Latvian Central Depository Regulation No. 5 On DVP Settlements for Over-the-Counter Transactions APPROVED by the Latvian Central Depository Council Meeting on 27 October 2006 AMENDMENTS APPROVED At the Meeting of Management Board 11.02.2009.; 11.07.2012.; 14.12.2012; 19.11.2013 (Unofficial translation)
Latvian Central Depository (hereinafter referred to as LCD) Regulation No. 5 On DVP Settlements for Over-the-Counter Transactions (hereinafter referred to as Regulation) has been drafted pursuant to the provisions of Section 94, Paragraph 4, Clause 2 of the Financial Instrument Market Law (hereinafter referred to as the Law). 1. Terms used in the Regulation 1.1. The terms and concepts used in the present Regulation that have not been defined correspond to the terms and abbreviations used in the Law, LCD Regulation No. 1 On Members of the LCD, LCD Regulation No. 2 On Book-entry of Financial Instruments and Execution of Corporate Actions and LCD Regulation No. 3 On Accounting of Financial Instruments. 1.2. Over-the-counter (OTC) transaction a transaction entered outside the trading system of NASDAQ OMX Riga or outside a trading system of another market with LCD accounted financial instruments. 1.3. LCD member a LCD member who has achieved the status of a member in accordance with the procedure provided for in the LCD Regulations, as well as a foreign central depository with whom the LCD has concluded a contract on opening of financial instrument account and making of settlements. 1.4. T day a day when an over-the-counter transaction has been entered. 1.5. S day a day when financial instrument and related money settlements are made. 1.6. Intended settlement date the date which the buyer of financial instruments and the seller of financial instruments have agreed for settlement and that has been specified in the DVP buy/sell settlement order. 1.7. TARGET2-Latvija a component system of the European automated real-time gross settlement system TARGET2. 1.8. Cash account a LCD participant s cash account in the TARGET2-Latvija system. 1.9. LCD account LCD cash account in the TARGET2-Latvija system for the purpose of providing DVP settlement in the procedure established in these Rules. Cash funds on the account are held by LCD, but not possessed by it, and may be used only in the procedure established in these Rules. 2. General provisions 2.1. The present Regulation stipulates a procedure, in accordance with which the LCD shall organise settlements for over-the-counter transactions in case, if related money settlements are made in euro. 2.2. Settlements for over-the-counter transactions are made as DVP settlements for each transaction separately (according to the gross principle). 2.3. Settlement period for DVP settlements made by the LCD for each transaction separately in respect to over-the-counter transactions may be from T+0 till
T+360. LCD members shall state a specific settlement period by submitting a DVP settlement order to the LCD. 2.4 In a DVP settlement order for an OTC transaction, the intended settlement date may be specified as a date preceding the submission of the transfer order to LCD (past date), as a date following the submission of the transfer order to LCD (future date) or the same as the date when the transfer order is submitted (present date), simultaneously taking into account that the date may not be earlier than the financial instruments registration date within the LCD accounting system and not later than the financial instruments deletion date from the LCD accounting system. 2.5 Where the intended settlement date specified in the DVP settlement order is the date when the DVP settlement order is submitted to LCD (present date) or a date following the submission of the DVP settlement order to LCD (future date), the S day for the DVP settlement order will coincide with the intended settlement date specified in the DVP settlement order. 2.6 Where the intended settlement date specified in the DVP settlement order is preceding the submission of the DVP settlement order to LCD (past date), the S date for the DVP settlement order is the date when the DVP settlement order is submitted to LCD. 2.7 The date of T day may not be after the intended settlement date. 2.8 Settlement of the cash leg for OTC transactions may be performed as follows: 2.8.1 directly, where the LCD participant is a TRAGET2-Latvija participant and has authorized LCD to debit the LCD participant s cash account for financial instrument settlement purposes in the procedure established by the Rules; 2.8.2 indirectly, where the LCD participant, for settlement purposes, has entered into a contract with another LCD participant who complies with the requirements set out on Clause 2.8.1 (hereinafter LCD-authorized participant). 2.9 Data exchange between the LCD and the LCD members shall be made electronically in accordance with the procedure provided for in LCD Regulation No. 11 On Data Exchange. 2.10 DVP settlement order shall be considered as entered into the settlement system of LCD and shall be irrevocable from the moment by initiating the execution of DVP settlement order by LCD. 2.11 DVP settlement shall be final as of the moment when the financial instruments are transferred to the correspondent account with the LCD of the LCD participant with which the receiver of financial instruments has opened a financial instruments account. 3. Procedure for submission of DVP settlement orders 3.1 An initiator of DVP settlements may be a buyer or seller of financial instruments by submitted a DVP settlement order to the LCD member: 3.1.1. with whom he has opened a financial instrument account;
