement to transfer, deliver, present, surrender,

exchange, or otherwise put in the possession of another person a

security or financial asset satisfies that requirement by causing

the other person to acquire an interest in the security or

financial asset pursuant to Subsection (a) or (b).

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.105. NOTICE OF ADVERSE CLAIM. (a) A person has notice

of an adverse claim if:

(1) the person knows of the adverse claim;

(2) the person is aware of facts sufficient to indicate that

there is a significant probability that the adverse claim exists

and deliberately avoids information that would establish the

existence of the adverse claim; or

(3) the person has a duty, imposed by statute or regulation, to

investigate whether an adverse claim exists, and the

investigation so required would establish the existence of the

adverse claim.

(b) Having knowledge that a financial asset or interest therein

is or has been transferred by a representative imposes no duty of

inquiry into the rightfulness of a transaction and is not notice

of an adverse claim. However, a person who knows that a

representative has transferred a financial asset or interest

therein in a transaction that is, or whose proceeds are being

used, for the individual benefit of the representative or

otherwise in breach of duty has notice of an adverse claim.

performance of the principal obligation represented by a security

certificate or sets a date on or after which the certificate is

to be presented or surrendered for redemption or exchange does

not itself constitute notice of an adverse claim except in the

case of a transfer more than:

(1) one year after a date set for presentment or surrender for

redemption or exchange; or

(2) six months after a date set for payment of money against

presentation or surrender of the certificate, if money was

available for payment on that date.

(d) A purchaser of a certificated security has notice of an

adverse claim if the security certificate:

(1) whether in bearer or registered form, has been indorsed "for

collection" or "for surrender" or for some other purpose not

involving transfer; or

(2) is in bearer form and has on it an unambiguous statement

that it is the property of a person other than the transferor,

but the mere writing of a name on the certificate is not such a

statement.

(e) Filing of a financing statement under Chapter 9 is not

notice of an adverse claim to a financial asset.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.106. CONTROL. (a) A purchaser has control of a

certificated security in bearer form if the certificated security

is delivered to the purchaser.

(b) A purchaser has control of a certificated security in

registered form if the certificated security is delivered to the

purchaser and:

(1) the certificate is indorsed to the purchaser or in blank by

an effective indorsement; or

(2) the certificate is registered in the name of the purchaser,

on original issue or registration of transfer by the issuer.

(1) the uncertificated security is delivered to the purchaser;

(2) the issuer has agreed that it will comply with instructions

originated by the purchaser without further consent by the

registered owner.

(d) A purchaser has control of a security entitlement if:

(1) the purchaser becomes the entitlement holder;

(2) the securities intermediary has agreed that it will comply

with entitlement orders originated by the purchaser without

further consent by the entitlement holder; or

(3) another person has control of the security entitlement on

behalf of the purchaser or, having previously acquired control of

the security entitlement, acknowledges that it has control on

behalf of the purchaser.

(e) If an interest in a security entitlement is granted by the

entitlement holder to the entitlement holder's own securities

intermediary, the securities intermediary has control.

(f) A purchaser who has satisfied the requirements of Subsection

of Subsection (c) or the entitlement holder in the case of

Subsection (d) retains the right to make substitutions for the

uncertificated security or security entitlement, to originate

instructions or entitlement orders to the issuer or securities

intermediary, or otherwise to deal with the uncertificated

security or security entitlement.

(g) An issuer or a securities intermediary may not enter into an

agreement of the kind described in Subsection (c)(2) or (d)(2)

without the consent of the registered owner or entitlement

holder, but an issuer or a securities intermediary is not

required to enter into such an agreement even though the

registered owner or entitlement holder so directs. An issuer or

securities intermediary that has entered into such an agreement

is not required to confirm the existence of the agreement to

another party unless requested to do so by the registered owner

or entitlement holder.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 414, Sec. 2.27, eff. July 1,

2001.

Sec. 8.107. WHETHER INDORSEMENT, INSTRUCTION, OR ENTITLEMENT

ORDER IS EFFECTIVE. (a) "Appropriate person" means:

(1) with respect to an indorsement, the person specified by a

security certificate or by an effective special indorsement to be

entitled to the security;

(2) with respect to an instruction, the registered owner of an

uncertificated security;

(3) with respect to an entitlement order, the entitlement

holder;

(4) if the person designated in Subdivision (1), (2), or (3) is

deceased, the designated person's successor taking under other

law or the designated person's personal representative acting for

the estate of the decedent; or

(5) if the person designated in Subdivision (1), (2), or (3)

lacks capacity, the designated person's guardian, conservator, or

other similar representative who has power under other law to

transfer the security or financial asset.

