04/03/1996 03:28 PM House L&C

 SB 300 - UNIFORM COMMERCIAL CODE:ART 8(SECURITIES)                          
                                                                               
 Number 866                                                                    
                                                                               
 CHAIRMAN KOTT announced the committee would address SB 300,                   
 "An Act relating to the Uniform Commercial Code, primarily to                 
 investment securities; amending Rule 8(d), Alaska Rules of Civil              
 Procedure; and providing for an effective date."                              
                                                                               
 SHERMAN ERNOUF, Legislative Assistant to the Senate Labor and                 
 Commerce Committee, informed the members that the bill is a                   
 housekeeping bill.  He said the committee introduced SB 300 by                
 request of the Uniform Law Commission.  He said, "If I had to boil            
 this down to one main topic, which really is the full substance of            
 the bill, its one main theme is the recognition of current                    
 practices in the handling of investment securities by electronic              
 means instead of paper and by the use of a lot clearinghouse                  
 corporations and securities intermediaries have popped up.  This              
 bill just updates the UCC code to recognize electronic handling of            
 securities.  It passed the Senate 20 to 0.  Really, there is no               
 opposition stated.  Its been endorsed by quite a few people."                 
                                                                               
 MR. ERNOUF indicated many states have adopted it and there are                
 currently a quite a few states that are going through this process            
 to get this on the books as fast as possible.                                 
                                                                               
 Number 965                                                                    
                                                                               
 REPRESENTATIVE PORTER asked if this is basically what was done to             
 the banking code as far as wire transfers.                                    
                                                                               
 ART PETERSON, Uniform Law Commissioner, National Conference of                
 Commissioners on Uniform State Laws, explained the bill is related            
 in that it uses modern technology, but it deals with a whole                  
 different set of issues and circumstances.  It is to address the              
 modern world.  The current code was written several decades ago.              
                                                                               
 Number 1006                                                                   
                                                                               
 L. S. (JERRY) KURTZ, JR., Member, Code Revision Commission, said              
 the bill is an attempt to get the law to catch up with the                    
 computers.  He said he would point out that this is a 1994 proposal           
 by the Uniform Law Commission.  As of last September 30, 13 states            
 had already adopted it, including several important commercial                
 states, namely Illinois and Texas.  He noted Washington and Oregon            
 have recently adopted this and other states are currently in the              
 same process.                                                                 
                                                                               
 Number 1608                                                                   
                                                                               
 WILLIS KIRKPATRICK, Director, Division of Banking Securities and              
 Corporations, Department of Commerce and Economic Development, was            
 next to address SB 300.  He informed the committee that SB 300 is             
 really not that much different if it is compared with AS 45.08.               
 There are some significant changes in it and those changes are                
 basically in the area of control and the action of intermediaries.            
 The action of the intermediaries takes place in the electronic                
 transfer of funds and in the electronic transfer of shares of                 
 ownership.  Those go to a clearinghouse or to an intermediary or a            
 third party who handles those types of transactions.  Mr.                     
 Kirkpatrick explained in the mid 1970s, this was handled by the               
 exchanges through a depository trust corporation that held in the             
 depository certificates and everybody would do a bookkeeping entry            
 as a debit of credit against those certificates.  Today, with the             
 electronic age, electronic transfers and the activity that is                 
 occurring, we are getting more and more into a "certificateless"              
 world.  The law needs to be updated to protect those who have                 
 certificates with the intermediaries and those who have liens and             
 actions against those certificates.  He said it protects all                  
 parties in relationship to those types of transactions.  Mr.                  
 Kirkpatrick said the bill is a good bill and he urged passage.                
                                                                               
 Number 1175                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG referred to page 31, line 28, and said it             
 speaks to lost stock certificates.  The words "bona fide purchaser"           
 were changed to "protected."  He said he isn't sure he understands            
 that.                                                                         
                                                                               
 MR. KIRKPATRICK said he believes that protected is covered under              
 the definition of a protected certificate holder.  He said it may             
 be explained in Section 113.                                                  
                                                                               
