Colorado Code
Part 5 - Security Entitlements
§ 4-8-507. Duty of Securities Intermediary to Comply With Entitlement Order

Source: L. 96: Entire article R&RE, p. 230, § 2, effective July 1.

One important application of this principle is that if an entitlement holder grants a security interest in its security entitlements to a third-party lender, the intermediary owes no duties to the secured party, unless the intermediary has entered into a "control" agreement in which it agrees to act on entitlement orders originated by the secured party. See Section 8-106. Even though the security agreement or some other document may give the secured party authority to act as agent for the debtor, that would not make the secured party an "appropriate person" to whom the security intermediary owes duties. If the entitlement holder and securities intermediary have agreed to such a control arrangement, then the intermediary's action in following instructions from the secured party would satisfy the subsection (a) duty. Although an agent, such as the secured party in this example, is not an "appropriate person," an entitlement order is "effective" if originated by an authorized person. See Section 8-107(a) and (b). Moreover, Section 8-507(a) provides that the intermediary satisfies its duty if it acts in accordance with the entitlement holder's agreement.
Subsection (b), together with Section 8-107, has the effect of leaving to other law most of the questions of the sort dealt with by Article 4A for wire transfers of funds, such as allocation between the securities intermediary and the entitlement holder of the risk of fraudulent entitlement orders.
Definitional Cross References:
"Agreement". Section 1-201(3)
"Appropriate person". Section 8-107
"Effective". Section 8-107
"Entitlement holder". Section 8-102(a)(7)
"Entitlement order". Section 8-102(a)(8)
"Financial asset". Section 8-102(a)(9)
"Securities intermediary". Section 8-102(a)(14)
"Security entitlement". Section 8-102(a)(17)