(b) An indorsement, instruction, or entitlement order is

effective if:

(1) it is made by the appropriate person;

(2) it is made by a person who has power under the law of agency

to transfer the security or financial asset on behalf of the

appropriate person, including, in the case of an instruction or

entitlement order, a person who has control under Section

8.106(c)(2) or (d)(2); or

(3) the appropriate person has ratified it or is otherwise

precluded from asserting its ineffectiveness.

representative is effective even if:

(1) the representative has failed to comply with a controlling

instrument or with the law of the state having jurisdiction of

the representative relationship, including any law requiring the

representative to obtain court approval of the transaction; or

(2) the representative's action in making the indorsement,

instruction, or entitlement order or using the proceeds of the

transaction is otherwise a breach of duty.

(d) If a security is registered in the name of or specially

indorsed to a person described as a representative, or if a

securities account is maintained in the name of a person

described as a representative, an indorsement, instruction, or

entitlement order made by the person is effective even though the

person is no longer serving in the described capacity.

(e) Effectiveness of an indorsement, instruction, or entitlement

order is determined as of the date the indorsement, instruction,

or entitlement order is made, and an indorsement, instruction, or

entitlement order does not become ineffective by reason of any

later change of circumstances.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.108. WARRANTIES IN DIRECT HOLDING. (a) A person who

transfers a certificated security to a purchaser for value

warrants to the purchaser, and an indorser, if the transfer is by

indorsement, warrants to any subsequent purchaser, that:

(1) the certificate is genuine and has not been materially

altered;

(2) the transferor or indorser does not know of any fact that

might impair the validity of the security;

(3) there is no adverse claim to the security;

(4) the transfer does not violate any restriction on transfer;

(5) if the transfer is by indorsement, the indorsement is made

by an appropriate person, or if the indorsement is by an agent,

the agent has actual authority to act on behalf of the

appropriate person; and

(6) the transfer is otherwise effective and rightful.

(b) A person who originates an instruction for registration of

transfer of an uncertificated security to a purchaser for value

warrants to the purchaser that:

(1) the instruction is made by an appropriate person, or if the

instruction is by an agent, the agent has actual authority to act

on behalf of the appropriate person;

(2) the security is valid;

(3) there is no adverse claim to the security; and

(4) at the time the instruction is presented to the issuer:

(A) the purchaser will be entitled to the registration of

transfer;

(B) the transfer will be registered by the issuer free from all

liens, security interests, restrictions, and claims other than

those specified in the instruction;

and

(D) the requested transfer will otherwise be effective and

rightful.

purchaser for value and does not originate an instruction in

connection with the transfer warrants that:

(1) the uncertificated security is valid;

(2) there is no adverse claim to the security;

(3) the transfer does not violate any restriction on transfer;

and

(4) the transfer is otherwise effective and rightful.

(d) A person who indorses a security certificate warrants to the

issuer that:

(1) there is no adverse claim to the security; and

(2) the indorsement is effective.

(e) A person who originates an instruction for registration of

transfer of an uncertificated security warrants to the issuer

that:

(1) the instruction is effective; and

(2) at the time the instruction is presented to the issuer the

purchaser will be entitled to the registration of transfer.

(f) A person who presents a certificated security for

registration of transfer or for payment or exchange warrants to

the issuer that the person is entitled to the registration,

payment, or exchange, but a purchaser for value and without

notice of adverse claims to whom transfer is registered warrants

only that the person has no knowledge of any unauthorized

signature in a necessary indorsement.

(g) If a person acts as agent of another in delivering a

certificated security to a purchaser, the identity of the

principal was known to the person to whom the certificate was

delivered, and the certificate delivered by the agent was

received by the agent from the principal or received by the agent

from another person at the direction of the principal, the person

delivering the security certificate warrants only that the

delivering person has authority to act for the principal and does

not know of any adverse claim to the certificated security.

(h) A secured party who redelivers a security certificate

received, or after payment and on order of the debtor delivers

the security certificate to another person, makes only the

warranties of an agent under Subsection (g).

(i) Except as otherwise provided in Subsection (g), a broker

acting for a customer makes to the issuer and a purchaser the

warranties provided in Subsections (a)-(f). A broker that

delivers a security certificate to its customer, or causes its

customer to be registered as the owner of an uncertificated

security, makes to the customer the warranties provided in

Subsection (a) or (b), and has the rights and privileges of a

purchaser under this section. The warranties of and in favor of

the broker acting as an agent are in addition to applicable

warranties given by and in favor of the customer.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.109. WARRANTIES IN INDIRECT HOLDING. (a) A person who

originates an entitlement order to a securities intermediary

warrants to the securities intermediary that:

(1) the entitlement order is made by an appropriate person, or

if the entitlement order is by an agent, the agent has actual

authority to act on behalf of the appropriate person; and

(2) there is no adverse claim to the security entitlement.

