HB5286 95TH GENERAL ASSEMBLY

LRB095 19061 KBJ 45247 b

95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008
HB5286

Introduced , by Rep. George Scully, Jr.

SYNOPSIS AS INTRODUCED:

215 ILCS 5/145	from Ch. 73, par. 757
215 ILCS 5/Art. XLV heading new
215 ILCS 5/1500 new
215 ILCS 5/1501 new
215 ILCS 5/1505 new
215 ILCS 5/1510 new
215 ILCS 5/1515 new

Amends the Illinois Insurance Code. Creates an Article concerning custodial agreements and the use of clearing corporations. Provides definitions. Allows domestic insurance companies to deposit securities held or purchased for its general account in a clearing corporation. Allows certificates representing securities of the same class of the same issuer to be merged and held in bulk in the name of the nominee of the clearing corporation regardless of the ownership of the securities and for certificates representing smaller denominations to be merged into one or more certificates of larger denominations. Allows ownership and other interests in securities to be transferred by bookkeeping entry without physical delivery of certificates. Authorizes the Secretary of Financial and Professional Regulation to adopt rules governing the deposit of securities in clearing corporations. Allows securities of domestic, foreign, and alien insurance companies required to be deposited with the Secretary as a condition of doing business in this State that meet deposit requirements to be deposited in clearing corporations. Prohibits the removal of these deposits by the insurance company without the approval of the Secretary. Requires the insurance company to provide evidence to the Secretary that the securities are recorded in the name of the custodian and that the securities are held subject to the order of the Secretary.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning insurance.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Insurance Code is amended by changing Section 145 and by adding the heading of Article XLV and Sections 1500, 1501, 1505, 1510, and 1515 as follows:

(215 ILCS 5/145) (from Ch. 73, par. 757)

Sec. 145. Deposits.

When any company is required by the laws of this State or of any state or country, or by other competent authority, to make a deposit with an insurance supervising official or other financial officer and the company desires to make such deposit in this State the Director shall accept such deposit, if made in securities authorized for investment by Article VIII of this Code. So long as the company continues solvent and complies with the laws of this State it may collect the income on such securities. The company may substitute therefor other like securities as prescribed by this Code for deposit. If the value of securities deposited by any company shall decline below the amount so required, the company shall make a further deposit. A deposit made with the Secretary under this Section may be done in the manner authorized in Section 1515 of this Code.

(Source: Laws 1959, p. 1431.)

(215 ILCS 5/Art. XLV heading new)

ARTICLE XLV. CUSTODIAL AGREEMENTS AND THE USE OF CLEARING

CORPORATIONS

(215 ILCS 5/1500 new)

Sec. 1500. Title. This Article may be cited as the Custodial Agreements and the Use of Clearing Corporations Law.

(215 ILCS 5/1501 new)

Sec. 1501. Purpose. The purpose of this Article is to authorize domestic insurance companies to utilize modern systems for holding and transferring securities without physical delivery of securities certificates, subject to appropriate regulations of the Secretary.

(215 ILCS 5/1505 new)

Sec. 1505. Definitions. As used in this Article, unless the context otherwise requires, the following terms shall have the meanings ascribed to them:

"Clearing corporation" means a corporation as defined in paragraph (5) of subsection (a) of Section 8-102 of the Uniform Commercial Code, except that with respect to securities issued by institutions organized or existing under the laws of any foreign country or securities used to meet the deposit requirements pursuant to the laws of a foreign country as a condition of doing business therein, "clearing corporation" includes a corporation which is organized or existing under the laws of any foreign country and is legally qualified under law to effect transactions in securities by computerized book-entry. "Clearing corporation" also includes "Treasury/Reserve Automated Debt Entry Securities System" and "Treasury Direct" book-entry securities systems established pursuant to federal law.

"Custodian" means a national bank, state bank, trust company, or broker or dealer which participates in a clearing corporation.

"Securities" means instruments as defined in paragraph (15) of subsection (a) of Section 8-102 of the Uniform Commercial Code.

(215 ILCS 5/1510 new)

Sec. 1510. Use of book-entry systems.

(a) Notwithstanding any other provision of law, a domestic insurance company may deposit or arrange for the deposit of securities held in or purchased for its general account and its separate account in a clearing corporation. When securities are deposited with a clearing corporation, certificates representing securities of the same class of the same issuer may be merged and held in bulk in the name of the nominee of the clearing corporation with any other securities deposited with the clearing corporation by any person, regardless of the ownership of the securities, and certificates representing securities of smaller denominations may be merged into one or more certificates of larger denominations. The records of any custodian through which an insurance company holds securities in a clearing corporation shall at all times show that the securities are held for the insurance company and for which accounts thereof. Ownership of, and other interests in, the securities may be transferred by bookkeeping entry on the books of the clearing corporation without physical delivery of certificates representing the securities.

(b) The Secretary is authorized to adopt rules governing the deposit by insurance companies of securities with clearing corporations, including establishing standards for national banks, state banks, trust companies, and brokers or dealers to qualify as custodians for insurance company securities.

(215 ILCS 5/1515 new)

Sec. 1515. Deposit of securities by domestic, foreign, and alien insurance companies with the Secretary. Notwithstanding any other provision of law, the securities required to be deposited with the Secretary as a condition of doing business in this State may be deposited with a clearing corporation. Securities deposited with a clearing corporation and used to meet the requirements of the Secretary for doing business in this State shall be under the control of the Secretary and shall not be withdrawn by the insurance company without the approval of the Secretary. Any insurance company holding securities in this manner shall provide to the Secretary evidence issued by its custodian through which the insurance company has deposited the securities in a clearing corporation to establish that the securities are actually recorded in an account in the name of a custodian and that the records of the custodian reflect that the securities are held subject to the order of the Secretary.