The current Securities Settlement System (SSS) started its
operation on 19 January 2004 with
the Central Securities Depository of Lithuania (CSDL) being
the operator of the system. The SSS was registered
with the Bank of Lithuania following the Resolution No. 11 of the Board of the
Bank of Lithuania of 12 February 2004.
General Information
The SSS is used to process real time and designated time
settlements for securities transactions concluded at the
NASDAQ OMX Vilnius Stock Exchange and over-the-counter transactions through
the system participants’ accounts with the Bank of Lithuania as well as
free-of-payment securities transfers.
Settlements are performed based on the trading session
results submitted by the information system of the stock exchange, as well as
transfer orders submitted electronically by system participants.
The operation of the SSS is regulated by the Rules and
Procedures of the SSS adopted by the CSDL, and bilateral agreements between the
CSDL and system participants, as well as the Bank of Lithuania and the
NASDAQ OMX Vilnius.
Participation in the System
The participation in the SSS is open to all institutions
specified in the Law on Settlement Finality in Payment and Securities Settlement
Systems, i.e., financial brokerage firms, credit institutions holding a licence
that does not restrict securities operations, and the Bank of Lithuania.
The participants of the SSS should also participate in
at least one payment system (LITAS-RLS, TARGET2-LIETUVOS BANKAS, LITAS-PHA).
Stock exchanges, other central securities depositories (CSDs), central
counterparties and multilateral trading facilities may also participate in the
system. These entities may be participants of the SSS without participating in a
payment system.
A detailed list of the SSS participants is provided in the
Official List of Systems.
System Operation
The operating hours of the SSS are from 8:00 a.m. to 8:00
p.m. The DvP (delivery versus payment) principle is
applied to the settlement of securities transactions.
The DvP principle means that the final transfer of securities occurs if (and
only if) the final transfer of funds occurs. Securities transactions may be
settled in litas using payment system LITAS-RLS or in euro using payment systems
TARGET2-LIETUVOS BANKAS or LITAS-PHA.
When settlement of securities transactions is in litas the
following procedure is applied. Firstly, the required amount of securities is
blocked in securities accounts held with the SSS. Secondly, the SSS submits to
the payment system LITAS-RLS the payment instruction indicating the amount of
funds to be transferred among accounts of participants. Upon
receiving a notification from the Bank of Lithuania on the transfer of funds,
the CSD immediately transfers securities among the securities accounts of
participants.
When settlement of securities transactions is in euro the
following procedure is applied. Firstly, the required amount of securities is
blocked in securities accounts held with the SSS. Secondly, the SSS submits to
the single technical platform of the payment system TARGET2 the payment
instruction indicating the amount of funds to be transferred among accounts of
participants according to Settlement Procedure 6 for ancillary systems.
Upon receiving a notification from the payment system TARGET2
on the transfer of funds, the CSD immediately transfers securities among the
securities accounts of participants.
The SSS’s working days are accommodated to the ones of the
payment systems LITAS-RLS and TARGET2.
Links with other securities settlement systems
A link between CSDs enables CSDs to settle cross-system
securities transactions. The CSDL has three links with other CSDs: a bilateral
link with the Estonian CSD, a bilateral link with the Latvian CSD and a
unilateral link with Clearstream Banking Luxemburg s. a. (CBL), an
international CSD.
A bilateral link means that the CSDL has securities accounts
with the Estonian and Latvian CSDs. These CSDs also have their securities
accounts with the CDSL. A unilateral link means that only the CSDL is a
participant in CBL and has securities accounts with this international
CSD.
Links between SSSs in the Baltic countries facilitate the
settlement of cross-border securities transactions concluded on NASDAQ OMX
Vilnius, NASDAQ OMX Riga and NASDAQ OMX Tallinn, when securities market
intermediary from one of the Baltic countries trades in another stock exchange
except in the domestic one.
Risk Management
Liquidity risk is defined as a probability that the
securities transfer and the settlement may not take place due to the lack of
funds in the participant’s settlement account and/or the lack of securities in
the participant’s general securities account. The securities shortage discovery
and warning system is used by the SSS to manage the liquidity risk.
The funds used for settlement are located in the accounts
held in the Bank of Lithuania to secure the system participants against losses
that may arise in case of a bankruptcy of a settlement intermediary that is a
commercial bank or any other legal entity.
Credit risk consists of two components: settlement risk and
replacement cost risk.
The settlement risk, which is defined as a probability that a
counterparty to a transaction upon the transfer securities/funds to the other
counterparty to the transaction may not receive funds/securities from the other
counterparty. The DvP principle is applied in the SSS to manage the settlement
risk.
The replacement cost risk is defined as a probability that a
transaction may be cancelled due to the failure of one counterparty to the
transaction. Consequently, the
other counterparty may have to repeat the transaction and pay according to the
current market price that may be different from the price of the original
transaction leading to a situation in which the participant may incur losses.
To manage replacement cost risk in the system the
Guarantee Fund of the NASDAQ OMX Vilnius is used according to the agreement with
the stock exchange to ensure that the Exchange central market transactions are
final.
To manage operational risk, which is defined as a probability
that system participants may suffer an unexpected loss due to inappropriate
internal control processes or their absence, staff errors and/or illegal actions
and information system failures, the following measures are foreseen in the
system:
1. technical measures protecting
system components and equipment from natural disasters, physical impact on
premises and unauthorised access to the data and equipment have been
implemented;
2. duplication and storing of the
data.
If case the main system is interrupted, the backup system
starts its operation.
System Indicators
|
2004 |
2005 |
2006 |
2007 |
2008 |
2009 |
|
Value of securities (LTL millions) |
26,448 |
34,811 |
41,911 |
44,524 |
33,108 |
36,136 |
|
Equity |
22,246 |
29,626
|
36,915
|
38,386 |
24,826 |
27,865 |
|
Bonds |
3,899
|
4,208 |
3,954 |
5,427 |
6,879 |
6,784
|
|
Short-term papers |
303 |
977 |
1,040 |
711 |
1,403 |
1,487 |
|
Other |
0 |
0 |
2 |
0 |
0 |
0 |
|
Number of transactions (thousands) |
107 |
160 |
161 |
281 |
268 |
266 |
|
DvP
|
92 |
148 |
152 |
259 |
245 |
244 |
|
FoP
|
15 |
12 |
9 |
22 |
23 |
22 |
|
Value of transactions (LTL millions) |
9,585 |
10,768 |
20,427 |
14,253 |
17,491 |
14,054 |
|
DvP
|
3,769 |
4,137 |
7,356 |
4,422 |
1,683 |
1,792 |
|
FoP
|
5,816 |
6,631 |
13,071 |
9,831 |
15,808 |
12,262 |
Source: the Bank of Lithuania.
