New York Embraces Digital Trade Instruments

In December 2025, New York Governor Kathy Hochul signed into law important amendments to New York’s version of the Uniform Commercial Code (“Amendments”). The Amendments, among other things, extend the protection of New York law to a wide array of digital assets, including digital negotiable instruments. The Amendments, which take effect on June 3, 2026, promise to bring new efficiencies to trade finance.

This note gives a brief overview of the changes by the Amendments, in particular, the new electronic documents and what they mean for the trade finance industry. It then discusses what market participants should do before the statute’s effective date on June 3, 2026, before the “adjustment date” on June 3, 2027, and more generally.

What are the main changes of the NY UCC Amendments and how are they relevant for trade finance?

a) Controllable electronic records (CERs)

The Amendments are substantive.[1] The result is the addition of an entirely new chapter, Article 12, and the creation of an entirely new class of electronic property called “controllable electronic records” (“CERs”). CERs are technology-neutral records that are stored in an electronic medium[2] that can be subjected to “control.” Article 12 creates comprehensive rules for ownership, transfer, and enforcement rights respecting these records.

“Control” is the central concept for both ownership and transfer. A person has “control” of a CER if that person has:

1. the power to enjoy substantially all the benefits of the CER;
2. the exclusive power to prevent others from enjoying substantially all the benefits of the CER;
3. the exclusive power to transfer control or cause another person to obtain control of the CER; and
4. the ability to readily identify itself as the person in control (for example through a name, identifying number, cryptographic key, etc.).

This CER framework applies to a variety of “established” electronic assets, including electronic negotiable instruments (e.g., promissory notes and bills of exchange), virtual currencies, and NFTs. In addition, the Amendments introduce two new classes of electronic assets: controllable accounts and controllable payment intangibles. Controllable accounts and controllable payment intangibles are accounts/payment intangibles, evidenced by a CER, where the obligor has agreed to pay the person in control of the CER. The same Article 12 framework applies to these new electronic assets.

Of particular significance, this framework allows for holder-in-due-course status without the need to take physical possession of a paper instrument. Instead, an Electronic Medium that provides sufficient “control” as defined by Article 12, will suffice and provide both (i) transfer protection and (ii) secured transaction priority. The concept of control also supports cleaner outcomes in case of disputes.

b) Take-Free Rule

To preserve the negotiability of electronic instruments, including the ability of a transferee to acquire holder-in-due-course status, the Amendments establish a “take-free” rule for qualifying purchasers. A purchaser that obtains control of a CER for value, in good faith, and without notice of any competing property rights or adverse claims takes free of competing interests, thereby extending to electronic records the same negotiability protections traditionally afforded to paper instruments.

Significantly, New York’s Amendments provide more protection to purchasers than the model revisions to the UCC. As a general matter, notice of an existing claim to an instrument would defeat holder-in-due-course status. The Amendments, however, narrow the concept of “notice” by adopting the heightened standard set forth in NY UCC Article 3-304(7). Under that standard, a purchaser has notice of an adverse claim only if it has actual knowledge of the claim or is aware of facts such that taking the asset would constitute bad faith. Constructive notice and mere suspicion are insufficient. In addition, Article 12 expressly provides that the filing of a UCC financing statement does not constitute notice of a property interest in a CER. See UCC § 12-104(h). Collectively, these provisions materially reduce title risk for purchasers of electronic trade assets that qualify as CERs and reinforce the intended negotiability of digitally embodied instruments.

c) Perfection and Priority of Electronic Security Interests

The Amendments add new rules to UCC Article 9 for the perfection and priority of security interests in CERs. A security interest in a CER can be perfected either by filing a financing statement or by “control” as defined in Article 12.

Again, the concept of control is essential: a security interest in a CER (including controllable electronic accounts and controllable payment intangibles) that is held by a secured party with “control” of the CER has priority over a conflicting security interest held by a secured party without control. Control creates priority even over previously filed financing statements where there is no control.

In practice, purchasers of electronic assets must ensure that they can operationally obtain and maintain control—through an Electronic Medium, custody arrangements, and agent structures—to enjoy a superior position in collateral contests. As further explained below, in addition to traditional due diligence questions, parties now need to check “who controls the CER now?” and “how is control in the CER transferred and evidenced?”

d) Alignment with the Electronic Signatures and Records Act (ESRA)

The UCC model rules reference the Uniform Electronic Transactions Act (“UETA”) which has been adopted by most states, but not New York. Instead, New York enacted the Electronic Signatures and Records Act (“ESRA”) which establishes standards for electronic signatures and records, and recognizes them as having the same force and effect as traditional, non-electronic signatures and records. The Amendments include cross-references and ensure that NY UCC Article 12 and related articles operate consistently with the ESRA.

What are the transition rules for pre-existing trade documents and their priority?

The Amendments include transitional provisions (new Article 12A) to protect existing property rights and priorities, provide secured parties with a window to preserve their priority, and ensure a smooth transition to the new law.

