N-4-1  The United Nations Commission on International Trade Law (UNCITRAL)¹ Working Group VI (Security Interests) is preparing a draft Model Law on Secured Transactions (DML).² The DML is based on the recommendations of the 2007 UNCITRAL Legislative Guide on Secured Transactions (LGST) and consistent with all other texts prepared by UNCITRAL on secured transactions (the 2001 United Nations Convention on the Assignment of Receivables in International Trade, the 2010 Supplement to the LGST on Security Rights in Intellectual Property, and the 2013 UNCITRAL Guide on the Implementation of a Security Rights Registry).³

N-4-2  Unlike the LGST, the DML applies to security interests in non-intermediated securities (represented by a certificate or not), that is, securities other than securities credited to a securities account and rights in securities resulting from the credit of securities to a securities account (Article 2(v) DML). The main reasons for this approach are twofold. Non-intermediated securities are regularly used as collateral in commercial finance transactions; and security interest in such securities are not addressed in the Geneva Securities Convention or the Hague Securities Convention.⁴

N-4-3  Non-intermediated securities are typically part of commercial finance transactions of the kind covered in the DML in the following situations: where the borrower is a holding company and its only assets are the shares of its subsidiaries; where the assets of the borrower as a going concern have more value than the liquidation value of the individual assets of its subsidiaries; where the loan is made to a corporate group which functions as a single enterprise and the lender requests a security interest in the shares of the parent company and of each subsidiary; and where the lender may be unable to take security in other assets of the borrower or in the assets of its subsidiaries.⁵

N-4-4  There are wide divergences among the various national laws on security interests in non-intermediated securities,⁶ and there is no uniform law text on this topic, as neither the LGST, nor the Hague Securities Convention or Geneva Securities Convention, applies to security interests in non-intermediated securities.

N-4-5  The purpose of this update is to briefly discuss the way in which the DML deals with security interests in non-intermediated securities.

N-4-6  The DML follows a modern approach to secured transactions that can be described as unitary, functional, and comprehensive. The unitary approach means that the DML uses a single concept of ‘security right’ rather than several security devices (e.g. pledge, hypothec, etc.). As a result of the functional approach, the DML applies to all types of right in movable property created by agreement to secure payment or other performance of an obligation (including a transfer of title for security purposes and a retention-of-title sale or financial lease). The form of the transaction or the terminology used by the parties is not decisive. The comprehensive approach means that a security interest may: (i) secure all types of obligation, present or future, determined or determinable, including fluctuating obligations and obligations described generically; (ii) encumber assets described specifically or generally, or even all the assets of a grantor, present and future, including a changing pool of assets; and (iii) be created or acquired by any legal or natural person, including a consumer.

N-4-7  This unitary, functional and comprehensive approach to secured transactions is not dictated by ideological considerations or preferences for one or the other national legal system. It is a practical response to the main problem of secured transactions laws around the world, that is, the fragmentation of secured transactions law into multiple laws dealing variously with the transactions that fulfil the same security functions. The result of this fragmentation is the creation of gaps and inconsistencies, which is bound to have a negative impact on the availability and cost of credit (even if judges, practitioners, and business people do their best to minimize the negative impact). For this reason, the unitary, functional, and comprehensive approach is typically followed in modern secured transactions legislation.⁷ It is also the approach that can facilitate harmonization of the laws of various States as it uses a unitary and functional concept of security (‘security interest’) and deals comprehensively with all types of security interest.

N-4-8  However, the unitary, functional, and comprehensive approach does not mean that borrowers that deserve special protection, such as consumers, are not protected. The DML provides that nothing in the DML affects the rights and obligations of the grantor of a security interest or the debtor of an encumbered receivable under other laws governing the protection of parties to transactions made for personal, family, or household purposes (Article 1(5)). In addition, the DML preserves statutory limitations to the creation or enforceability of a security interest in certain types of asset such as household items or employment and retirement benefits (Article 1(6)). Similarly, the unitary, functional, and comprehensive approach does not mean that creditors that deserve special protection, such as unsecured creditors or preferential creditors, are not protected. Unsecured or other creditors (e.g. employees) may be protected by way of statutory privileges and, in line with the LGST, the DML only recommends that they should be limited and set out in the law in a transparent way (Articles 33 and 34).

