DELIVERY OF CONFIRMATION ELECTRONICALLY

SECTION 2
Forms
Title 2
Title 3
Title 4

SECTION 3
Securities Act
Exchange Act
Sarbanes-Oxley Act
SOX TABLE
Title 5

SECTION 4
'33 ACT Reg
'34 ACT Reg
Reg. S-K
 

Title 5
Title 6

The requirements relating to the use of electronic media for delivery of confirmations by broker-dealers are substantially the same insofar as informed consent, access, appropriate notice, the right to insist on delivery of a paper copy, and the like.[1] Interpretative Release II stresses that broker-dealers in transmitting confirmations and other financial information of a personal nature “should take reasonable precautions to ensure the integrity, confidentiality, and security of” the information.[2] In addition, in obtaining the informed consent of the customer the broker-dealer should stress that it will be transmitting electronically financial information personal to the customer. The consent, however, may be obtained either manually or electronically.[3] T

Interpretative Release II reminds broker-dealers that they must also conform with state law impacting the confirmation process.[4] The Commission in Interpretative Release II included some advice relating to recent (1994) amendments to Article 8 Investment Securities of the Uniform Commercial Code. Article 8-319 of the UCC is a statute of frauds applicable to investment securities. Article 8-319(a) requires a writing signed by the party against whom enforcement of the contract is sought. This is qualified by Article 8-319(c), which is applicable to a transaction in which the seller sends a written confirmation to the purchaser following an oral contract of sale. Section-319(c) requires two things to occur in order for the oral contact of sale to be enforceable. First, the seller within a reasonable time after the sale must send the purchaser “a writing in confirmation” sufficient to charge the seller. Second, the purchaser must fail to send a written objection to the transaction within ten days after receipt of the confirmation. In addition, Article 819(d) provides that the oral agreement of sale is enforceable against a party who in the course of a court proceeding admits to the transaction. Article 8-319 is, perhaps, the most overlooked aspect of the securities business, given the oral nature of virtually every securities transaction. The confirmation with the broker-dealer’s letterhead is enough to trigger the ten days running, customers seldom send written objections, and, if they question the transaction orally, the broker-dealer as a matter of practice is likely to cancel the transaction if too much is not at stake. Interpretative Release II states:[5] “Under Revised Article 8 Section 8-102(6), parties to a transaction may ‘transmit information by any mechanism agreed upon by the persons transmitting and receiving the information.’ Revised Article 8 eliminates the previos Section 8-319 requirement for a signed writing evidencing the terms of a securities transaction.” Presumably, the reference is to revised § 102(a)(6) of Article 8, which defines “communicate” when used in Article 8 to include, as the Commission noted, “transmit information” by any agreed upon mechanism. The significant aspect, however, of the revised UCC is § 8-113, which specifically takes a contract for the sale or purchase of security out of the statute of fraud provisions and eliminates in effect § 8-319. The Commission noted that as of the date of Interpretative Release II only 13 states had adopted these revisions. The Commission cited some authority for the proposition that the broker-dealer’s letterhead on the confirmation would satisfy the 8-319 requirement,[6] which, presumably, refers to the sufficient to charge the broker-dealer part of the section. The Release also cites one case holding that a computer-generated confirmation satisfies the “a writing in confirmation” aspect,[7] which is more pertinent to the issue. Most states have now adopted revised UCC § 8-319.