Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	Currently CSDL operates DvP based on model 3, 1 batch processing at the end of the processing cycle (3 p.m.). DVP model 1 should be implemented in 2 years. CSDL is working on a strategic project with the Bank of Lithuania (BL) on mutual implementation of RTGS and Designated Time Settlement System (several batch processings per day).
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	T+3 cycle is used for central market trades in securities and corporate bonds, and T+1 cycle is applied for Government securities. For direct trades with all types of securities, OTC trades and repos, the cycles from T+1 to T+5 are used.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	T+2 and shorter cycles can easily be achieved for domestic market participants. For trades with foreign investors, such cycles can be safely implemented if strong local custody banks are used.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	For SE central market trades the electronic trading system automatically produces a matched (confirmed) trade between the counterparties. For direct and OTC trades matching is achieved on T day for direct participants. SE and CSDL do not have any indirect participants because all brokers have easy access to direct membership in SE, CSDL and even in the Clearing Bank (BL).
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	Lithuanian securities market is fully dematerialised from the very beginning of its operation for all types of securities.
6.	Does the market allow partial settlements?	Partial settlement is not allowed.
7.	Can the depository accommodate same day turnarounds?	Same day turnarounds can be easily accommodated after the implementation of the project with the BL (see R 5q1). Currently all turnaround trades can also be accommodated but they should be processed in one batch during the same settlement day with debt and credit entries in the same securities account.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.