N-4-9  Finally, the unitary, functional, and comprehensive approach does not imply that retention-of-title sales and financial leases need to be re-characterized as secured transactions for all purposes (i.e. tax, accounting, etc.). It is sufficient to subject them to secured transactions law for limited purposes (i.e. the creation, third-party effectiveness, priority, and enforcement of a security interest). Neither does coverage of these devices in the LGST or the DML mean that providers of goods on credit (as well as lessors and licensors of intellectual property) cannot be protected. In fact, the DML provides that, once they register, providers of goods on credit are given a special priority over general financiers or even acquisition financiers other than providers of goods on credit (Articles 36 and 37).

N-4-10  The DML excludes intermediated securities and thus applies only to security interests in non-intermediated securities (Article 1(3)(c)). As already mentioned, the term ‘security interest’ covers transfers for security purposes, but it does not cover outright transfers. The only outright transfers covered in the DML are outright transfers of receivables (Article 1(2)). The reason for this approach is that outright transfers of receivables are part of financing transactions and it is not easy for third parties to determine whether or not a prior competing transfer was made for security purposes.

N-4-11  The term ‘non-intermediated securities’ is defined as ‘securities other than securities credited to a securities account or rights or interests in securities resulting from the credit of securities to a securities account’ (Article 2(v)).⁸ The term ‘securities account’ is defined as ‘an account maintained by an intermediary to whom securities may be credited or debited’ (Article 2(gg)).⁹

N-4-12  The term ‘securities’ is defined as ‘[a]n obligation of an issuer or any share or similar right of participation in an issuer or in the enterprise of an issuer that: a. [i]s one of a class or series, or by its terms is divisible into a class or series; [and] b. [i]s of a type dealt in or traded on a recognized market, or is issued as a medium for investment in the area in which it is issued or dealt in or traded' (Article 2(ff)). This definition is narrower than the definition of this term in the Geneva Securities Convention (Article 1(a)). The reason is that, while a broad definition is appropriate in that Convention, it would be overly broad for the DML and could result in subjecting security interests in receivables, negotiable instruments, money, and other generic intangible assets to the rules applicable to security interests in non-intermediated securities.¹⁰ In any case, each enacting State may specify any additional rights that should qualify as securities even if they do not satisfy the requirements of the DML, and generally align these definitions with the relevant definitions in its domestic securities transfer law.¹¹

N-4-13  The DML draws a distinction between, and to some extent treats differently, certificated and uncertificated securities. Certificated securities are non-intermediated securities ‘represented by a certificate that: (i) [p]rovides that the person entitled to the securities is the person in possession of the certificate; or (ii) [i]dentifies the person entitled to the securities’ (Article 2(d)). Uncertificated securities are non-intermediated securities ‘not represented by a certificate’ (Article 2(kk)). The term ‘represented’ is intended to be broad enough to cover all the approaches taken in different jurisdictions (each enacting State may use the term that fits its own legal system). The term ‘certificate’ means a tangible document that is subject to physical possession (if there is an electronic certificate, the securities are treated as intermediated securities).¹²

N-4-14  The DML deals with the creation of a security interest in a movable asset but not with how an asset comes into existence (including non-intermediated securities).¹³ The general creation rules apply also to the creation of a security interest in non-intermediated securities. Accordingly, a security agreement is sufficient for the creation of a security interest, provided that the security agreement identifies the grantor and the secured creditor, and describes the secured obligation and the encumbered assets (Article 6(1) and (3)). A security agreement need not be in writing if it is accompanied by delivery of the encumbered assets to the secured creditor (Article 6(4)). If a written document is required, the legal consequence of the lack of writing is left to each enacting State. The document need be signed only by the grantor, but electronic signature is sufficient (Article 6(3)).¹⁴

N-4-15  Upon its creation, a security interest is effective between the grantor and the secured creditor. Third-party effectiveness is subject to an additional act, such as registration or transfer of possession (see section D below). This approach is mainly intended to avoid imposing unnecessary formalities on the creation of a security interest and achieve some level of transparency with respect to security interests. There is one exception though. An acquisition security interest in consumer goods is effective against all upon its creation, either generally or only if the consumer goods are below a value to be specified by the enacting State (Article 23). This approach is intended to exempt from registration consumer transactions or at least low-value consumer transactions.

