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Wednesday, July 13, 2011

Securities Regulation versus Secured Transactions

What I really want to do is continue the travelogue, which I will in another post, but first a quick question of legal etymology or trivia.  (My access to our library's subscription to the O.E.D. seems to be blocked when I am off campus.)  Here in the Budapest LL.M. program, I am teaching Securities Regulation in the morning, and my wonderful colleague Mike Rustad is teaching the same students Secured Credit in the afternoon.  With only one or two exceptions, there are no native English speakers.  Several have asked the etymological question:  what is the relationship between the word "security" as it is used to describe an investment and the word "security" as it describes an interest in personal property by which that property is collateral for an indebtedness.  I certainly understand the idea of security as "safety" in the latter case, and I can only speculate that there is something similar in the idea of a certificate or document that makes an investment safer by creating a tangible record of it.

Inquiring Hungarian minds would like to know.  Feel free to chime in online or offline.

For more travelogue, however, stay tuned.

Posted by Jeff Lipshaw on July 13, 2011 at 01:46 PM | Permalink


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It is also worth recalling the the use of the word "security interest" as widely accepted catch all for the rights of a lender in collateral pretty much date to the adoption of Article 9 of the Uniform Commercial Code in the 20th century (well before 1970). A variety of context specific words (e.g. pledge, chattle-mortgage, etc.) were used before the notion of a "security interest" was conceptually unified as a single component with the UCC 9 (as was the clear conceptual distinction between attachment of a security interest and perfection of a security interest).

It also isn't obvious to me that the word "security" has such a broad semantic reach until the '33 Act, which is the touchstone for all modern uses of the word in that context (apart, perhaps, from whichever state blue sky laws were used as a basis for the '33 and '34 Acts).

Posted by: ohwilleke | Jul 14, 2011 3:40:36 PM

Thanks, Kenneth. Obviously that financial dictionary had not read the definition of "security" in either the 1933 or 1934 Act. (Or it is a British usage? Don't they have a "Shares Act"?)

Posted by: Jeff Lipshaw | Jul 14, 2011 1:08:20 AM

Speaking as one who has had a great deal to do with "security" in one of those senses and something to do with "security" in the other sense, I'm embarassed to say that the question of etymology never occurred to me. Review of the entry in the Oxford Dictionary suggests that "security" in the sense of credit support was the earlier use of the word; eventually, investment interests came to be issued that were guaranteed or otherwise subject to some form of credit support a/k/a "security", and that the term "security" came to be used for the investment interest itself; and then by further drift the term came to be used to any investment interest whether or not entitled to the benefit of credit support. The OED cites once financial dictionary as late as 1970 that insists (in paraphrase) that use of the term "security" is incorrect as to equity interests ("shares") or to debt interests that are not entitled to credit support.

Posted by: Kenneth Kettering | Jul 13, 2011 5:19:24 PM

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