Colorado Code
Part 1 - Short Title and General Matters
§ 4-8-106. Control

(1) The uncertificated security is delivered to the purchaser; or
(2) The issuer has agreed that it will comply with instructions originated by the purchaser without further consent by the registered owner.

(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

Source: L. 96: Entire article R&RE, p. 208, § 2, effective July 1. L. 2001: (d) and (f) amended, p. 1442, § 31, effective July 1.
Editor's note: This section is similar to former § 4-8-311 as it existed prior to 1996.

Obtaining "control" means that the purchaser has taken whatever steps are necessary, given the manner in which the securities are held, to place itself in a position where it can have the securities sold, without further action by the owner.
Under subsection (c)(1), securities can be "delivered" to a purchaser. Section 8-301(b) provides that "delivery" of an uncertificated security occurs when the purchaser becomes the registered holder. So far as the issuer is concerned, the purchaser would then be entitled to exercise all rights of ownership. See Section 8-207. As between the parties to a purchase transaction, however, the rights of the purchaser are determined by their contract. Cf. Section 9-202. Arrangements covered by this paragraph are analogous to arrangements in which bearer certificates are delivered to a secured party -- so far as the issuer or any other parties are concerned, the secured party appears to be the outright owner, although it is in fact holding as collateral property that belongs to the debtor.
Under subsection (c)(2), a purchaser has control if the issuer has agreed to act on the instructions of the purchaser, even though the owner remains listed as the registered owner. The issuer, of course, would be acting wrongfully against the registered owner if it entered into such an agreement without the consent of the registered owner. Subsection (g) makes this point explicit. The subsection (c)(2) provision makes it possible for issuers to offer a service akin to the registered pledge device of the 1978 version of Article 8, without mandating that all issuers offer that service.
Subsection (d)(2) provides that a purchaser has control if the securities intermediary has agreed to act on entitlement orders originated by the purchaser, even though the transferor remains listed as the entitlement holder. This section specifies only the minimum requirements that such an arrangement must meet to confer "control"; the details of the arrangement can be specified by agreement. The arrangement might cover all of the positions in a particular account or subaccount, or only specified positions. There is no requirement that the control party's right to give entitlement orders be exclusive. The arrangement might provide that only the control party can give entitlement orders, or that either the entitlement holder or the control party can give entitlement orders. See subsection (f).
The following examples illustrate the rules of subsection (d):
Example 1. Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Alpha Bank also has an account with Able. Debtor instructs Able to transfer the shares to Alpha Bank, and Able does so. Alpha Bank has control of the 1000 shares under subsection (d)(1), because Alpha Bank is the entitlement holder.
Example 2. Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Alpha Bank does not have an account with Able. Alpha Bank uses Beta Bank as its securities custodian. Debtor instructs Able to transfer the shares to Beta Bank, for the account of Alpha Bank, and Able does so. Alpha Bank has control of the 1000 shares under subsection (d)(1), because Alpha Bank is the entitlement holder.
Example 3. Debtor grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Debtor holds through an account with Able & Co. Debtor, Able, and Alpha Bank enter into an agreement under which Debtor will continue to receive dividends and distributions, and will continue to have the right to direct dispositions, but Alpha Bank also has the right to direct dispositions. Alpha Bank has control of the 1000 shares under subsection (d)(2).
Example 4. Able & Co., a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into Alpha Bank's account at Clearing Corporation. Alpha Bank has control of the 1000 shares under subsection (d)(1).
Example 5. Able & Co., a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Alpha Bank does not have an account with Clearing Corporation. It holds its securities through Beta Bank, which does have an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into Beta Bank's account at Clearing Corporation. Beta Bank credits the position to Alpha Bank's account with Beta Bank. Alpha Bank has control of the 1000 shares under subsection (d)(1).
Example 6. Able & Co. a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able causes Clearing Corporation to transfer the shares into a pledge account, pursuant to an agreement under which Able will continue to receive dividends, distributions, and the like, but Alpha Bank has the right to direct dispositions. Alpha Bank has control of the 1000 shares under subsection (d)(2).
Example 7. Able & Co. a securities dealer, grants Alpha Bank a security interest in 1000 shares of XYZ Co. stock that Able holds through an account with Clearing Corporation. Able, Alpha, and Clearing Corporation enter into an agreement under which Clearing Corporation will act on instructions from Alpha with respect to the XYZ Co. stock carried in Able's account, but Able will continue to receive dividends, distributions, and the like, and will also have the right to direct dispositions. Alpha Bank has control of the 1000 shares under subsection (d)(2).
Example 8. Able & Co. a securities dealer, holds a wide range of securities through its account at Clearing Corporation. Able enters into an arrangement with Alpha Bank pursuant to which Alpha provides financing to Able secured by securities identified as the collateral on lists provided by Able to Alpha on a daily or other periodic basis. Able, Alpha, and Clearing Corporation enter into an agreement under which Clearing Corporation agrees that if at any time Alpha directs Clearing Corporation to do so, Clearing Corporation will transfer any securities from Able's account at Alpha's instructions. Because Clearing Corporation has agreed to act on Alpha's instructions with respect to any securities carried in Able's account, at the moment that Alpha's security interest attaches to securities listed by Able, Alpha obtains control of those securities under subsection (d)(2). There is no requirement that Clearing Corporation be informed of which securities Able has pledged to Alpha.
The key to the control concept is that the purchaser has the present ability to have the securities sold or transferred without further action by the transferor. There is no requirement that the powers held by the purchaser be exclusive. For example, in a secured lending arrangement, if the secured party wishes, it can allow the debtor to retain the right to make substitutions, or to direct the disposition of the uncertificated security or security entitlement. Subsection (f) is included to make clear the general point stated in subsection (c) that the test of control is whether the purchaser has obtained the requisite power, not whether the debtor has retained other powers. There is no implication that retention by the debtor of powers other than those mentioned in subsection (f) is inconsistent with the purchaser having control.
Definitional Cross References:
"Bearer form". Section 8-102(a)(2)
"Certificated security". Section 8-102(a)(4)
"Delivery". Section 8-301
"Effective". Section 8-107
"Entitlement holder". Section 8-102(a)(7)
"Entitlement order". Section 8-102(a)(8)
"Indorsement". Section 8-102(a)(11)
"Instruction". Section 8-102(a)(12)
"Purchaser". Sections 1-201(33) & 8-116
"Registered form". Section 8-102(a)(13)
"Securities intermediary". Section 8-102(a)(14)
"Security entitlement". Section 8-102(a)(17)
"Uncertificated security". Section 8-102(a)(18)