(b) A person who delivers a security certificate to a securities

intermediary for credit to a securities account or originates an

instruction with respect to an uncertificated security directing

that the uncertificated security be credited to a securities

account makes to the securities intermediary the warranties

specified in Section 8.108(a) or (b).

to its entitlement holder or causes its entitlement holder to be

registered as the owner of an uncertificated security, the

securities intermediary makes to the entitlement holder the

warranties specified in Section 8.108(a) or (b).

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.110. APPLICABILITY; CHOICE OF LAW. (a) The local law of

the issuer's jurisdiction, as specified in Subsection (d),

governs:

(1) the validity of a security;

(2) the rights and duties of the issuer with respect to

registration of transfer;

(3) the effectiveness of registration of transfer by the issuer;

(4) whether the issuer owes any duties to an adverse claimant to

a security; and

(5) whether an adverse claim can be asserted against a person to

whom transfer of a certificated or uncertificated security is

registered or a person who obtains control of an uncertificated

security.

(b) The local law of the securities intermediary's jurisdiction,

as specified in Subsection (e), governs:

(1) acquisition of a security entitlement from the securities

intermediary;

(2) the rights and duties of the securities intermediary and

entitlement holder arising out of a security entitlement;

(3) whether the securities intermediary owes any duties to an

adverse claimant to a security entitlement; and

(4) whether an adverse claim can be asserted against a person

who acquires a security entitlement from the securities

intermediary or a person who purchases a security entitlement or

interest therein from an entitlement holder.

certificate is located at the time of delivery governs whether an

adverse claim can be asserted against a person to whom the

security certificate is delivered.

(d) "Issuer's jurisdiction" means the jurisdiction under which

the issuer of the security is organized or, if permitted by the

law of that jurisdiction, the law of another jurisdiction

specified by the issuer. An issuer organized under the law of

this state may specify the law of another jurisdiction as the law

governing the matters specified in Subsections (a)(2)-(5).

(e) The following rules determine a securities intermediary's

jurisdiction for purposes of this section:

(1) If an agreement between the securities intermediary and its

entitlement holder governing the securities account expressly

provides that a particular jurisdiction is the securities

intermediary's jurisdiction for purposes of this subchapter, this

chapter, or this title, that jurisdiction is the securities

intermediary's jurisdiction.

(2) If Subdivision (1) does not apply and an agreement between

the securities intermediary and its entitlement holder governing

the securities account expressly provides that the agreement is

governed by the law of a particular jurisdiction, that

jurisdiction is the securities intermediary's jurisdiction.

(3) If neither Subdivision (1) nor Subdivision (2) applies and

an agreement between the securities intermediary and its

entitlement holder governing the securities account expressly

provides that the securities account is maintained at an office

in a particular jurisdiction, that jurisdiction is the securities

intermediary's jurisdiction.

(4) If none of the preceding subdivisions applies, the

securities intermediary's jurisdiction is the jurisdiction in

which the office identified in an account statement as the office

serving the entitlement holder's account is located.

(5) If none of the preceding subdivisions applies, the

securities intermediary's jurisdiction is the jurisdiction in

which the chief executive office of the securities intermediary

is located.

(f) A securities intermediary's jurisdiction is not determined

by:

(1) the physical location of certificates representing financial

assets;

(2) the jurisdiction in which is organized the issuer of the

financial asset with respect to which an entitlement holder has a

security entitlement; or

(3) the location of facilities for data processing or other

recordkeeping concerning the account.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995. Amended by Acts 1999, 76th Leg., ch. 414, Sec. 2.28, eff.

July 1, 2001.

Sec. 8.111. CLEARING CORPORATION RULES. A rule adopted by a

clearing corporation governing rights and obligations among the

clearing corporation and its participants in the clearing

corporation is effective even if the rule conflicts with this

chapter and affects another party who does not consent to the

rule.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.112. CREDITOR'S LEGAL PROCESS. (a) The interest of a

debtor in a certificated security may be reached by a creditor

only by actual seizure of the security certificate by the officer

making the attachment or levy, except as otherwise provided in

Subsection (d). However, a certificated security for which the

certificate has been surrendered to the issuer may be reached by

a creditor by legal process on the issuer.

(b) The interest of a debtor in an uncertificated security may

be reached by a creditor only by legal process on the issuer at

its chief executive office in the United States, except as

otherwise provided in Subsection (d).

reached by a creditor only by legal process on the securities

intermediary with whom the debtor's securities account is

maintained, except as otherwise provided in Subsection (d).

(d) The interest of a debtor in a certificated security for

which the certificate is in the possession of a secured party, or

in an uncertificated security registered in the name of a secured

party, or in a security entitlement maintained in the name of a

secured party may be reached by a creditor by legal process on

the secured party.

