Introduction
Most people believe the stocks, bonds, and other securities they have purchased belong to them outright. In today’s system, however, they do not. Amendments to Article 8 of the Uniform Commercial Code (UCC) quietly stripped away Americans’ longstanding ownership rights and replaced them with fragile contractual claims, leaving their securities vulnerable to seizure in a financial crisis or when intermediaries misuse customer assets. This paper explains how Article 8 works, why it matters for property rights and investor security, and what state-level reforms lawmakers can pursue to protect their constituents in the event of a market collapse.
Uniform Commercial Code: Background
The Uniform Commercial Code was created in the mid-twentieth century by the Uniform Law Commission (ULC), working jointly with the American Law Institute (ALI). As noted on the ULC’s website, the UCC is a “comprehensive set of laws governing all commercial transactions in the United States.” The ULC and ALI draft and promote model laws for adoption by state legislatures and remain the primary drivers of UCC revisions today. Importantly, the UCC is a uniform state law, not a federal statute. All 50 states have adopted the UCC in largely identical form to ensure consistency in interstate commerce.
Because the UCC is highly technical, most policymakers and members of the public are unfamiliar with its details. This complexity, combined with the longstanding reputations of the ULC and ALI as non-partisan legal specialists purporting to serve the public, has allowed major revisions to move forward with little debate or independent analysis. In practice, however, the ULC and ALI have repeatedly used this deference to push through changes that undermine individual rights and concentrate power in the hands of a narrow class of political and financial elites.
One of the most consequential changes to the Uniform Commercial Code came in the 1990s, when the ULC and ALI rewrote Article 8, which governs investment securities. This overhaul—enacted with little to no public awareness by legislatures in all 50 states and most federal jurisdictions between 1994 and 2002—fundamentally eroded Americans’ property rights to their own investments. And in a financial crisis, these revisions allow the world’s largest financial institutions to seize investors’ assets, with little recourse available to the ordinary Americans who think the securities they paid for truly belong to them.
Jack McPherrin is a Research Fellow for the Glenn C. Haskins Emerging Issues Center at The Heartland Institute, and also serves as Heartland’s research editor.