 REPRESENTATIVE ROKEBERG said the reason he asked this question is             
 because about 25 years ago he bought his father one stock in Exxon            
 and a few other shares in other companies.  He said he is looking             
 for one of the certificates because he wants to sell the stock.               
                                                                               
 MR. KIRKPATRICK said he may be able to get a replacement for the              
 certificate through the transfer or registered bank.  He said he              
 doesn't believe that is the protected definition in this instance.            
                                                                               
 Number 1282                                                                   
                                                                               
 REPRESENTATIVE ROKEBERG referred to the state of New York not                 
 adopting this.  He said the security exchanges are in the state of            
 New York.                                                                     
                                                                               
 MR. PETERSON said he has called the Chicago office of the Uniform             
 Laws Conference and the reason it hasn't been enacted in New York             
 was that the New York Bar was studying it in great detail.  He said           
 there was some segment of the bar that was causing some delay.                
 They have since come out with a report, which was favorable.  It              
 was supposed to go to the New York legislature in March.  It may be           
 currently pending in the New York.  The plan was that it would be             
 introduced this spring and it is expected to pass in New York very            
 shortly.                                                                      
                                                                               
 MR. PETERSON explained that in the 1960s, there was a major                   
 paperwork crises hitting the New York Stock Exchange and all the              
 security exchanges.  Two things stemmed in response to that.  One             
 was the developing concept of the uncertificated security.  So if             
 General Motors wanted to issue Representative Elton a share of                
 stock, they don't send him a piece of paper saying, "Dear Kim, here           
 is your piece of paper."  They would deal through a depository, an            
 intermediary that in fact is between the issuer, General Motors,              
 the stock broker and the ultimate purchaser, Kim Elton.  Mr.                  
 Peterson explained that because of that development to the point              
 where this clearing corporation system so dominates the scene now,            
 something like 80 percent of all shares are held through that                 
 clearing corporation in New York which is called a depository trust           
 corporation, there are very few instances of pieces of paper flying           
 around through the mail back and forth, but there are still some.             
 So this bill retains some of the provisions of the old UCC to take            
 care of that situation, but it also adds a new group of sections              
 recognizing what is called the "Indirect Securities Holding                   
 System."  Representative Elton would have his account with his                
 broker, Merrill Lynch.  Merrill Lynch, in turn, would have its                
 account with a depository clearing corporation in New York, and               
 that corporation would then be in touch with General Motors.  He              
 said there are several intermediaries between the ultimate                    
 purchaser, the ultimate holder who has the right to receive the               
 benefits of that share of stock, and the issuer of that stock, the            
 corporation that is doing the manufacturing, etc.  Mr. Peterson               
 said because the law has failed to keep up with that, we need to              
 have this modernized version of the Uniform Commercial Code                   
 enacted.                                                                      
                                                                               
 MR. PETERSON explained the second thing that developed was the use            
 of computers.  This electronic technology that has mushroomed over            
 the last two decades.  It is such a different scene now from the              
 way it was in the 1960s, and the law has not kept up with that.               
 This bill is supposed to try to do so.  He said in a few years                
 there will be another bill that does whatever the advances are                
 then.  Mr. Peterson said SB 300 is overwhelmingly supported by all            
 of the folks in the securities industry.  He said he isn't sure               
 whether the committee members' files includes a series of letters             
 from people of the New York Stock Exchange, the American Stock                
 Exchange and the Depository Trust Company.  The American Bar                  
 Association supports the changes.  He noted it was developed by the           
 National Conference of Commissioners in Uniform State Laws.  Mr.              
 Peterson explained the National Conference of Commissioners put out           
 a section by section commentary if the committee wished to have a             
 copy.  He urged the committee to pass the bill.                               
 Number 1618                                                                   
                                                                               
 CHAIRMAN KOTT asked Mr. Peterson to make the section by section               
 analysis available.                                                           
                                                                               
 Number 1655                                                                   
                                                                               
 REPRESENTATIVE PORTER made a motion to move SB 300 out of committee           
 with individual recommendations and a zero fiscal note.                       
                                                                               
 CHAIRMAN KOTT asked if there was an objection,  Hearing none, SB
 was moved out of the House Labor and Commerce Committee.