(e) A creditor whose debtor is the owner of a certificated

security, uncertificated security, or security entitlement is

entitled to aid from a court of competent jurisdiction, by

injunction or otherwise, in reaching the certificated security,

uncertificated security, or security entitlement or in satisfying

the claim by means allowed at law or in equity in regard to

property that cannot readily be reached by other legal process.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.113. STATUTE OF FRAUDS INAPPLICABLE. A contract or

modification of a contract for the sale or purchase of a security

is enforceable whether or not there is a writing signed or record

authenticated by a party against whom enforcement is sought, even

if the contract or modification is not capable of performance

within one year of its making.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.114. EVIDENTIARY RULES CONCERNING CERTIFICATED

SECURITIES. The following rules apply in an action on a

certificated security against the issuer:

(1) Unless specifically denied in the pleadings, each signature

on a security certificate or in a necessary indorsement is

admitted.

(2) If the effectiveness of a signature is put in issue, the

burden of establishing effectiveness is on the party claiming

under the signature, but the signature is presumed to be genuine

or authorized.

(3) If signatures on a security certificate are admitted or

established, production of the certificate entitles a holder to

recover on it unless the defendant establishes a defense or a

defect going to the validity of the security.

(4) If it is shown that a defense or defect exists, the

plaintiff has the burden of establishing that the plaintiff, or

some person under whom the plaintiff claims, is a person against

whom the defense or defect cannot be asserted.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.115. SECURITIES INTERMEDIARY AND OTHERS NOT LIABLE TO

ADVERSE CLAIMANT. A securities intermediary that has transferred

a financial asset pursuant to an effective entitlement order, or

a broker or other agent or bailee that has dealt with a financial

asset at the direction of its customer or principal, is not

liable to a person having an adverse claim to the financial

asset, unless the securities intermediary, or broker or other

agent or bailee:

(1) took the action after it had been served with an injunction,

restraining order, or other legal process enjoining it from doing

so issued by a court of competent jurisdiction and had a

reasonable opportunity to act on the injunction, restraining

order, or other legal process;

(2) acted in collusion with the wrongdoer in violating the

rights of the adverse claimant; or

(3) in the case of a security certificate that has been stolen,

acted with notice of the adverse claim.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.116. SECURITIES INTERMEDIARY AS PURCHASER FOR VALUE. A

securities intermediary that receives a financial asset and

establishes a security entitlement to the financial asset in

favor of an entitlement holder is a purchaser for value of the

financial asset. A securities intermediary that acquires a

security entitlement to a financial asset from another securities

intermediary acquires the security entitlement for value if the

securities intermediary acquiring the security entitlement

establishes a security entitlement to the financial asset in

favor of an entitlement holder.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

SUBCHAPTER B. ISSUE AND ISSUER

Sec. 8.201. ISSUER. (a) With respect to an obligation on or a

defense to a security, "issuer" includes a person that:

(1) places or authorizes the placing of its name on a security

certificate, other than as authenticating trustee, registrar,

transfer agent, or the like, to evidence a share, participation,

or other interest in its property or in an enterprise or to

evidence its duty to perform an obligation represented by the

certificate;

(2) creates a share, participation, or other interest in its

property or in an enterprise, or undertakes an obligation, that

is an uncertificated security;

(3) directly or indirectly creates a fractional interest in its

rights or property, if the fractional interest is represented by

a security certificate; or

(4) becomes responsible for, or in place of, another person

described as an issuer in this section.

(b) With respect to an obligation on or defense to a security, a

guarantor is an issuer to the extent of its guaranty, whether or

not its obligation is noted on a security certificate.

a person on whose behalf transfer books are maintained.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.202. ISSUER'S RESPONSIBILITY AND DEFENSES; NOTICE OF

DEFECT OR DEFENSE. (a) Even against a purchaser for value and

without notice, the terms of a certificated security include

terms stated on the certificate and terms made part of the

security by reference on the certificate to another instrument,

indenture, or document or to a constitution, statute, ordinance,

rule, regulation, order, or the like to the extent the terms

referred to do not conflict with terms stated on the certificate.

A reference under this subsection does not of itself charge a

purchaser for value with notice of a defect going to the validity

of the security, even if the certificate expressly states that a

person accepting it admits notice. The terms of an uncertificated

security include those stated in any instrument, indenture, or

document or in a constitution, statute, ordinance, rule,

regulation, order, or the like pursuant to which the security is

issued.

(b) The following rules apply if an issuer asserts that a

security is not valid:

(1) A security other than one issued by a government or

governmental subdivision, agency, or instrumentality, even though

issued with a defect going to its validity, is valid in the hands

of a purchaser for value and without notice of the particular

defect unless the defect involves a violation of a constitutional

provision. In that case, the security is valid in the hands of a

purchaser for value and without notice of the defect, other than

a purchaser who takes by original issue.