Security interests in CERs that have been perfected before June 3, 2026 (the “Effective Date”) remain perfected security interests and keep their priority through June 3, 2027 (the “Adjustment Date”). After the Adjustment Date, the interests become subject to the revised rules for perfection, priority and control. In other words, if the secured party does not establish “control” pursuant to Article 12, priority may be lost to a conflicting interest perfected by control.

Security interests that are enforceable but unperfected on the Effective Date become automatically perfected if they satisfy the Amendment’s requirements (i.e. if “control” can be established). Otherwise, they remain enforceable (only) until the Adjustment Date, unless they are perfected pursuant to the new UCC rules.

A “saving clause” provides that transactions, liens, and property interests that were validly entered into before the Effective Date remain valid afterward. These interests may be enforced or completed under the law that would have applied absent the amendments. However, after the Adjustment Date, priority may be lost to a party who has perfected its position pursuant to the Amendments.

Action items

As described above, “control” is the gold standard for electronic instruments and assets going forward. While the one-year adjustment period provides additional time to review and change electronic records to obtain control, parties should start that process as soon as possible to avoid losing priority.

Specifically, we recommend taking the following actions:

1. Review existing agreements and assets: Identify and review current (security) agreements, trade assets, and related documentation to determine whether a) they concern CERs or CER-evidenced payment rights, and b) they comply with the new law and the requirements for control and perfection.
   
   In particular, for a promissory note to be a CER under UCC Article 12, the note must satisfy the following requirements: 1) the note must be native to the system (not scanned or signed) and 2) control must be technically exclusive where the note is stored and not just contractually asserted.
2. Review control capability: Determine whether your Electronic Medium/custodians/agents provide legally sufficient “control.” In particular, make sure any system storing your CERs identifies you as the person in control, prevents copies of the CER, and creates a clear log of control and transfers.
3. Review priority strategy: Review existing “perfection” protocols, especially with respect to liens expected to last beyond the transition period.
4. Analyze cross-border conflicts: For trade assets touching multiple jurisdictions (e.g. governing law of the instrument vs. underlying trade contract vs. obligor location), review whether choice-of-law assumptions remain appropriate.
5. Update templates: Revise your purchase and financing documentation to address control, transfer protocols, Electronic Medium representations, and dispute evidence packages (audit trails, control certificates, etc.). In particular, agreements should include covenants to ensure that control over CERs and CER-evidenced payment rights are obtained and maintained.
6. Update diligence checklist. In addition to your traditional diligence checklist, for any transactions involving CERs, the diligence should also include, at a minimum:
   • "CER” qualifications: confirm that the instrument is indeed a CER (i.e. native electronic record, not a PDF, scan or “authoritative copy”);
   • System architecture: identify the electronic system on which the CER exists and obtain a technical description showing how the system prevents simultaneous or competing control, records transfers of control, and preserves record integrity. In particular, make sure the system prevents duplication of the CER.
   • “Control” status and identification: review who controls the CER and if the controller has the exclusive right to transfer control. If control is exercised via a custodian or agent, confirm written acknowledgment that the intermediatory holds control for the benefit of the controller.
     
     In connection with the system, identify how the person in control is identified (cryptographic key, account-based credential, third-party agent acting on behalf of the controller, etc.). The method of identification must be exclusive, persistent and auditable.
     
     Confirm that no administrator, custodian, or Electronic Medium operator has unilateral power to exercise control absent the controller’s authorization (other than emergency or insolvency protocols, if any, disclosed and limited).
   • Transfer of control: confirm that the system supports transfer of control to another person a) without creating a competing record and b) with a clear, time-stamped audit trail.
   • Insolvency and continuity: analyze what happens if the Electronic Medium, custodian, or registry operator becomes insolvent and confirm that there is no automatic reversion or suspension of control.

Finally, remember what is not covered by the new law: The UCC and its amendments do not address risk allocation or compliance issues. For example, regulatory classification (security/commodity), tariffs and taxation, or money-transmitter/AML rules remain outside the UCC. Likewise, sanctions, export controls, and bank regulatory capital—all relevant for deal structuring—remain independent of UCC mechanics. These regulatory issues should be treated as separate workstreams.

Conclusion

The Amendments are best understood as a “plumbing upgrade” to commercial law that makes it easier to use electronic trade instruments and platform-based payment rights with greater confidence about transfer and priority. For trade finance and forfaiting, the most significant practical shifts are (i) the move toward control as a legally meaningful status for certain electronic assets and payment rights, and (ii) the enhanced protection available to good-faith acquirers who obtain control. This does not automatically make every electronic instrument “negotiable,” and it does not solve every cross-border enforceability issue. But it provides more modern UCC pathways for treating certain electronic records as transferable assets and for dealing with competing claims.

As the effective date approaches, parties who buy, finance, or trade electronic trade assets under New York law should focus less on abstract labels (“digital asset”) and more on whether the relevant records and systems can support the amended UCC’s functional requirements for “control”—because those operational details will increasingly drive legal outcomes.