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Official translation REPUBLIC OF LITHUANIA LAW ON SETTLEMENT FINALITY IN PAYMENT AND SECURITIES SETTLEMENT SYSTEMS 5 Jun

Official translation REPUBLIC OF LITHUANIA LAW ON SETTLEMENT FINALITY IN PAYMENT AND SECURITIES SETTLEMENT SYSTEMS 5 June 2003 No. IX-1597 Vilnius (As last amended on 20 April 2006 - No. X-563) CHAPTER I GENERAL PROVISIONS Article 1. Purpose of the Law 1. The purpose of this Law is the following: 1) to establish the legal foundation for a safe and reliable operation of payment and securities settlement systems, to reduce systemic risk and to secure to the extent possible the interests of participants of the said systems when operations of one of system participants are suspended or bankruptcy proceedings are initiated against it; 2) to secure the interests of the Bank of Lithuania, a central bank of a Member State and the European Central Bank in performing central bank operations. 2. This Law is meant to ensure the enforcement of the European Union legal act indicated in the Annex to this Law. Article 2. The Main Definitions Used in this Law 1. “Responsible institution” means an institution designated by a legal act of the Republic of Lithuania or a Member State which is notified about the suspension of operations of a system participant or the initiation of bankruptcy proceedings against it and which is responsible for notifications to respective institutions of other Member States. 2. “Settlement account” means an account maintained by the Bank of Lithuania, a central bank of a Member State, the European Central Bank, a settlement agent or a central counterparty which used to hold funds or securities of a system participant and to perform settlements between system participants. 3. “Settlement agent” means a legal entity that opens and maintains settlement accounts of institutions and (

  1. or)a central counterparty through which transfer orders within a system are settled or funds are transferred according to payment instructions and which may extend credit to those institutions or central counterparties for settlement purposes. 4. “Initiation of bankruptcy proceedings” means a moment when a court or any other authorised institution of the Republic of Lithuania, a Member State or a third state takes a decision to institute a bankruptcy case against a system participant or initiates other similar proceedings. 5. “Subsidiary company” means a company defined in the Law on Securities Market. 6. “Financial assets” means assets defined in the Law on Financial Institutions. 7. “Collateral” means financial assets (including money) provided under a pledge, a repurchase or similar agreement for the purpose of securing rights and obligations potentially arising in connection with the use of a system, or provided to the Bank of Lithuania, the central banks of the Member States or to the European Central Bank as a security for performing an obligation to these banks. Financial collateral according to the Law on Financial Collateral Arrangements is also considered a collateral under this Law. 8. “Netting” means the conversion into one net claim or one net obligation of claims and obligations resulting from transfer orders or payment instructions which a system participant either issues to, or receives from, one or more other system participants with the result that only one net obligation can be owed or one net claim can be demanded by the system participant. 9. “Institution” means an institution participating in a system and responsible for performing obligations according to transfer orders or payment instructions within this system: 1) the Bank of Lithuania, a central bank of a Member State or the European Central Bank; 2) a credit institution licensed in the Republic of Lithuania or a Member State; 3) a financial brokerage company licensed in the Republic of Lithuania or a Member State; 4) a public institution or enterprise the settlement of obligations of which is guaranteed by the state; 5) any legal entity whose head office is not in the Republic of Lithuania or a Member State and whose activities are similar to the activities of credit institutions or financial brokerage companies licensed in the Republic of Lithuania or the Member States. 10. “Clearing house” means a legal entity responsible for the calculation of the net securities and cash balances of institutions, a central counterparty and (
  2. or)a settlement agent. 11. “Payment instruction” means instruction to transfer funds submitted in writing or electronically. 12. “Payment system” means a system operating on the basis of an agreement between three or more system participants (excluding a settlement agent, a central counterparty or a clearing house) that has common rules and a standardised procedure for executing payment instructions between system participants. 13. “Suspension of operations” means a decision taken according to the law of the Republic of Lithuania, a Member State or a third state, which is related to a prohibition for a system participant to dispose of funds or securities held in a settlement account or the application of temporary judicial protective measures or enforcement measures by the supervisory institution to a system participant resulting in the suspension or limitation of securities transfer orders and (