3.1.2. by the agency of whom the transaction has been entered. 3.2. When accepting a DVP settlement order for execution, the LCD member shall be responsible to: 3.2.1. verify the identity of a submitter of a DVP settlement order; 3.2.2. verify whether the seller will ensure sufficient quantity of financial instruments to execute a DVP settlement sales order; 3.2.3. verify whether the buyer will ensure sufficient amount of funds to execute a DVP settlement purchase order i; 3.2.4. grant a unique number of a DVP settlement order, which shall be used further for identification of the same in the LCD settlement system; 3.2.5. issue a confirmation about receipt of a DVP settlement order for execution, to the submitter of the DVP settlement order. 3.3 After acceptance of a DVP settlement order for execution, the LCD member shall prepare and send the LCD settlement order immediately, unless otherwise provided in the DVP settlement order, in accordance with the procedure provided for in LCD Regulation No. 11 On Data Exchange. 3.4 DVP settlement order (hereinafter also settlement order) shall be submitted to LCD for execution also if both the buyer and the seller of financial instruments have opened their financial instruments accounts with one and the same LCD participant. In such a case, the LCD member with who the buyer and the seller of financial instruments have opened financial instrument accounts shall be liable for execution of the related money settlements, unless another LCD member has not been indicated as a performer of money settlements. 3.5 In case, if the LCD has received a settlement purchase order as the first order, the LCD shall send a request for a settlement sales order to the LCD member who is indicated as a settlement selling party, immediately. 3.6 In case, if the LCD has received a settlement sales order as the first order, the LCD shall send a request for a settlement purchase order to the LCD member who is indicated as a settlement purchasing party, immediately. 3.7 Where a settlement order to LCD is submitted by a LCD participant who provides settlement with the intermediation of an authorized LCD participant, or by a foreign central depository, the LCD participant, who will ensure cash settlements, must be indicated in the settlement order. 3.8 In case, if a settlement order is submitted by a LCD member who will ensure financial instrument settlements, he may indicate another LCD member as a performer of money settlements in the settlement order or indicate an account of the client, which shall be used for execution of a respective settlement order. In case, if a LCD member (performer of financial instrument settlements) has not indicated any performer of money settlements, the LCD shall indicate the LCD member who has submitted the settlement order as a performer of money settlements, by default. 3.9 The LCD shall not register a settlement order and shall not send a respective notification to a submitted of a settlement order in the following cases:
3.9.1. if information given in a submitted settlement order contains errors or is incomplete; 3.9.2. if information given in a purchase and sales settlement order submitted for one transaction differs. 4. Procedure for execution of settlement orders 4.1 Settlements for over-the-counter transactions shall be made each working day from 9:00 till 19:00, pursuant to the rules given below. 4.2 Settlements shall be executed according to the sequence of settlement order submission to the LCD. The LCD shall inform, according to the course of settlement order execution, the LCD members who are involved in the settlements in respect to a status of the settlements, on a regular basis, and by sending a corresponding notification. 4.3 The LCD shall verify and review, immediately upon receipt of settlement orders (purchase and sales), whether a confirmation (accept to make settlements) is required for the over-the-counter transaction for which the settlement order has been submitted. 4.4 The LCD shall request a confirmation from the LCD member who has been indicated as a performer of settlements, in the settlement order, in the following cases: 4.4.1. if a settlement order has been submitted by the LCD member, by the agency of whom the over-the-counter transaction is entered however another LCD member has been indicated as a performer of settlements; 4.4.2. if, upon submission of a settlement order to the LCD, it is indicated that a confirmation must be received from the performer of settlements of the LCD member. 4.5 Upon receipt of purchase and sales orders, as well as, if necessary, confirmations from a LCD member with whom a buyer and/or seller has opened a financial instrument account, the LCD shall link them and shall verify if the following is matching therein: 4.5.1. parties involved in the settlements; 4.5.2. ISIN code of financial instruments involved in the settlements; 4.5.3. quantity of financial instruments involved in the settlements; 4.5.4. value of the settlements in terms of money, and currency of the settlements; 4.5.5. intended settlement date; 4.5.6. transaction date. 4.6 LCD shall start executing the settlement order immediately provided that it has received the information referred to in Item 4.5 of the Regulation and the intended settlement date specified in the settlement order has set in. Where the intended settlement date specified in the settlement order is preceding the submission of the settlement order to LCD (past date), LCD shall start executing
