Lending Against Securities in the U.S. After April 1, 2017

— Part One of Four —

The Hague Securities Convention, which goes into effect in the United States on April 1, 2017, will have significant impact on the law applied to all transactions – past and future – collateralized by securities held by an intermediary (e.g. a brokerage firm, bank trust department, etc.), where there is any international aspect to the security, such as the nationality of the security issuer, security holder, intermediary, party to the security transfer, adverse claimant, or the location of the security certificates.

To ensure that their intended choice-of-law is applied, every lender (bank or otherwise) who lends money for which securities are collateral, and every borrower who borrows money secured by collateral in the form of securities, should make sure that the following text is included in the account agreement between the securities’ owner and intermediary, whenever the securities are held by an intermediary:

The State [for these purposes a state of the United States] of ________________ is the securities intermediary’s jurisdiction for purposes of the Uniform Commercial Code of _________________, and the law in force in the State of _________________ is applicable to all issues specified in Article 2(1) of the Hague Securities Convention.

Where, however, the lender or borrower wishes to designate a different state’s laws for issues arising under the account agreement other than with respect to the securities held with the intermediary, then for those securities the account agreement should instead provide:

The law applicable to all issues specified in Article 2(1) of the Hague Securities Convention is the law in force in the state of _______________.

In addition to including these provisions in any account agreement entered into after the April 1, 2017 effective date, existing account agreements should be amended as soon as possible to include either the general governing law provision (first set out above) or the more limited Article 2(1) governing law provision.