  3. or)payment instructions. 14. “Central counterparty” means a legal entity which is interposed between the institutions in a system and which acts as a counterparty to all institutions and which, in case any of these institutions does not perform obligations related to the execution of transfer orders or payment instructions, assumes its obligations. 15. “Transfer order” means instruction of a participant of the securities settlement system submitted in writing or electronically to transfer securities by making respective book entries in securities accounts or otherwise to transfer the title to securities or ownership rights related to them. 16. “Supervisory institution” means institution of the Republic of Lithuania or a Member State that performs the supervision of institutions or enterprises indicated in Item 2 and Item 3 of Part 9 of this Article. 17. “System” means a payment or securities settlement system the participants of which have chosen the law of the Republic of Lithuania or a Member State for the rights and obligations resulting from the participation in the system (also in the case of bankruptcy and (
  4. or)suspension of operations of a participant). System participants may choose the law of the Republic of Lithuania only in the case when at least one system participant has its head office in the Republic of Lithuania. 18. “System participant” means an institution, a central counterparty, a settlement agent or a clearing house. The system rules may specify that the same participant shall perform the functions of a central counterparty, a settlement agent and a clearing house or the functions of several of the said entities. 19. “System operator” means a legal entity responsible for system operation in accordance with the system rules. A system participant may also perform the said functions. 20. “Member State” means a member state of the European Union or a state that belongs to the European Economic Area (EEA), excluding the Republic of Lithuania. 21. “Securities” means securities and investment instruments defined in paragraphs 1 and Part 2 of Article 3 of the Law On Securities Market, and notes issued according to the Law On Bills of Exchange and Notes. 22. “Securities settlement system” means a system operating on the basis of an agreement between three or more system participants (excluding a settlement agent, a central counterparty or a clearing house) that has common rules and a standardised procedure for executing securities transfer orders between system participants. Article 3. Scope of the Law 1. Provisions of this Law shall apply to: 1) the system the participants of which have chosen the law of the Republic of Lithuania for the rights and obligations resulting from the participation in the system which is operated by the Bank of Lithuania and which is registered in accordance with the procedure established in Article 5 of this Law, the participants of such system, collateral security for the rights and obligations of participants potentially resulting from the use of the system and the collateral provided to the Bank of Lithuania, the central banks of the Member States and the European Central Bank as a security for performing an obligation according to their operations; 2) participants registered in the Republic of Lithuania and participating in the system, whose rights and obligations, resulting from the participation in the system, are subject to the law of a Member State. CHAPTER II PAYMENT AND SECURITIES SETTLEMENT SYSTEMS Article 4. System requirements 1. Each system must have a system operator responsible for safe and effective system operation. 2. Only the Bank of Lithuania, the Central Securities Depository of Lithuania, a financial institution of a Member State or a subsidiary company of such institution or an operator of a system where the rights and obligations of participants arising from the participation in the system fall under the law of a Member State may be a system operator. 3. The system must be regulated by a legal act describing the procedure of its operation (hereinafter referred to as “system rules”) that establishes the following: 1) the procedure for accepting and removing participants; 2) rights and obligations of system participants resulting from the participation in the system; 3) the moment of entering a transfer order or a payment instruction into the system; 4) the moment from which a transfer order or a payment instruction entered into the system may not be revoked by a system participant or a third person; 5) the procedure for executing transfer orders or payment instructions; 6) credit, liquidity and operational risk management measures; 7) the plan of continuity of operations. Article 5. System Registration 1. The systems the participants of which have chosen the law of the Republic of Lithuania for the rights and obligations resulting from the participation in the system, excluding the systems operated by the Bank of Lithuania, must be registered at the Bank of Lithuania before starting their operation. 2. A system may be registered if the system operator applies in writing to the Bank of Lithuania and submits the following: 1) establishment documents, a registration certificate or other documents that confirm the right to engage in the activity of a system operator; 2) the system rules; 3) copies of the agreements concluded by system participants in connection with the participation in the system or the standard terms of agreements and the copies of agreements of the system operator with a central counterparty, a settlement agent or a clearing house; 4) the list of system participants indicating the name of each participant, its head office and the particulars of its licence if it is necessary for the activities of a system participant; 5) other documents additionally required by the Bank of Lithuania that are necessary for making a decision by the Bank of Lithuania. 