(2) Subdivision (1) applies to an issuer that is a government or

governmental subdivision, agency, or instrumentality only if:

(A) there has been substantial compliance with the legal

requirements governing the issue; or

(B) the issuer has received a substantial consideration for the

issue as a whole or for the particular security and a stated

purpose of the issue is one for which the issuer has power to

borrow money or issue the security.

genuineness of a certificated security is a complete defense,

even against a purchaser for value and without notice.

(d) All other defenses of the issuer of a security, including

nondelivery and conditional delivery of a certificated security,

are ineffective against a purchaser for value who has taken the

certificated security without notice of the particular defense.

(e) This section does not affect the right of a party to cancel

a contract for a security "when, as and if issued" or "when

distributed" in the event of a material change in the character

of the security that is the subject of the contract or in the

plan or arrangement pursuant to which the security is to be

issued or distributed.

(f) If a security is held by a securities intermediary against

whom an entitlement holder has a security entitlement with

respect to the security, the issuer may not assert any defense

that the issuer could not assert if the entitlement holder held

the security directly.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.203. STALENESS AS NOTICE OF DEFECT OR DEFENSE. After an

act or event, other than a call that has been revoked, creating a

right to immediate performance of the principal obligation

represented by a certificated security or setting a date on or

after which the security is to be presented or surrendered for

redemption or exchange, a purchaser is charged with notice of any

defect in its issue or defense of the issuer if the act or event:

(1) requires the payment of money, the delivery of a

certificated security, the registration of transfer of an

uncertificated security, or any of them on presentation or

surrender of the security certificate, the money or security is

available on the date set for payment or exchange, and the

purchaser takes the security more than one year after that date;

(2) is not covered by Subdivision (1) and the purchaser takes

the security more than two years after the date set for surrender

or presentation or the date on which performance became due.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.204. EFFECT OF ISSUER'S RESTRICTION ON TRANSFER. A

restriction on transfer of a security imposed by the issuer, even

if otherwise lawful, is ineffective against a person without

knowledge of the restriction unless:

(1) the security is certificated and the restriction is noted

conspicuously on the security certificate; or

(2) the security is uncertificated and the registered owner has

been notified of the restriction.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.205. EFFECT OF UNAUTHORIZED SIGNATURE ON SECURITY

CERTIFICATE. An unauthorized signature placed on a security

certificate before or in the course of issue is ineffective, but

the signature is effective in favor of a purchaser for value of

the certificated security if the purchaser is without notice of

the lack of authority and the signing has been done by:

(1) an authenticating trustee, registrar, transfer agent, or

other person entrusted by the issuer with the signing of the

security certificate or of similar security certificates or with

the immediate preparation for signing of any of them; or

(2) an employee of the issuer, or of any of the persons listed

in Subdivision (1), entrusted with responsible handling of the

security certificate.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.206. COMPLETION OR ALTERATION OF SECURITY CERTIFICATE.

(a) If a security certificate contains the signatures necessary

to its issue or transfer but is incomplete in any other respect:

(1) any person may complete it by filling in the blanks as

authorized; and

(2) even if the blanks are incorrectly filled in, the security

certificate as completed is enforceable by a purchaser who took

it for value and without notice of the incorrectness.

(b) A complete security certificate that has been improperly

altered, even if fraudulently, remains enforceable, but only

according to its original terms.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.207. RIGHTS AND DUTIES OF ISSUER WITH RESPECT TO

REGISTERED OWNERS. (a) Before due presentment for registration

of transfer of a certificated security in registered form or of

an instruction requesting registration of transfer of an

uncertificated security, the issuer or indenture trustee may

treat the registered owner as the person exclusively entitled to

vote, receive notifications, and otherwise exercise all the

rights and powers of an owner.

(b) This chapter does not affect the liability of the registered

owner of a security for a call, assessment, or the like.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.208. EFFECT OF SIGNATURE OF AUTHENTICATING TRUSTEE,

REGISTRAR, OR TRANSFER AGENT. (a) A person signing a security

certificate as authenticating trustee, registrar, transfer agent,

or the like warrants to a purchaser for value of the certificated

security, if the purchaser is without notice of a particular

defect, that:

(1) the certificate is genuine;

(2) the person's own participation in the issue of the security

is within the person's capacity and within the scope of the

authority received by the person from the issuer; and

(3) the person has reasonable grounds to believe that the

certificated security is in the form and within the amount the

issuer is authorized to issue.

(b) Unless otherwise agreed, a person signing under Subsection

(a) does not assume responsibility for the validity of the

security in other respects.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.209. ISSUER'S LIEN. A lien in favor of an issuer on a

certificated security is valid against a purchaser only if the

right of the issuer to the lien is noted conspicuously on the

security certificate.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1996.

