82-7

October 12, 1982

Re: Financial Code Section 1223
Dear Mr. ________ :
This responds to your letter of October 1, 1982 and follows our telephone conversation of the same date. Your letter states you wish to confirm your understanding “that a loan which is secured by a pledge of readily marketable securities, traded on the American Stock Exchange, which have a readily ascertainable market value in excess of 115% of the loan balance and which have no restrictions on transferability would qualify as a ‘secured loan’ under that Section.” We assume these securities represent the outstanding shares of the common stock of a corporation traded on the American Stock Exchange.
Financial Code Section 1223 states in relevant part: “An obligation shall not be deemed secured by personal property or collateral unless the personal property or collateral held as security is of a kind which has not been declared ineligible by the Superintendent and unless it has a market value at least 15 percent greater than the amount of the obligations secured thereby.”
The Superintendent has not declared ineligible stock which has the characteristics set forth in your letter. The Superintendent does require, however, that a security interest in stock be perfected by possession in accordance with the Uniform Commercial Code. If a security interest is not perfected in this manner, the Superintendent will consider the corresponding loan to be unsecured under Financial Code Section 1223. A loan secured by the stock described in your letter in compliance with the Uniform Commercial Code would appear to qualify as secured under Financial Code Section 1223, assuming the stock has a market value at least 15 percent greater than the amount of the loan.
Our views are conditioned upon the accuracy of your representations and are subject to change in the event of any material modification of the facts and circumstances presented to us. Further, our views are limited expressly to the present situation.
Very truly yours,
RICHARD M. DOMINGUEZ
Superintendent of Banks
By
WILLIAM G. THOMPSON
Counsel
WGT:jo

October 1, 1982

Thomas Thompson, Esq.

Dear Tom:
Thank you very much for taking the time to discuss Section 1223 of the California Financial Code with me today. I would like to confirm by this letter my understanding that a loan which is secured by a pledge of readily marketable securities, traded on the American Stock Exchange, which have a readily ascertainable market value in excess of 115% of the loan balance and which have no restrictions on transferability would qualify as a “secured loan” under that Section. If my understanding is in any way incorrect, please let me know as soon as possible.
Very truly yours,