H.B. 543 Uniform Commercial Code Amendments: transcript

I, I do. Okay. Uh, so, uh, let me pull up my bill one moment. This came a lot quicker than I thought it would. So, uh, this, this bill is, uh, is one that, that I think is really important. There's, uh, we, we all have, um, assets tied up in, in the market, in in securities. Our, our 4 0 1 Ks are, uh, you know, we have mutual funds and things and, uh, or, or even private, uh, or, or stocks that, that we bought. And we always, we always buy those through an intermediary. Um, and something that's, uh, that is not, uh, completely understood by every everyone is that when, when we go buy that, we, we buy it through something through a, we, we buy something through a security, a security through a security intermediary. And what we buy is something called an entitlement. And what happens a lot with the those, um, with, with the, um, with that security a lot of times is that intermediary will then use our, our property. That, that we bought that entitlement as collateral for other investments. And, and when they, when they do that, they, they put, um, the bank actually is, is in the first position when they make that, uh, when they make that, um, uh, that, that deal and, and our code and, and the UCC and, and every other code, um, we can actually get left, uh, left behind. This is a way that we could, uh, lose everything if, uh, they're required to have insurance to back that up, but they actually don't have enough insurance to back that up in the market. And we saw this happen back in 2008. Uh, we saw it with the Lehman Brothers and we saw them, uh, and there could have been a lot of people that lost everything if it were not for the bailout. So what this does, the, the original bill, um, made a lot of changes and got rid of that so that Utahans would not be, um, be hurt. Uh, but I, I did get a lot of feedback from that. And, and since we would be the first, uh, uh, state to enact this, I thought that we could take a baby step. Uh, and that, that's what the substitute does. The substitute says, Hey, if these sections of the UCC actually apply to you or to, to your investment, we want it to be Vernal. We want the, your investors to be very aware of that. And we want, are the people buying that security to be very aware of that? So what the substitute does is it says you need to notify them if these sections apply. So it's, it's actually a, a very important issue. Um, it's been, um, uh, it's been talked about. Um, there is a federal working group that, that's working on this, this has been pushed in, in a few other states. But it start, it, it's a, it's an issue that's starting to kind of snowball a little bit. So, um, but it, I think, I think this notification is something that, that's, that's very important. So, uh, that concludes my presentation.

Thank you, Mr. Chair. In my light, started working again. Thanks. Um, so how, how would people know there was any kind of a problem otherwise? And what would the consequences potentially be if they didn't know?

So I would say almost zero. People know that this part of the code actually exists. I've even asked financial advisors if they know about it and they don't. And a lot of people don't seem to understand the issue. And so I, um, honestly, they, they wouldn't know. So, but I think that this notification is important. The substitute, um, I, I think is, is, is pretty important that, um, it, it, it says that just gives it, it, it's very, very easy. It says it that, um, a suspicious, uh, disclosure of each of the securities unit meters entitlements holders stating that, um, a brief, um, the financial asset is subject to those subsections in the code. And that, um, and it, it needs to give a brief, uh, description of the practical implication of the financial assets being subject to that subsection. So it's, I think this is a very simple ask to just say, Hey, you need to understand that your assets that you think you own, uh, are being used as collateral for other investments. And that according to our code, they, uh, the bank is in first position, not you. And I think that's something that everybody should know.

Mr. Chair, one more question. So we had like the 2008 meltdown, other financial upheavals. Uh, has this ever played out where banks have been put in first position over people's retirement, their investments, what? That they think they're in first position?

Yeah. It, it has, it happened with Lehman Brothers, um, and they were, I, I believe they were out for, I forgot the amount of time, but it was a, a very, it, it was, it was not insignificant. I believe that they were eventually made whole. Um, don't quote me on that. I'm not, I'm not a expert on that. But I think once the bailout went through, I think they were eventually made whole. But the system is actually Vernal. It's kind of on a house of cars. There's not sufficient insurance to back up the market if it fails.