3. Upon receiving the documents specified in paragraph 2 of this Article, the Bank of Lithuania shall investigate them within 3 months and notify in writing the system operator about the decision made. The Bank of Lithuania shall have a right to require the system operator to submit additional information necessary for establishing the systemic risk and to explain or amend the data submitted. The Bank of Lithuania shall have a right to refuse registering the system, if: 1) the system operator refuses to submit the documents laid down in paragraph 2 of this Article; 2) the system rules contradict the laws of the Republic of Lithuania; 3) it may be judged on the basis of the documents submitted in accordance with paragraph 2 of this Article that a safe and effective system operation will not be ensured. 4. The Bank of Lithuania shall have a right to cancel the registration of the system, if: 1) the system operator has not notified the Bank of Lithuania about the changes of system participants, as specified in paragraph 1 of Article 6, and the changes of the system rules and the agreements concluded by system participants in connection with the participation in the system, as specified in paragraph 2 of Article 6. 2) it may be judged on the basis of the information submitted by the system operator or available at the Bank of Lithuania that a safe and effective system operation is not being ensured. 5. The decision of the Bank of Lithuania to refuse registering the system or to cancel its registration must be motivated. Upon eliminating the shortcomings indicated the system operator may submit documents for a new registration of the system. Newly submitted documents shall be investigated according to the general procedure. The decision to refuse registering the system or to cancel its registration may be appealed against in court in accordance with the procedure established by the Law on Administrative Proceedings. 6. System registration shall be termless. The Bank of Lithuania shall include the systems into the official list of registered systems. 7. The Bank of Lithuania must publish in the supplement Informaciniai pranešimai to the official gazette Valstybes žinios the lists of participants of the systems registered at the Bank of Lithuania and the systems operated by the Bank of Lithuania itself (the name of a participant, its head office), as well as the amendments thereof. 8. On the request of each interested person, the institutions must notify about the systems in which they participate and to submit information about the rules of such systems. Article 6. Regular Disclosure of Information 1. The system operator must, within 3 business days, notify in writing the Bank of Lithuania about the changes of system participants or their data specified in subparagraph 4 of paragraph 2 of Article 5. 2. The system operator must, within 7 business days, notify in writing the Bank of Lithuania about the changes made to the system rules, the agreements concluded by system participants in connection with the participation in the system or the standard terms of agreements. 3. Within 3 business days from taking the decision to discontinue the operation of the system, the system operator must notify the Bank of Lithuania about it. 4. The system operator must submit to the Bank of Lithuania other information requested by it in connection with the system or its operation. CHAPTER III RESTRICTION OF THE EFFECTS OF THE SUSPENSION OF OPERATIONS AND BANKRUPTCY PROCEEDINGS Article 7. Netting 1. Transfer orders, payment instructions and their netting shall be valid and, even in the event of suspension of operations or bankruptcy proceedings against a participant, may not be disputed by third parties, if transfer orders and (
  5. or)payment instructions were entered into the system before the suspension of operations of the system participant and (
  6. or)the initiation of bankruptcy proceedings against it. 2. At the day of suspension of operations and (
  7. or)the initiation of bankruptcy proceedings, the funds and (
  8. or)securities available in the settlement account of the participant shall be used for satisfying obligations related to the system that appeared before the suspension of operations of the participant and (
  9. or)the initiation of bankruptcy proceedings against it. The sequence defined in paragraph 2 of Article 6.923 of the Civil Code, when the funds in the account are insufficient to satisfy all claims presented, shall be applied only after the obligations of the participant in connection with its participation in the system are satisfied. 3. The system operator, the settlement agent, the central counterparty or the clearing house must, upon being notified that the operations of a system participant are suspended and (
  10. or)bankruptcy proceedings are initiated against it, take all measures possible to prevent transfer orders and (
  11. or)payment instructions submitted to the system by that participant from being entered into the system. 4. If transfer orders and (
  12. or)payment instructions have been entered into the system after the moment when the operations of a system participant were suspended and (
  13. or)bankruptcy proceedings were initiated against it and these orders and instructions are executed at the day of the suspension of operations and (
  14. or)the initiation of bankruptcy proceedings, they shall be valid and may not be disputed by third parties only if, after the time of settlement, the system operator, the settlement agent, the central counterparty or the clearing house can prove that they have not been aware, nor should have been aware, of the suspension of operations and (
  15. or)the initiation of bankruptcy proceedings. 5. If a transaction concluded prior to the suspension of operations and (