Sec. 8.210. OVERISSUE. (a) In this section, "overissue" means

the issue of securities in excess of the amount the issuer has

corporate power to issue, but an overissue does not occur if

appropriate action has cured the overissue.

(b) Except as otherwise provided in Subsections (c) and (d), the

provisions of this chapter that validate a security or compel its

issue or reissue do not apply to the extent that validation,

issue, or reissue would result in overissue.

reasonably available for purchase, a person entitled to issue or

validation may compel the issuer to purchase the security and

deliver it if certificated or register its transfer if

uncertificated, against surrender of any security certificate the

person holds.

(d) If a security is not reasonably available for purchase, a

person entitled to issue or validation may recover from the

issuer the price the person or the last purchaser for value paid

for it with interest from the date of the person's demand.

Added by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

SUBCHAPTER C. TRANSFER OF CERTIFICATED AND UNCERTIFICATED

SECURITIES

Sec. 8.301. DELIVERY. (a) Delivery of a certificated security

to a purchaser occurs when:

(1) the purchaser acquires possession of the security

certificate;

(2) another person, other than a securities intermediary, either

acquires possession of the security certificate on behalf of the

purchaser or, having previously acquired possession of the

certificate, acknowledges that it holds for the purchaser; or

(3) a securities intermediary acting on behalf of the purchaser

acquires possession of the security certificate, only if the

certificate is in registered form and is (i) registered in the

name of the purchaser, (ii) payable to the order of the

purchaser, or (iii) specially indorsed to the purchaser by an

effective indorsement and has not been indorsed to the securities

intermediary or in blank.

(b) Delivery of an uncertificated security to a purchaser occurs

when:

(1) the issuer registers the purchaser as the registered owner,

on original issue or registration of transfer; or

(2) another person, other than a securities intermediary, either

becomes the registered owner of the uncertificated security on

behalf of the purchaser or, having previously become the

registered owner, acknowledges that it holds for the purchaser.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 414, Sec. 2.29, eff. July 1,

2001.

Sec. 8.302. RIGHTS OF PURCHASER. (a) Except as otherwise

provided in Subsections (b) and (c), a purchaser of a

certificated or uncertificated security acquires all rights in

the security that the transferor had or had power to transfer.

(b) A purchaser of a limited interest acquires rights only to

the extent of the interest purchased.

holder had notice of an adverse claim does not improve its

position by taking from a protected purchaser.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995; Acts 1999, 76th Leg., ch. 414, Sec. 2.30, eff. July 1,

2001.

Sec. 8.303. PROTECTED PURCHASER. (a) "Protected purchaser"

means a purchaser of a certificated or uncertificated security,

or of an interest therein, who:

(1) gives value;

(2) does not have notice of any adverse claim to the security;

and

(3) obtains control of the certificated or uncertificated

security.

(b) In addition to acquiring the rights of a purchaser, a

protected purchaser also acquires its interest in the security

free of any adverse claim.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.304. INDORSEMENT. (a) An indorsement may be in blank or

special. An indorsement in blank includes an indorsement to

bearer. A special indorsement specifies to whom a security is to

be transferred or who has power to transfer it. A holder may

convert a blank indorsement to a special indorsement.

(b) An indorsement purporting to be only of part of a security

certificate representing units intended by the issuer to be

separately transferable is effective to the extent of the

indorsement.

constitute a transfer until delivery of the certificate on which

it appears or, if the indorsement is on a separate document,

until delivery of both the document and the certificate.

(d) If a security certificate in registered form has been

delivered to a purchaser without a necessary indorsement, the

purchaser may become a protected purchaser only when the

indorsement is supplied. However, against a transferor, a

transfer is complete on delivery and the purchaser has a

specifically enforceable right to have any necessary indorsement

supplied.

(e) An indorsement of a security certificate in bearer form may

give notice of an adverse claim to the certificate, but it does

not otherwise affect a right to registration that the holder

possesses.

(f) Unless otherwise agreed, a person making an indorsement

assumes only the obligations provided in Section 8.108 and not an

obligation that the security will be honored by the issuer.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.305. INSTRUCTION. (a) If an instruction has been

originated by an appropriate person but is incomplete in any

other respect, any person may complete it as authorized and the

issuer may rely on it as completed, even though it has been

completed incorrectly.

(b) Unless otherwise agreed, a person initiating an instruction

assumes only the obligations imposed by Section 8.108 and not an

obligation that the security will be honored by the issuer.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.306. EFFECT OF GUARANTEEING SIGNATURE, INDORSEMENT, OR

INSTRUCTION. (a) A person who guarantees a signature of an

indorser of a security certificate warrants that at the time of

signing:

(1) the signature was genuine;

(2) the signer was an appropriate person to indorse or, if the

signature is by an agent, the agent had actual authority to act

on behalf of the appropriate person; and

(3) the signer had legal capacity to sign.

