The Lithuanian securities market and the role of the Depository
Securities - the means of financing issued in a series, evidencing participation in share capital or (and) the rights arising from credit relations, and granting the right to receive dividends, interest or other income. Types of securities - shares, bonds, Government securities, saving notes, rights etc. Details in -
The Republic of Lithuania Law on Securities
and The Republic of Lithuania Law on Companies.
Securities trading may be primary (an offer made to acquire securities at the time of their issue and their transfer to the ownership of investors) and secondary (an offer to acquire outstanding securities as well as their transfer to other investors).
Shares and bonds of public companies and Government securities can be offered and traded by addressing the general public and (or) more than 100 persons (public trading in securities).
The breakdown by place of transaction distinguishes between the stock exchange securities trading and over-the-counter (OTC) securities trading.
The Lithuanian securities market infrastructure consists of:
- NASDAQ OMX Vilnius - a public company, founded for the purpose of concentrating demand and supply of securities, and establishing a possibility for all market participants via intermediaries of public trading to effectively conclude transactions at a price, which reflects the actual demand and supply in the securities market.
- Intermediaries of public trading - financial brokerage firms or specialized financial brokerage units of banks (further - FBFs) and investment management and consulting firms. Depending on the type and category of the firm, they:
- buy or sell securities in their own name and on their own account, or in the name of the clients and on client account,
- provide direct consultations to investors on the issues concerning investment in securities and securities prices,
- manage securities portfolios of their clients,
- open securities and cash accounts for their clients and are responsible for the proof of client's ownership to securities.
An Intermediary of public trading that holds (keeps in custody) the client's securities and/or cash, which comprise the subject of the transaction, but does not execute the client's buy-sell orders is called a securities and/or cash custodian.
- Central Securities Depository of Lithuania (CSDL or Central Depository)
- Clearing bank - the Bank of Lithuania's payment system LITAS that guarantees execution of DVP settlement of transactions in securities between FBFs and banks according to settlement instructions received from the Central Depository. The Securities Settlement System of the Central Depository and the Clearing bank ensure the DVP (Delivery versus Payment) principle.
- Issuers - natural or legal persons (including the Ministry of Finance and the Bank of Lithuania), who offer or issue securities in their own name with the purpose of attracting free funds of investors.
- Investors - natural or legal persons who possess by the right of ownership at least one stock in any company.
- Clients - legal persons who use the services rendered by FBFs when buying or selling securities on the Stock Exchange or in the OTC market, get consultations on issues concerning investment, authorize brokers to keep and manage their securities portfolio and hold securities accounts opened in financial brokerage firms.
- Bank of Lithuania (BoL) - supervisory institution performing the supervision of markets in financial instruments and other functions in accordance with the Law on Markets in Financial Instruments and other legal acts.
Securities registration. Any issuer (including a foreign one) must first of all get permission from the BoL for initial public offering of securities.
In order to get such a permission the issuer must provide a securities issue prospectus, memorandum or program. Having obtained the permission, the issuer or his agent - an intermediary of public trading - applies to the Central Depository for the allocation of ISIN code to the securities issue (provided that the newly offered issue is not going to be added to the existing issue of outstanding securities).
After registering an increase of the authorized capital with the Register of Legal Persons, the account manager is required to submit the documents necessary for the opening of a general securities account with the Central Depository.
In certain cases issuers can register securities issues meant for private allotment directly with the Central Depository, which must inform the BoL about such issues within 10 days.
Having registered the issue with the Central Depository, i.e. after opening of (or complimenting) the securities issue registration accounts and general securities accounts of account managers, the securities account managers must credit these securities to the clients' personal securities accounts.
It should be noted that all securities in Lithuania are book-entry, i.e. they are recorded by entries in the personal securities accounts opened in the name of the securities owners.
The entry in the securities account serves as a direct proof of the right of ownership to the securities specified thereby. The securities accounts may be managed manually in paper form or by computer.