N-4-16  To facilitate financing practices, such as revolving credit arrangements, the DML provides that it should be possible for a security interest to secure any type of obligation, including future, conditional, or fluctuating obligations (Article 7). Also, to reduce risks and ensure better credit terms for borrowers, the DML provides that it is possible to create a security interest in future assets, that is, assets created or acquired by the grantor after the creation of a security interest, including all assets of a grantor, present, and future (Article 8).¹⁵ As a result, the creation of a security interest in all assets of an enterprise (floating charge or enterprise mortgage) is permitted (Article 8(d)).¹⁶

N-4-17  The assets must be described ‘in a manner that reasonably allows their identification’, but, depending on the types of asset and the intention of the parties, a generic description may meet this standard (Article 9).¹⁷

N-4-18  To protect the secured creditor from unauthorized transfers (in which case the security interest may follow the asset but the asset may be removed from the secured creditor’s reach) or from transfers in the ordinary course of business (in which the transferee takes the asset free of the security interest) by the grantor, the DML provides that, unless the parties otherwise agree, the security interest automatically extends to any identifiable proceeds of the encumbered assets (Article 10). This approach is intended to reflect the normal expectations of the parties. It is also intended to ensure that the secured creditor will remain sufficiently secured and will be entitled to enforce its security interest against the asset and/or the proceeds, of course, only up to the amount of the secured obligation (including interests and reasonable costs of enforcement).

N-4-19  The general third-party effectiveness rules of the DML apply also to the third-party effectiveness (or perfection) of a security interest in non-intermediated securities. Accordingly, a security interest in non-intermediated securities may be made effective against third parties by registration of a notice in the general security interest registry.¹⁸ A security interest in certificated non-intermediated securities may also be made effective against third parties by a transfer of possession of the certificate to the secured creditor.

N-4-20  To avoid undermining well-functioning practices, the DML recognizes two additional asset-specific methods of third-party effectiveness with respect to non-intermediated securities: registration in the books of the issuer and conclusion of a control agreement (Article 26). Registration in the books of the issuer may take the form of a notation of the security interest or an entry of the name of the secured creditor as the holder of the securities in the books maintained for that purpose by the issuer. A control agreement is an agreement among the grantor, the secured creditor, and the issuer, according to which the issuer agrees to follow instructions from the secured creditor without the further consent of the grantor (Article 2(g)(i)).¹⁹

N-4-21  The general rules of the DML that apply to registration with respect to a security interest in any type of asset also apply to a security interest in non-intermediated securities. Thus, (i) registration is not a requirement for the creation of a security interest; (ii) the legal consequence of registration is to make a security interest effective against third parties (provided that there is a valid security agreement); and (iii) registration does not involve registration of the security agreement but only of a notice thereof.

N-4-22  Quick, simple, and inexpensive registration is ensured by the DML requiring that a notice contain only the identifier and address of the grantor and the secured creditor or its representative, a description of the encumbered assets, and, if permitted by the law, the period of effectiveness of the registration (Article 8 of the draft Model Registry-related Provisions).²⁰ This information is sufficient for the searcher to determine whether some assets of the grantor may be encumbered by a security interest, and points the searcher to the secured creditor identified in the notice as a source for further information with the consent of the grantor; and, most importantly, registration provides an objective method for establishing priority.

N-4-23  The DML includes a comprehensive set of rules dealing with priority conflicts between a secured creditor in a movable, tangible or intangible, asset and every possible competing claimant with an interest in the same asset.

N-4-24  In the case of a conflict between two security interests in the same asset, the first that was made effective against third parties (by registration or otherwise) has priority (Article 28). A transferee of an encumbered asset takes the asset subject to the security interest, with the exception of situations that have to do with the good faith acquisition of an encumbered asset or acquisition in the normal course of business of the transferee (Article 32). The priority of a security interest in proceeds of encumbered assets is the same as the priority of the security interest in that asset (Article 30).

N-4-25  Following the approach recommended in the LGST, the DML provides that a security interest that is effective at the time of commencement of insolvency proceedings with respect to the grantor retains its priority, subject generally to avoidance actions and preferential claims (Article 33). In addition, in line with the approach taken in the LGST,²¹ the DML takes no position as to whether there should be any statutory preferential claims within and outside insolvency.²² It simply includes an article for enacting States to list their preferential claims so as to provide parties with ex ante certainty as to their potential priority position (Article 34). The right of an unsecured creditor that has obtained a judgment and taken the steps necessary to have it enforced against an encumbered asset before a security interest in that asset became effective against third parties has priority over the security interest (Article 35).

