Security Account Control Agreement Template for the United States

A Security Account Control Agreement is a critical legal document in United States secured financing that establishes a secured party's control over a debtor's securities account. This agreement provides a mechanism for perfecting security interests in financial assets held in securities accounts, offering stronger protection than traditional UCC filing methods. Under the Uniform Commercial Code, control agreements give secured parties priority rights and enable them to direct the disposition of collateral without court intervention.

When do you need this document?

You need a Security Account Control Agreement when lending against or securing debt with securities accounts containing stocks, bonds, or other financial instruments. This document is essential in leveraged buyouts where securities portfolios serve as collateral, margin lending arrangements with broker-dealers, and structured finance transactions involving investment accounts. Banks and financial institutions require these agreements before extending credit secured by securities accounts, ensuring they can access collateral if the borrower defaults. The agreement is also necessary when establishing custody arrangements for investment management clients or when securities accounts are part of complex financing structures involving multiple parties.

Key legal considerations

The agreement must clearly establish the secured party's control rights while defining the securities intermediary's obligations and limitations. Critical provisions include the scope of control, conditions for releasing or transferring securities, and procedures for disposing of collateral upon default. The document should address priority conflicts with other creditors and specify which party bears responsibility for account maintenance costs and fees. You must carefully negotiate exclusions for routine account activities, such as dividend payments or securities lending, to avoid interfering with normal business operations. The agreement should also include representations and warranties regarding the authenticity of security interests and compliance with applicable securities laws.

Legal requirements in United States

Under UCC Article 8, control is achieved when the securities intermediary agrees to comply with the secured party's entitlement orders without further consent from the debtor. The agreement must satisfy specific control requirements outlined in UCC Section 8-106, including the securities intermediary's acknowledgment of the secured party's rights. Federal securities laws, including the Securities Exchange Act of 1934, may impose additional requirements for broker-dealer involvement and customer account protection. The document must comply with Federal Reserve regulations governing margin accounts and credit extensions by securities firms. State-specific UCC variations may affect perfection requirements, and the agreement should address jurisdiction-specific filing or notification requirements that supplement the control mechanism.