Thank you. Since I have demonstrated extreme love to the banks all session, I would like to know why we don't just switch this around so that the entitlement holder has first place in line and the banks can be second. That's what I would love to do,

but we would be the first state to do that. And I think it would, uh, it would, it, the concern is that that would drive investment from our state.

Oh, I see. So I, I I think it's, I that, that is the concern that, that I, that's A, that's a good answer by the, The way. So, yeah. And,

um, I don't want that, I want our state to be a very business friendly state, but I also, I do think this should be addressed on a, a nationwide level, but I I, but it is in the UCC, it's in the code in every single state. And, uh, it started back in the, the mid nineties, or it started going into everybody's code. But it honestly, it, that is the right, that is the right answer in my opinion. Uh, and that's kind of, uh, that was my initial approach. That's What I, that's what I Thought. Yeah. That was my initial approach. And I think that is the right approach. But it would be nice if every state did it kind of at the same time. Maybe we start exploring maybe some interstate compacts and things down the road. But I think this is a, a significant baby step, step that needs to happen. Okay.

Yeah. I'll make a motion that we adopt, uh, house Bill 5 43 first substitute.

Thank you. I, I think this is a very important step in actually making sure that our, our, our citizens understand what kind of investments they're making, what, what they're getting involved in, and, and protecting their assets. Uh, I think it's not about if, when this starts to happen again, uh, and I, I, I think this is important and it's, it is actually a very big step for our state.

Representative Ivory. Thank You, Mr. Chair. I'd like to make a motion that we pass out house Bill 5 43. First substitute with a favorable recommendation.

The, I, I would appreciate it. Thank you. Okay.

Yeah, this is kind of stunning. I mean, to think of what this is, I tend to agree with, with Representative Thurston, that, uh, I would encourage the sponsor and this committee to keep, um, digging into this, looking into this, that, um, you know, the implications of people not being in first position on their retirement assets, that they've been, you know, working on all their lives and thinking that that's their nest egg. And they may not be in first position. It's just, it's, it's almost hard to imagine the implications. So, applaud the sponsor and, uh, as a committee, I think we should need, we need to keep looking into this and maybe, you know, go further. Thank you.

Madam Reading Clerk First substitute House Bill 5 43 Uniform Commercial Code Amendments by Representative Kyle. This bill was heard in business labor and Commerce with the vote of 8 0 8.

Thank you Mr. Speaker. Uh, this bill has to deal with how, um, how priority among security interests are, uh, are, are handled. Um, so when you we buy a security, we usually go through a, a, a, a broker or a securities intermediary where we, we buy what's called a securities entitlement. Uh, and, and there are circum circumstances where you, where your, uh, entitlement would be used as collateral by a, a clearing house or a, a securities intermediary. And in our code, in the Uniform Commercial Code, it, it states that the, the bank is, is, is put as first priority over your asset. And, and that would happen under circum certain circumstances. Uh, my, my bill simply says that if this occurs, then it needs to be transparent and, and suspicious, uh, that this is happening. And it's a, it's a transparency bill. That, that, that, and that concludes my presentation. Thank you.

Thank you, Mr. Speaker. Um, I rise in opposition to this bill. One of the, um, great, uh, uh, opportunities I've had in being in the legislature is serving on the Uniform Law Commission. And as I've talked about that process with many of you, it is a very rigorous process. We have representatives from all 50 states that come together, um, and look at important issues. Um, they have a, a rigorous process of over four years to developing different types of policies. One of the landmark pieces of the Uniform Law Commission is the Uniform Commercial Code. It is adopted by all 50 states and really enables the engine for commercial, uh, commerce, uh, to happen across all 50 states. The great thing about this is this. This is not the federal government coming in and telling states how to do things. It is the states themselves coming together as a group and saying, here are the playing roles that we're gonna work against one another or with one another. And so, uh, as I've consulted with the Uniform Law Commission on these changes that, uh, the good representative, uh, is, is sponsoring here, they have some significant concerns with these changes. I think, uh, as much as I love the work here and, and understand the, the problems that are, are that he's trying to solve, I think this is something that we need to spend time in interim really flushing out. If this bill were to passing in Utah, it would make Utah a non-conforming state to the uniform commercial Code that could have some very significant consequences to our state and the commerce in our state. And we'd be the only state that would be out of uniformity. And so with that, uh, I would urge, uh, support or I would urge that, uh, we vote down this bill today and allow, um, the good representative time in the interim to work through this. Thank you.

