Appropriations Committee backs changes to UCC Article 8 aimed at strengthening investor property claims; bankers warn of market disruption

The Appropriations Committee voted to advance Senate File 189, a bill that would revise state law interpretations of investment securities under Uniform Commercial Code Article 8 to clarify investors’ property claims against intermediaries and change certain priority rules in insolvency.

The bill’s presenters told the committee the 1994 revision to UCC Article 8 changed long-standing property terminology and converted many retail holdings into “security entitlements” recorded at intermediaries rather than direct share ownership. Don Grandy, an attorney representing True North Public Policy, described the change as undermining property rights and summarized the bill as a targeted restoration of entitlement-holder protections: “This change to the Uniform Commercial Code really flipped property terminology on its head,” he told the committee, and the bill “is intended to do is just restore those property rights.”

Justin Webb, who identified himself as a finance professional with experience in investment banking and hedge funds, told senators the practical effect of the current regime is that “if there is an insolvency in the financial system that you can take back your property out of the insolvency. They will not put that in writing and they can't tell you that because it's no longer the case.” Webb described industry documents and a response from the New York Fed as evidence that, in certain systemic failures, secured creditors could take priority over entitlement holders.

Opponents testified that the indirect holding system provides important operational benefits and that the bill’s changes could increase transactional costs or deter clearinghouses and national firms from doing business in Wyoming. Scott Meyer, representing the Wyoming Bankers Association and the Uniform Laws Commission, said Article 8 as enacted across most states gives investors a property interest and that the bill’s proposed removals of narrow exceptions could “make sure Wyoming doesn't get included in things” and could “cause companies to cease doing business in Wyoming.”

Wyoming State Treasurer (testimony) and Patrick Fleming, chief investment officer for the Treasurer’s Office, also addressed institutional safeguards and the state’s custody practices. Fleming told the committee the treasurer’s office places most assets in separately managed accounts that are titled in Wyoming’s name and that the state avoids accepting equities as collateral in securities lending. “When we do sec lending, we do not take in equities for security,” Fleming said, adding the office typically accepts U.S. Treasuries as collateral.

Public testimony included retired citizens and other witnesses supporting revision to Article 8. Proponents said the revisions are already moving in other states and could push the Uniform Law Commission or the market to address the underlying issues at larger scale.

After extended discussion and cross-examination, the committee moved and voted on the bill. Roll-call votes in the transcript were: Senator Driscoll — Aye; Senator Giroux — No; Senator Larson — Aye; Senator Smith — Aye; Chairman Salazar — Aye. The clerk announced 4 ayes, 1 no; the committee gave a do-pass recommendation.

The bill would change state-level default rules for securities intermediaries in insolvency and prioritize entitlement-holder claims in more circumstances; supporters said the changes are surgical, limited to priority rules, and designed to protect investors in severe insolvency events. Opponents warned of unintended market consequences, higher costs for margin lending, and possible reluctance by clearinghouses to permit participants from a state that departs from the uniform model.

Votes at a glance

Senate File 189 — Revisions to Uniform Commercial Code Article 8 regarding investment securities and entitlement-holder priority. Outcome: committee do-pass (4–1).