Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 4

Each market must have clear rules assuring investor protection by safeguarding participants from the financial risks of failed settlement and ensuring that listed companies are required to follow sound policies on corporate governance, transfer of economic benefits and shareholder rights.

1.	Does the depository or the market have securities lending and borrowing schemes in place, and are these open to all market participants and their settlement agents?	In 2000 the Securities Commission approved the Rules on Lending and Borrowing of Securities and Cash. CSDL facilitates direct lending/borrowing of securities between its participants if needed before settlement or in exceptional cases even in the middle of settlement process, seeking to prevent securities default. Brokers can give cash loans to their clients only for purposes of securities purchases.
2.	Does the settlement system mark fail trades to market and collect margin from the failing counterparty to protect the innocent counterpart's interest?	Settlement of all securities and cash default cases was executed on the next settlement day (S+1). There were only 15 such cases during the last 12 months. Due to a short delay of fail trades and a small number of defaults the mark-to-market and margining of fail trades is not crucial for the market.
3.	Does the market operate a guarantee fund or have an equivalent procedure to protect against the cost of failed transactions; and which sectors of the market does it cover?	The guarantee fund (GF) is managed by SE and accumulated by its members. GF can cover unsettled obligations of SE central market transactions: in case of cash default which is not solved on S+1 day (1 case in the history of SE) in case of a securities default which is not solved within the nearest 3 trading sessions and the buy-in procedure has failed.
4.	Are the stock transfer agents (share registrars) linked electronically to the depository?	Brokers or issuers themselves perform the role of transfer agent or registrar. Brokers who usually keep the accounts of the most liquid securities are linked electronically to the Depository.
5.	Is there a legal maximum time period to complete ownership transfers in the books of the issuer? If so, does market practice adhere to the deadline?	The issuer like any other account manager (broker) must make entries in the accounts immediately (within 1 working day) after all required primary documents for the transaction have been presented to him. CSDL inspection reveals that in most cases such a deadline is complied with.
6.	Are investors entitled to all benefits arising on a security from the point of purchase; and how are any rules enforced?	From the moment of purchase the shareholders are entitled to all property and non-property rights defined in Company Law. The voting rights exceeding a respective threshold are suspended when an investor who acquires a block of shares (1/10, 1/5, 1/4, 1/3, 1/2, 2/3, ¾) does not inform (it must be done in 7 days) the issuer and the Securities Commission (SC). All votes are suspended for the investor who acquires more than 50% of the company from the moment of such acquisition until the registration of the tender offer with the SC. Those rules are enforced by usual market practice, while in exceptional cases by the courts.
7.	Is proxy voting permissible in the market and can such proxies be lodged by post or other remote delivery method?	Company Law allows the shareholders to authorise another person to vote for him as his proxy at the general meeting and perform other legal acts. The proxy of natural person must be certified by a notary, the proxy of legal person must be certified by the manager's signature and the seal. Foreign investors usually lodge the duly authorised proxies by post.
8.	Are there binding rules in the market stating the minimum and maximum lapsed time between the announcement and completion of key events, including registration, the calling of shareholder meetings, the payment of dividends or interest, rights issues, tender offers and other voluntary corporate actions?	Company Law determines the minimum and maximum lapsed time for the calling of shareholder meetings, supplementing of its agenda, payment of dividends, increase or reduction of the authorised capital, exercising of pre-emption rights in subscription of new shares. Other key events are regulated by SC Rules (rights issues, tender offer, registration, payment of interest etc.)
9.	Are all voluntary corporate actions advised through a central mechanism assuring consistent information to all investors?	Material events (Corporate & Stock events) are notified through the information system of SE. Stock events, which have an impact on securities accounts, are notified through CSDL web site. Pursuant to SC Rules, brokers in their turn must notify their clients about all material events.
10.	Is information on corporate actions available electronically, and is the minimum lapsed time for responding to such actions sufficient to enable all domestic and foreign investors to respond in a timely and considered fashion?	Information (in Lithuanian and English) on corporate actions and stock events is available on SE's website (Stock events) and on CSDL's website (Stock events). According to SC Rules, upon the receipt of the notice on corporate action from the issuer, SE must announce about it within 1 hour via SE information system, while CSDL must announce publicly the notices on stock events after all the necessary documents have been presented by the issuer concerned no later than 2 days prior to their expected beginning. Those requirements enable brokers to timely inform their clients who can respond in a timely and considered fashion.