132
Opinion of the Court
The parties have stipulated that the Trusts (or their agents) take "Delivery" of the federal securities at the commencement of a repo. App. 63. But even this fact is consistent with understanding repos as loans of cash from the Trusts to the Seller-Borrower: "Delivery" of the securities perfects the Trusts' security interests in their collateral. Under the most recent version of § 8-321(1) of the Uniform Commercial Code (U. C. C.), "[a] security interest in a security is enforceable and can attach only if it is transferred to the secured party . . . pursuant to a provision of [§] 8-313(1)." 2C U. L. A. 459 (1991). Section 8-313(1)(a) provides that transfer of a security interest in a security occurs when the secured party "acquires possession of a certificated security." 5 Id., at 402. Of course, possession of the federal securities allows the Trusts to effect an expeditious, nonjudicial liquidation of the securities if the Seller-Borrower defaults. Cf. U. C. C. § 9-504(1), 3B U. L. A. 127 (1992). The ability to liquidate immediately is obviously critical in the context of repo transactions, which may have a lifespan of only a single day.
Based on the foregoing analysis, we conclude that the interest income earned by the Trusts from repurchase agreements involving federal securities is not interest on "obligations of the United States Government." For purposes of 31 U. S. C. § 3124(a), the income is instead interest on loans from the Trusts to the Seller-Borrower. Because § 3124(a) exempts only the former type of interest from state taxation,
5 The parties have also stipulated that delivery of the federal securities is effected "through the Federal Reserve book entry system." App. 63. Although securities held in that system exist not in the form of certificates but only as entries in the records of a Federal Reserve bank, see generally Stigum 636-638, regulations issued by the Treasury Department and other federal agencies indulge in the fiction that transferees acquire possession of certificated securities. See, e. g., 31 CFR § 306.118(a) (1994) (transfer of Treasury notes and bonds); § 350.4(a) (transfer of Treasury bills). Of course, these regulations and their relationship to the U. C. C. are not before us here.
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