House Bill 11-22, which would have removed exceptions in South Dakota's adoption of UCC Article 8 to strengthen the claimed property priority of investors in the event a securities intermediary becomes insolvent, failed on final passage in the House on Feb. 7 after extended debate. The final tally was 26 ayes, 41 nays, and 2 excused.

The prime sponsor argued the 1994 Article 8 revisions and current South Dakota statute (cited in debate as sections including 57A-8-5(11), 57A-8-503 and related provisions) effectively create a system where investors hold a 'securities entitlement' rather than direct ownership and that certain exceptions can give secured creditors priority over investors' claims during insolvency. The sponsor said HB 11-22 would remove those exceptions and allow investors to assert priority here in South Dakota and to bring disputes in-state.

Opponents, including representatives with backgrounds in commerce and those who cited testimony from financial-industry groups, said the indirect holding system provides operational advantages and that the narrow exceptions in Article 8 are purposeful (for margin accounts, clearing corporations and similar arrangements). They warned that changing the state UCC could create uniformity issues and unintended market disruption. Several members said they had not had time to assess all consequences and noted many trade groups and associations opposed the change.

The House debated whether federal regulation or interstate uniformity would preempt the change; the sponsor and others said the UCC is state law and the change would be a targeted, surgical modification of the adopted text. After questions and extended colloquy, the bill failed to secure a majority of votes.

Votes at a glance: House Bill 11-22 — final passage: 26 ayes, 41 nays, 2 excused (declared lost).