Thank you, Mr. Speaker. I rise in support of this bill. While I understand my good colleague from Salt Lake's, um, concerns with the uniformity of the code. I believe that what, um, my representative from Huntsville is trying to do is just add some transparency and some information for customers. When you, um, purchase stocks or any kind of security, it's really difficult to register that in your name. And this would just give more information to a person on how to do that so they, they can protect their investments. This is an issue that affects every single person in the state of Utah, every investment in the state of Utah and could potentially put them at risk. So I would encourage my colleague support.

Thank you, Mr. Speaker. I also rise in support of this. Um, I think it's important for us to consider what this bill does. The very, very small step this bill does, it simply asks for sunlight. If a financial intermediary is holding your life, savings, your retirement, and you're not in first position, you aren't the actual owner, they just have to tell you. And if there's pushback for that heaven, help us. We should have gone much farther. Encourage your body support.

Thank you, Mr. Speaker. So I also rise opposed to this bill. Um, as we look at these brokerage accounts and all of the items that are, that are encompassed in this, uh, we want those to be uniform. And as the good representative from Taylor's bill was talking, he talked about the need to make sure that this was passed uniformly. If you look at right now, federal and state laws that protect us, we have, uh, the Securities and Exchange Act of 1934. We also have security investor, uh, protection, and SEC rules, financial industry regulatory code. And so I think that would be, makes a lot of sense for us to take a little bit more time on this and to study it throughout the interim and come back with something that, uh, is uniform as we look at investor relations and, and what we're trying to accomplish.

Thank you, Mr. Speaker. I, I rise in support of this. Um, when, uh, the good, uh, sponsor from Huntsville told me about this issue two to three years ago, I was shocked to discover that what he told me was actually true. And so I'm grateful for this, uh, for this coming forward. And it has been, uh, it has been discussed and, and, uh, I've been in discussions with others, uh, other elected officials about this for like, like I say, two or three years about, uh, to talk about this. So I'm grateful that he's, that he's brought this forward. I standard support.

Thank you Mr. Speaker. Uh, I support this bill. I think that if you have an investment and you don't know what position you're in, uh, you know, you should at least be notified before you make that investment. So I think this is a good bill to clarify, uh, and to give some, uh, transparency to what your act your transaction is.

Thank you, Mr. Speaker. Yeah, I, I appreciate the good discussions that, that we've had around this. Um, my, my original bill had a lot more meat in this. And this is simply a clear substitute saying if this is happening, people should know about it. In fact, uh, I, I appreciate the, the, the input that I've had from my, my good friend and from Salt Lake County. He, he gave me the, the feedback from the Uniform Law Commission. And, and when, when I read it, he, he sent me their notes. It was extremely lazy in my opinion. They, they all, their notes were on, on the original, my original bill, but not, did not address the substitute. If you're afraid to disclose to your, to your people, what, what, what is happening? You're hiding something. And that, that really, that really says something that they're, they're, they're so afraid of this. So I, um, this is a simple disclosure. It is not, it is not that much more of a burden. It it, it's not that hard. Uh, if you're afraid of transparency in sunlight, then uh, you have some serious problems. And I encourage us to be looking out for Utahans, not New York bankers. And so I encourage your support. Thank you.