Reviewing Article 8's Revised Collusion Standard; Outside Counsel

New York Law Journal, Vol. 225, March 27, 2001

St. John's Legal Studies Research Paper No. 19-0026

7 Pages Posted: 14 Jun 2019

Date Written: 2001


The first published case to deal with the new collusion standard in revised Article 8 has been decided by Judge Bransten in Supreme Court, New York County. As New York City is the center of the securities industry, it is not surprising that the first published case to deal with collusion was decided here. The result reached by Judge Bransten, however, is surprising in the liberality with which collusion was construed.

The 1994 revision of Article 8 took effect in New York State on Oct. 10, 1997. For those readers that are unfamiliar with Article 8, it is the article that deals with the transfer of securities. The 1977 version of Article 8, a slight variation of which was New York law for 20 years, included elements that are analogous to both Article 3 (negotiable instruments) and Article 9 (security interests), articles with which most lawyers are more familiar.

Revised Article 8 has moved the provisions dealing with security interests in securities back to Article 9. The 1994 revision dealt with the indirect holding system for securities and involved a complete reconceptualization and clarification of the prior Article 8, creating separate parts to address both the direct and indirect holding systems.

In describing the indirect holding system, revised Article 8 utilizes a whole new vocabulary that will be unfamiliar to those lawyers whose practice does not regularly include Article 8 matters.
Among the most important new defined terms are the following: financial asset (broader than just securities, includes obligations, shares, participations, and interests held through securities intermediaries); securities intermediary (a clearing corporation or a person such as a bank or broker that holds securities accounts for others); entitlement holder (persons who hold financial assets through intermediaries in the indirect holding system); and securities entitlement (the rights and property interest of a person who holds securities or other financial assets through a securities intermediary).

Certain changes in revised Article 8 that offered increased protection to transfees of securities, in particular secured lenders, against claims that a transfer was wrongful were the most controversial provisions of revised Article 8. Some commentators believe that beneficial owners of securities have been materially disadvantaged by these changes. Other commentators, notably Professor Rogers, the reporter for revised Article 8, believe that prior law, including that of New York, has not been materially altered by these changes. The latter is the position that was taken by the two committees of the Association of the Bar of the City of New York. that played a large role in the adoption of revised Article 8 in New York.

Suggested Citation

Facciolo, Francis, Reviewing Article 8's Revised Collusion Standard; Outside Counsel (2001). New York Law Journal, Vol. 225, March 27, 2001, St. John's Legal Studies Research Paper No. 19-0026, Available at SSRN:

Francis Facciolo (Contact Author)

St. John's University School of Law ( email )

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Jamaica, NY 11439
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