Control Agreements: The Document That Actually Matters

If you're lending against brokerage accounts without a control agreement, you lack priority regardless of how many UCC-1s you file. A competitor who gets control will jump ahead of you in line because the UCC's priority rules are unforgiving in this area.

What Control Actually Means

Under UCC Article 8, "control" is a defined term with specific requirements. For securities held through an intermediary (which is how virtually all brokerage accounts work), you get control when the intermediary agrees to follow your instructions without asking the account holder for permission first.

That agreement is the control agreement, a three-party contract between the borrower who owns the account, the lender who wants security in it, and the broker-dealer who actually holds the securities. The broker agrees that when you tell them to freeze the account or liquidate positions, they'll execute without calling the borrower first to confirm.

Why does this matter more than filing? Because the UCC explicitly says so: control beats filing, period. Bank A files a UCC-1 on Monday, Bank B gets a control agreement on Tuesday, Bank B wins. This priority rule exists because the drafters of Article 8 wanted to encourage lenders to establish actual relationships with intermediaries rather than just recording interests in a filing office.

The Moving Parts

Control agreements aren't complicated documents, but they have distinct sections serving different purposes.

The identification section is mostly administrative but matters enormously in practice because getting account numbers wrong is a surprisingly common error that can torpedo the entire arrangement. The account title needs to match the borrower's legal name exactly as it appears on the loan documents, and corporate borrowers with multiple DBAs create particular headaches here.

The grant of control is the operative language that makes everything work: the intermediary commits to follow your entitlement orders, which is UCC-speak for instructions about what to do with securities in the account. The language needs to make clear that the intermediary will follow your instructions without requiring the borrower's consent.

The priority of instructions section handles the practical question of who gets to give orders when. Most agreements establish two regimes: before you declare default, the borrower can trade normally; after you send a notice of exclusive control, only your instructions matter. Some agreements include an intermediate state where trading continues but withdrawals are blocked, which can be useful when you're worried about collateral value but not ready to liquidate.

What the Major Brokers Actually Do

Every major broker-dealer has their own form, and they have minimal interest in using yours. With the big players, you sign their form or you walk away without an agreement.

Schwab's form is called a "Notice of Security Interest and Control Agreement" and is reasonably lender-friendly as these things go, with clear instruction procedures and good integration with their institutional platform. Fidelity calls theirs a "Third Party Pledge Agreement" and includes specific provisions for margin accounts and options trading that you'll need to understand if your borrowers are active traders. Interactive Brokers goes fully electronic with their control agreement process, which is efficient but requires comfort with digital-only instruction channels.

The smaller broker-dealers are where you have negotiating room and may accept a lender-drafted form, though the tradeoff is a longer, messier process with more back-and-forth. Whether that's worth it depends on deal volume and how much their standard form concerns you.

Where Negotiations Actually Happen

Intermediaries universally try to limit their liability by seeking protection for acting in good faith on your instructions and wanting you to hold them harmless for market movements during liquidation. This is reasonable up to a point, but language that insulates them from consequences of gross negligence or willful misconduct crosses the line. Push back on overly broad exculpation.

Instruction authentication matters more than most lenders realize during negotiation because you need clarity on what constitutes valid authorization, how you establish who can give instructions, and what happens if someone unauthorized manages to issue an order. The intermediary will want a callback procedure or similar verification, and you need to make sure the timeline works for urgent situations.

Conflicting claims provisions determine what happens when the intermediary receives competing instructions, which can occur if the borrower disputes your default declaration or if another creditor shows up claiming a superior interest. You want the intermediary to continue following your instructions until a court says otherwise rather than freezing everything while they figure out who's right.

Response times are another negotiation point that matters operationally. How fast does the intermediary commit to acting on your instructions? End of business day is typical for routine matters, but same-day or immediate response for urgent situations should be explicitly addressed because an account freeze request when markets are crashing needs same-day execution rather than 48-hour processing.

The Mistakes That Cost Money

The most expensive control agreement mistake is failing to verify account details before execution. Account numbers transposed, account titles that don't match loan documents, accounts that have been closed and reopened with new numbers: any of these can invalidate your agreement, and you won't know until you try to exercise control.

Ignoring existing liens is another common failure because margin accounts create automatic security interests in favor of the broker, and other lenders may have prior control agreements. You need to search for these and address them through subordination or release before your agreement means anything.

Delayed execution is a process problem that becomes a legal problem. Control agreements require three signatures, sometimes in a specific sequence, and every day between loan closing and completed execution is a day you're unsecured. Track the execution process aggressively, call the intermediary if signatures are delayed, and avoid passive follow-up.

The "all accounts" assumption burns lenders regularly because your control agreement covers only the accounts listed in it. If the borrower opens a new account with the same broker, coverage does not extend automatically. You need monitoring procedures to catch this and processes for obtaining amendments or new agreements.

Finally, release procedures matter even though nobody thinks about them during negotiation. When the loan pays off, you need to release the security interest promptly because failure to do so creates liability exposure and damages the borrower relationship. Build release processes into your operations from the start.

Should You Also File a UCC-1?

The belt-and-suspenders approach is standard practice: get control for priority protection, file a UCC-1 as backup and public notice. The filing doesn't help your priority against a control holder, but it provides protection against other filers who don't get control and gives notice to anyone doing due diligence on the borrower.

Some lenders skip the filing to reduce administrative burden, which is defensible if your control agreement processes are solid, but the incremental cost of filing is low relative to the backup protection it provides. File.

This is practitioner guidance, not legal advice. Work with counsel on your specific agreements and circumstances.