(b) A person who guarantees a signature of the originator of an

instruction warrants that at the time of signing:

(1) the signature was genuine;

(2) the signer was an appropriate person to originate the

instruction or, if the signature is by an agent, the agent had

actual authority to act on behalf of the appropriate person, if

the person specified in the instruction as the registered owner

was, in fact, the registered owner, as to which fact the

signature guarantor does not make a warranty; and

(3) the signer had legal capacity to sign.

originator of an instruction makes the warranties of a signature

guarantor under Subsection (b) and also warrants that at the time

the instruction is presented to the issuer:

(1) the person specified in the instruction as the registered

owner of the uncertificated security will be the registered

owner; and

(2) the transfer of the uncertificated security requested in the

instruction will be registered by the issuer free from all liens,

security interests, restrictions, and claims other than those

specified in the instruction.

(d) A guarantor under Subsections (a) and (b) or a special

guarantor under Subsection (c) does not otherwise warrant the

rightfulness of the transfer.

(e) A person who guarantees an indorsement of a security

certificate makes the warranties of a signature guarantor under

Subsection (a) and also warrants the rightfulness of the transfer

in all respects.

(f) A person who guarantees an instruction requesting the

transfer of an uncertificated security makes the warranties of a

special signature guarantor under Subsection (c) and also

warrants the rightfulness of the transfer in all respects.

(g) An issuer may not require a special guaranty of signature, a

guaranty of indorsement, or a guaranty of instruction as a

condition to registration of transfer.

(h) The warranties under this section are made to a person

taking or dealing with the security in reliance on the guaranty,

and the guarantor is liable to the person for loss resulting from

their breach. An indorser or originator of an instruction whose

signature, indorsement, or instruction has been guaranteed is

liable to a guarantor for any loss suffered by the guarantor as a

result of breach of the warranties of the guarantor.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.307. PURCHASER'S RIGHT TO REQUISITES FOR REGISTRATION OF

TRANSFER. Unless otherwise agreed, the transferor of a security

on due demand shall supply the purchaser with proof of authority

to transfer or with any other requisite necessary to obtain

registration of the transfer of the security, but if the transfer

is not for value, a transferor need not comply unless the

purchaser pays the necessary expenses. If the transferor fails

within a reasonable time to comply with the demand, the purchaser

may reject or rescind the transfer.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

SUBCHAPTER D. REGISTRATION

Sec. 8.401. DUTY OF ISSUER TO REGISTER TRANSFER. (a) If a

certificated security in registered form is presented to an

issuer with a request to register transfer or an instruction is

presented to an issuer with a request to register transfer of an

uncertificated security, the issuer shall register the transfer

as requested if:

(1) under the terms of the security the person seeking

registration of transfer is eligible to have the security

registered in its name;

(2) the indorsement or instruction is made by the appropriate

person or by an agent who has actual authority to act on behalf

of the appropriate person;

(3) reasonable assurance is given that the indorsement or

instruction is genuine and authorized (Section 8.402);

(4) any applicable law relating to the collection of taxes has

been complied with;

(5) the transfer does not violate any restriction on transfer

imposed by the issuer in accordance with Section 8.204;

(6) a demand that the issuer not register transfer has not

become effective under Section 8.403, or the issuer has complied

with Section 8.403(b) but no legal process or indemnity bond is

obtained as provided in Section 8.403(d); and

(7) the transfer is in fact rightful or is to a protected

purchaser.

(b) If an issuer is under a duty to register a transfer of a

security, the issuer is liable to a person presenting a

certificated security or an instruction for registration or to

the person's principal for loss resulting from unreasonable delay

in registration or failure or refusal to register the transfer.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.402. ASSURANCE THAT INDORSEMENT OR INSTRUCTION IS

EFFECTIVE. (a) An issuer may require the following assurance

that each necessary indorsement or each instruction is genuine

and authorized:

(1) in all cases, a guaranty of the signature of the person

making an indorsement or originating an instruction, including,

in the case of an instruction, reasonable assurance of identity;

(2) if the indorsement is made or the instruction is originated

by an agent, appropriate assurance of actual authority to sign;

(3) if the indorsement is made or the instruction is originated

by a fiduciary pursuant to Section 8.107(a)(4) or (5),

appropriate evidence of appointment or incumbency;

(4) if there is more than one fiduciary, reasonable assurance

that all who are required to sign have done so; and

(5) if the indorsement is made or the instruction is originated

by a person not covered by another provision of this subsection,

assurance appropriate to the case corresponding as nearly as may

be to the provisions of this subsection.