N-4-26  Generally, an acquisition security interest with respect to which a notice has been registered within a short period of time after delivery of the goods has priority as of the time of delivery of the goods over security interests registered within that time period; however, an acquisition security interest of a seller or lessor has priority over a competing security interestof a secured creditor other than a seller or lessor (Article 37). Priority among competing acquisition security interests is determined on the basis of the general rules (Article 48). Alternatives are provided with respect to whether the priority of an acquisition security interest (in goods or intellectual property) extends to its proceeds. Under the first alternative, the priority of a security interest in an asset extends to its proceeds if: (i) the asset is not inventory or consumer goods; and (ii) the asset is inventory and its proceeds arenot in the form of cash proceeds (receivables, money, etc..). Under the second alternative, the priority of an acquisition security interest in an asset does not extend to its proceeds (Article 39).

N-4-27  With respect to non-intermediated securities, the DML contains a different set of priority rules (Article 49(1)-(4)). With respect to certificated non-intermediated securities, a security interest made effective against third parties by possession of the certificate has priority over a competing security interest made effective against third parties by registration of a notice in the security interest registry. With respect to uncertificated securities, a security interest made effective against third parties by registration in the books of the issuer has priority over a security interest made effective against third parties by any other method;a security interest made effective against third parties by a control agreement has priority over a security interest made effective against third parties by registration of a notice in the security interest registry; and, in the case of several control agreements, the first in time prevails.

N-4-28  With respect to whether a transferee of encumbered non-intermediated securities acquires its rights free or subject to the security interest, the DML provides that it does not adversely affect the rights of holders of non-intermediated securities under the relevant law to be specified by the enacting State (Article 49(5)).²³

N-4-29  The general rules of the DML dealing with the contractual rights of the parties apply also when the encumbered assets are in the form of non-intermediated securities. Some of these rules are mandatory, others are default rules.

N-4-30  Thus, for example: the person in possession of the certificated non-intermediated securities is required to exercise reasonable care to preserve the securities and their value (Article 51); upon full payment of the secured obligation and provided that there is no further commitment by the secured creditor to extend further credit, the secured creditor is required to return encumbered non-intermediated securities or register a cancellation notice (Articles 52 and 20 of the draft Model Registry-related Provisions); the secured creditor in possession has the right to be reimbursed for reasonable expenses incurred for the preservation of the securities, make reasonable use of them, and apply any monetary proceeds to the payment of the secured obligation (Article 53(1)).²⁴

N-4-31  The DML also includes a set of asset-specific rules with respect to the rights and obligations of third-party obligors (e.g. the debtor of the receivable or the depositary bank). These rules are intended to ensure that the DML does not unduly interfere with the rights and obligations of third-party obligors under other law. Thus, the DML also includes a provision according to which the rights of a secured creditor as against an issuer of the encumbered non-intermediated securities are subject to the relevant law (Article 69).

N-4-32  The general enforcement provisions of the DML apply also to a security interest in non-intermediated securities, as supplemented by a provision dealing with the right of a secured creditor to collect from the issuer of non-intermediated securities (Articles 70 et seq. and 80). Thus, a secured creditor may obtain possession of the encumbered certificated non-intermediated securities, sell or otherwise dispose of them, propose to acquire them in full or partial satisfaction of the secured obligation, and exercise any other right provided in the security agreement or the law governing it (Article 70(1)).

N-4-33  The secured creditor may exercise these remedies by applying to a court or without having recourse to a court (Article 71(1)). Judicial enforcement is governed by the enforcement provisions of the DML and the national civil procedure rules or other rules to be specified by the enacting State, but must also include expedited proceedings (Article 71(2)

N-4-34  Extra-judicial enforcement is subject to the provisions of the DML (Article 71(3)), but, to obtain possession of encumbered certificated non-intermediated securities out of court, a secured creditor must have ensured that adequate provision for it is made in the security agreement, that persons in possession of the securities are duly notified, and that, at the time of repossession, the person in possession does not object (Article 75(3)). Notice need not be given if the encumbered securities are of a kind sold on a recognized market (Article 75(4)). Out-of-court collection from the issuer is not subject to these conditions. However, as against the issuer of non-intermediated securities, this right of collection is subject to the law governing the rights and obligations of the issuer (Article 80(5)).