the settlement order immediately after having received the settlement order, provided that the information referred to in Item 4.5 of the Regulation has been received and is matching. 4.7 The member who has been indicated as a performer of financial instrument settlements shall submit a response notification (acceptance or rejection to make financial instrument settlements) to the LCD until 16:30 on the S day. 4.8 The member who has been indicated as a performer of money settlements shall submit a response notification (acceptance or rejection to make money settlements) to the LCD until 17:30 on the S day. 4.9 The member who will receive funds as a result of execution of a settlement order shall submit a notification (acceptance or rejection for receiving of funds) to the LCD until 17:30 on the S day. 4.10 Upon receipt of a confirmation, the LCD shall immediately send a notification to the LCD member, by the agency of whom the over-the-counter transaction has been entered and who ensures settlements for the over-the-counter transaction, about receipt of confirmations necessary for execution of the settlements. 4.11 The LCD shall not commence execution of the settlements and shall send a corresponding notification to the LCD member in the following cases: 4.11.1. all necessary notifications and confirmations for financial instrument settlements have not been received until 16:30 on the S day; 4.11.2. all necessary notifications and confirmations for money settlements have not been received until 17:30 on the S day; 4.11.3. information given in notifications for execution of settlements contains errors or is incomplete; 4.11.4. information given in notifications (confirmations), which have been submitted for the same transaction, is not matching. 4.12 Upon receipt of all necessary notifications and confirmations (in case, if a confirmation is required for execution of settlements), the LCD shall block immediately the quantity of financial instruments necessary for the settlements on a corresponding account in the LCD of the LCD member with whom the seller holds a financial instrument account. 4.13 After blocking of financial instruments the LCD shall, without delay however by 17.30 on the S day the latest, submit direct debit instructions to TARGET2- Latvija to transfer funds from the LCD participant s account with whom the buyer has opened a financial instruments account (unless another LCD member has been indicated in the settlement order) to the LCD account. 4.14 Where the direct debit instructions submitted in accordance with Clause 4.13 of the Rules have been executed by 17.45 on the S day, LCD shall, without delay however by 18.00 on the S day the latest, submit to TARGET2-Latvija an instruction to transfer funds from the LCD account to that LCD participant s cash account with whom the seller has opened a financial instruments account (unless another LCD member has been indicated in the settlement order). LCD shall transfer the blocked financial instruments as soon as the instruction referred to above in this Clause has been executed in TRAGET2-Latvija.
4.15 In case, if the same LCD member has been indicated as a performed of money settlements for both parties involved in the over-the-counter transaction (buyer and seller), the LCD shall transfer financial instruments to a corresponding account of the LCD member with the LCD, as indicated by the buyer of the financial instruments, immediately upon receipt of all necessary notifications and confirmations. In such cases, the LCD member who has been indicated as a performer of money settlements for both transaction parties shall be responsible for execution of the related money settlements. 4.16 Upon transfer of financial instruments to a corresponding account with the LVD of the LCD member with whom the buyer has opened a financial instrument account, the LCD shall send a notification about execution of DVP settlements to all LCD members involved in the settlement process immediately. 4.17 In case, if the LCD has not commenced execution of DVP settlements yet, it may be cancelled upon an initiative of the buyer or the seller, by sending the LCD notification about cancellation of the DVP settlement order to the respective LCD member. 4.18 Partial execution of DVP settlement orders submitted to the LCD is not permitted. In case, if the LCD has ascertained that financial instruments, funds are insufficient for execution of the DVP settlement orders, or incomplete information has been received for execution of the transactions: 4.18.1. the LCD shall postpone execution of the settlements until a moment when the deficient financial instruments, funds or necessary information is provided, unless the term stated in Item 4.13 herein has set in; 4.18.2. the LCD shall cancel the settlement order by sending a corresponding notification to the LCD members, unless the term stated in Item 4.13 herein has set in. 5. Closing provisions 5.1. The present Regulation shall take effect on 1 November 2006. 5.2. With the present Regulation coming into effect, Latvian Central Depository Regulation No. 5 On DVP Settlements for Over-the-Counter Transactions, approved by the Council of JSC Latvian Central Depository on 23 January 2004, becomes null and void. Transitional Provisions (Effective from November 20, 2013) 1. Considering the fact that euro is introduced in Latvia as of January 1, 2014, and the Bank of Latvia has introduced an extra working day for the lats settlement system on December 30, 2013, LCD on this day will provide both cash and securities settlement services, LCD Rules No. 5 On DVP Settlements for Over-the-Counter Transactions shall be applied with a consideration of the specific provisions, terms and conditions established by the present Transitional Provisions. 2. OTC settlement orders for shares, corporate debt securities and investment fund
units submitted to LCD in 2013 may not have the settlement date S later than on December 30, 2013. 3. OTC settlement orders for Latvian government debt securities submitted to LCD in 2013 may not have the settlement date S later than on December 18, 2013. 4. Settlement orders submitted to LCD after January 1, 2014 may not have the settlement date before January 1, 2014. 5. LCD shall reject all settlement orders with the settlement period incompliant with the Transitional Provisions.