(b) An issuer may elect to require reasonable assurance beyond

that specified in this section.

(1) "Appropriate evidence of appointment or incumbency" means:

(A) in the case of a fiduciary appointed or qualified by a

court, a certificate issued by or under the direction or

supervision of the court or an officer thereof and dated within

60 days before the date of presentation for transfer; or

(B) in any other case, a copy of a document showing the

appointment or a certificate issued by or on behalf of a person

reasonably believed by an issuer to be responsible or, in the

absence of that document or certificate, other evidence the

issuer reasonably considers appropriate.

(2) "Guaranty of the signature" means a guaranty signed by or on

behalf of a person reasonably believed by the issuer to be

responsible. An issuer may adopt standards with respect to

responsibility if they are not manifestly unreasonable.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995

Sec. 8.403. DEMAND THAT ISSUER NOT REGISTER TRANSFER. (a) A

person who is an appropriate person to make an indorsement or

originate an instruction may demand that the issuer not register

transfer of a security by communicating to the issuer a

notification that identifies the registered owner and the issue

of which the security is a part and provides an address for

communications directed to the person making the demand. The

demand is effective only if it is received by the issuer at a

time and in a manner affording the issuer reasonable opportunity

to act on it.

(b) If a certificated security in registered form is presented

to an issuer with a request to register transfer or an

instruction is presented to an issuer with a request to register

transfer of an uncertificated security after a demand that the

issuer not register transfer has become effective, the issuer

shall promptly communicate to (i) the person who initiated the

demand at the address provided in the demand and (ii) the person

who presented the security for registration of transfer or

initiated the instruction requesting registration of transfer a

notification stating that:

(1) the certificated security has been presented for

registration of transfer or the instruction for registration of

transfer of the uncertificated security has been received;

(2) a demand that the issuer not register transfer had

previously been received; and

(3) the issuer will withhold registration of transfer for a

period of time stated in the notification in order to provide the

person who initiated the demand an opportunity to obtain legal

process or an indemnity bond.

days after the date of communication of the notification. A

shorter period may be specified by the issuer if it is not

manifestly unreasonable.

(d) An issuer is not liable to a person who initiated a demand

that the issuer not register transfer for any loss the person

suffers as a result of registration of a transfer pursuant to an

effective indorsement or instruction if the person who initiated

the demand does not, within the time stated in the issuer's

communication, either:

(1) obtain an appropriate injunction, restraining order, or

other process from a court of competent jurisdiction enjoining

the issuer from registering the transfer; or

(2) file with the issuer an indemnity bond, sufficient in the

issuer's judgment to protect the issuer and any transfer agent,

registrar, or other agent of the issuer involved from any loss it

or they may suffer by refusing to register the transfer.

(e) This section does not relieve an issuer from liability for

registering transfer pursuant to an indorsement or instruction

that was not effective.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.404. WRONGFUL REGISTRATION. (a) Except as otherwise

provided in Section 8.406, an issuer is liable for wrongful

registration of transfer if the issuer has registered a transfer

of a security to a person not entitled to it, and the transfer

was registered:

(1) pursuant to an ineffective indorsement or instruction;

(2) after a demand that the issuer not register transfer became

effective under Section 8.403(a) and the issuer did not comply

with Section 8.403(b);

(3) after the issuer had been served with an appropriate

injunction, restraining order, or other process from a court of

competent jurisdiction enjoining it from registering the

transfer, and the issuer had a reasonable opportunity to act on

the injunction, restraining order, or other legal process; or

(4) by an issuer acting in collusion with the wrongdoer.

(b) An issuer that is liable for wrongful registration of

transfer under Subsection (a) on demand shall provide the person

entitled to the security with a like certificated or

uncertificated security and any payments or distributions that

the person did not receive as a result of the wrongful

registration. If an overissue would result, the issuer's

liability to provide the person with a like security is governed

by Section 8.210.

relating to the collection of taxes, an issuer is not liable to

an owner or other person suffering loss as a result of the

registration of a transfer of a security if registration was made

pursuant to an effective indorsement or instruction.

Amended by Acts 1995, 74th Leg., ch. 962, Sec. 1, eff. Sept. 1,

1995.

Sec. 8.405. REPLACEMENT OF LOST, DESTROYED, OR WRONGFULLY TAKEN

SECURITY CERTIFICATE. (a) If an owner of a certificated

security, whether in registered or bearer form, claims that the

certificate has been lost, destroyed, or wrongfully taken, the

issuer shall issue a new certificate if the owner:

(1) so requests before the issuer has notice that the

certificate has been acquired by a protected purchaser;

(2) files with the issuer a sufficient indemnity bond; and

(3) satisfies other reasonable requirements imposed by the

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Texas Codes and Statutes

CHAPTER 8. INVESTMENT SECURITIES