N-4-35  In the case of an out-of-court sale or other disposition of encumbered non-intermediated securities, the enforcing secured creditor must notify the grantor, the debtor, any person in possession of the securities who notifies the secured creditor in writing, any other secured creditor on the registry record, and any other secured creditor who was in possession at the time of repossession of the securities by the enforcing secured creditor (Article 76(4)). The notice must be given at least several days before the out-of-court sale and must include a description of the encumbered securities, a statement of the outstanding amount of the secured obligation, including interest and reasonable costs of enforcement, a statement that the grantor, the debtor, and any other person with a right in the encumbered securities may terminate enforcement by paying the secured obligation in full, and a statement of the date of the sale and, in the case of a public sale, time, place, and manner of sale (Article 76(5)).

N-4-36  In any case, the enforcing secured creditor must act in good faith and in a commercially reasonable manner and thus, for example, avoid selling the encumbered assets outside a recognized market (Article 4).

N-4-37  Once the encumbered non-intermediated securities are disposed of out of court, the enforcing secured creditor must apply the net proceeds (after deducting the costs of enforcement) to the secured obligation; if there is a shortfall, the grantor remains liable, but the secured creditor then has the position of an unsecured creditor; whereas any surplus remaining must be turned over to the grantor or to other creditors announced during the enforcement proceedings, or, in the case of doubt, be deposited with a competent judicial or other authority (Article 77(2) and (3)).

N-4-38  At its own initiative or at the request of the grantor, the secured creditor may propose to the grantor in writing to acquire the encumbered securities in total or partial satisfaction of the secured obligation. Notice of such a proposal must be given to all affected parties (Article 78).

N-4-39  To ensure finality of the rights acquired pursuant to an out-of-court disposition, the DML provides that the transferee acquire the encumbered assets free of any security interests that are subordinate to the security interest of the enforcing secured creditor, but subject to any security interests with priority over the security interest of the enforcing secured creditor (Article 79)²⁵

N-4-40  The DML distinguishes between general security interests and acquisition security interests. Acquisition security interests are interests that secure the purchase price of an asset (Article 2(b)). An acquisition security interest may also be created in non-intermediated securities. Generally, as long as a notice is registered in the security interest registry within a short time period after delivery of the asset, an acquisition security interest has priority over a non-acquisition security interest, notice of which was registered within that time period (Article 36). In addition, the priority of two competing acquisition security interests is determined according to the time they were made effective against third parties; however, an acquisition security interest of a seller or lessor has priority over a competing security interest of a secured creditor other than a seller or lessor (Article 37).

N-4-41  In a cross-border secured transaction, the first question is which law applies to a security interest. Uncertainty as to the applicable law results in uncertainty as to the rights of the parties. This result may make some transactions impossible and others very expensive. Thus, the DML contains a series of applicable law rules dealing with the law applicable to the creation, third-party effectiveness, priority, and enforcement of a security interest. If the forum is in a State that has enacted the DML, characterization of an issue as a security interest issue will be based on the material rules of the DML, and thus the application of the conflict of laws rules of the DML should not raise difficulties. In addition, the conflictoflaws rules will apply in all cases. In other words, even the application of the material secured transactions law of the forumState is the result of a conflict of laws approach, that is, the conclusion that the relevant transaction has no connection with any State other than the forum State.

N-4-42  Generally, the DML provides that the law applicable to the creation, third-party effectiveness, and priority of a security interest in a tangible asset is the law of the State in which the encumbered asset is located (Article 83). With respect to the law applicable to the enforcement of a security interest in a tangible asset, there are two options:the law of the State in which enforcement takes place,and the law of the State in which the encumbered asset is located at the time of commencement of enforcement (Article 86(a)). Subject to certain exceptions (eg for receivables arising from the sale or lease of immovable property, bank accounts, intellectual property, and non-intermediated securities), the law applicable to the creation, third-party effectiveness, priority, and enforcement of a security interest in an intangible asset is the law of the grantor's location (Articles 84 and 86(b)). Location of the grantor is defined by reference to its place of business and, in the case of places of business in more than one State, by reference to the place where the grantor has its central administration (Article 88).

N-4-43  With respect to the law applicable to a security interest in non-intermediated securities, the DML contains an asset-specific rule that includes three options, each of which has advantages and disadvantages (Article 97 and note thereto). Option A distinguishes between certificated and uncertificated securities and refers: (i) the creation, third-party effectiveness, and priority of a security interest in certificated non-intermediated securities to the law of the State in which the certificate is located (lexreisitae or lexsitus); (ii) the enforcement of such a security interest to the law of the State in which enforcement takes place (lexfori);²⁶ (iii) the effectiveness of a security interest in certificated non-intermediated securities as against the issuer to the law of the State in which the issuer is constituted (lex constitutionis); and (iv) all those matters with respect to security interests in uncertificated non-intermediated securities to the law of the State in which the issuer is constituted (lex constitutionis).

N-4-44  With respect to certificated securities, option A has the advantage of flexibility but also the disadvantage of uncertainty as it may lead to inconsistencies and overlaps. For example, while they are distinct issues, as a practical matter, creation, third-party effectiveness, and enforcement issues are closely related to the effectiveness against the issuer, at least to the extent that a security interest that is not effective and enforceable against the issuer may be of limited economic value. In addition, option A makes it possible for the person in possession of the certificate to manipulate the law applicable by moving the certificate from one country to another. With respect to uncertificated securities, option A has the advantage that only one rule would apply and refer all issues to one and the same law (which is different from the law applicable to other types of intangible asset). This approach, however, has the disadvantage that it does not draw a distinction between equity securities (with respect to which the law of the State of the constitution of the issuer is appropriate) and debt securities (with respect to which the law of the State of the constitution of the issuer would not be appropriate).

N-4-45  Option B provides one single rule (the lex constitutionis) that would apply to both certificated and uncertificated securities and to all issues. This approach eliminates the risks of inconsistencies or overlaps between the law of the State of the issuer’s constitution and another law that the conflict of laws rules of the forum may designate for other issues. In addition, referring all issues to one law provides greater certainty. Moreover, option B prevents the person in possession of the certificate from manipulating the designation of the applicable law by moving the certificate from one country to another. Like option A, however, option B has the disadvantage that it does not distinguish between equity securities (that should be subject to the lex constitutionis) and debt securities (that should be subject to the law governing the securities, that is, the law chosen by the issuer).

N-4-46  Option C refers all matters relating to a security interest in equity securities to the lex constitutionis and all matters relating to debt securities to the law governing the securities. The benefit of this approach is that it distinguishes between equity and debt securities and refers all matters to a single law that is also the appropriate law for each type of securities. In this way, option B combines the advantages of options A and B and avoids their disadvantages. A possible disadvantage of option C, however, is that the distinction between equity securities and debt securities may be blurred in certain circumstances (e.g. convertible securities).²⁷

N-4-47  With limited exceptions (e.g. intermediated securities and receivables from financial contracts), the DML deals with security interests in all types of movable asset, including non-intermediated securities. The reasons are that: (i) this type of transaction is part of typical commercial finance transactions; (ii) there are wide divergences among the various national laws in this regard; and (iii) neither the LGST, nor the Geneva Securities Convention nor the Hague Securities Convention deals with security interests in non-intermediated securities.

N-4-48  The general rules of the DML regarding third-party effectiveness, priority, enforcement, and conflict of laws apply also to security interests to non-intermediated securities, as supplemented or modified by asset-specific rules.

N-4-49  The first asset-specific rule deals with the third-party effectiveness of a security interest in uncertificated non-intermediated securities by the registration in the books of the issuer or the conclusion of a control agreement.

N-4-50  The second asset-specific rule deals with the priority of a security interest non-intermediated securities and provides that: (i) a security interest in certificated non-intermediated securities made effective against third parties by possession of the certificate has priority over a competing security interest made effective against third parties by registration of a notice in the general security interest registry; (ii) a security interest in uncertificated non-intermediated securities made effective against third parties by registration in the books of the issuer has priority over a competing security interest made effective against third parties by any other method; (iii) a security interest in uncertificated non-intermediated securities made effective against third parties by the conclusion of a control agreement has priority over a competing security interest made effective against third parties by registration in the general security interest registry; and (iv) in the case of multiple control agreements, priority is determined on the basis of the time of the conclusion of the control agreements.

N-4-51  The third asset-specific rule deals with the rights of a secured creditor with a security interest in non-intermediated securities as against the issuer of the securities and provides that these rights are determined by the relevant securities law to be specified by each enacting State.

N-4-52  The fourth asset-specific rule provides for the collection of the amount owed under non-intermediated securities from the issuer of the securities.

N-4-53  Lastly, the fifth asset-specific rule deals with the law applicable to security interests in non-intermediated securities and provides three options (with different combinations of the law of the State in which the certificate is located, the law of the State under which the issuer is constituted, and the law governing the securities).

N-4-54  Thus, the DML introduces a comprehensive set of uniform law rules dealing with security interests in non-intermediated securities, which provide guidance to States interested in reforming their relevant law with a view to facilitating commercial finance transactions in which such securities (in particular equity securities) are used as collateral.