  16. or)the initiation of bankruptcy proceedings is recognised as invalid under the laws of the Republic of Lithuania or the laws regulating the bankruptcy of a system participant, or on the other grounds, this shall not cancel transfer orders, payment instructions and their netting, and may affect the mutual rights and obligations of a payer and a recipient, but not the system. 6. A system participant or third parties may not revoke a transfer order and (
  17. or)a payment instruction from the moment defined by the system rules. Article 8. Bankruptcy of a Participant or the Suspension of Its Operations 1. If the court initiated bankruptcy proceedings against a participant registered in the Republic of Lithuania, it must immediately notify the Bank of Lithuania about it. The decision regarding the opening of a bankruptcy case must include the calendar date and hour of taking the decision. 2. The duty to notify the Bank of Lithuania, as specified in paragraph 1 of this Article, shall also be carried by a court or other institution that took a decision regarding the suspension of operations of a system participant registered in the Republic of Lithuania. 3. The Bank of Lithuania must, upon receiving the notification specified in paragraph 1 or paragraph 2 of this Article, or the notification from the responsible institution of a Member State about the suspension of operations of a participant of the system the participants of which have chosen the law of the Republic of Lithuania for the rights and obligations resulting from the participation in the system, or bankruptcy proceedings initiated against it, immediately notify about it the operator of that system. 4. Bankruptcy proceedings shall not have an effect on performing the rights and obligations of a system participant arising from its participation in the system before the initiation of bankruptcy proceedings. 5. If suspension of operations is applied and (
  18. or)bankruptcy proceedings are initiated against a participant registered in the Republic of Lithuania that participates in the system where the rights and obligations of participants arising from the participation in the system fall under the law of a Member State, then the law of that Member State shall be applied to its rights and obligations arising from the participation in that system. 6. If bankruptcy proceedings are initiated against a participant that participates in the system the participants of which have chosen the law of the Republic of Lithuania for the rights and obligations resulting from the participation in the system and (
  19. or)operations of such participant are suspended, then the law of the Republic of Lithuania shall be applied to the rights and obligations arising from its participation in the system. Article 9. Rights to Collateral 1. If a system participant or a transaction counterparty of the Bank of Lithuania, the central banks of the Member States and the European Central Bank does not fulfil the obligation secured by a collateral in a timely manner, other system participant or the said banks shall have a right to take over the collateral and to realise it in accordance with the procedure set forth by legal acts. This right shall be applied notwithstanding the suspension of operations and (
  20. or)bankruptcy proceedings initiated against a system participant or a transaction counterparty of the Bank of Lithuania, the central banks of the Member States and the European Central Bank. Upon satisfying the claims secured by a collateral, the remaining amount shall be paid to the provider of the collateral or allocated for satisfying the claims of other creditors. 2. Where securities (including rights in securities) are provided as collateral security to system participants or the Bank of Lithuania, the central banks of the Member States or the European Central Bank, and their right or that of any entities acting on their behalf with respect to the securities is legally recorded on a register, a respective account or centralised deposit system located in a Member State, then the rights of such entities as holders of collateral security in relation to those securities shall be determined by the law of that Member State. 3. Where securities (including rights in securities) are provided as collateral security to system participants or the Bank of Lithuania, the central banks of the Member States or the European Central Bank, and their right or that of any entities acting on their behalf with respect to the securities is legally recorded on a register, a respective account or centralised deposit system located in the Republic of Lithuania, then the rights of such entities as holders of collateral security in relation to those securities shall be determined by the law of the Republic of Lithuania. CHAPTER IV FINAL PROVISIONS Article 10. Notification to Responsible Institutions of the Member States and the Commission of the European Communities 1. The Bank of Lithuania must provide to the Commission of the European Communities the information on the systems registered at the Bank of Lithuania in accordance with this Law and the systems operated by the Bank of Lithuania itself and to indicate that it is the responsible institution in Lithuania, specified in this Law. 2. If operations are suspended or bankruptcy proceedings are initiated against a registered in the Republic of Lithuania participant of a system in which the rights and obligations of participants arising from the participation in the system fall under the law of a Member State, the Bank of Lithuania must, upon receiving the notification specified in paragraph 1 or paragraph 2 of Article 8 of this Law, immediately notify about it the responsible institution of that Member State. 3. A registered in the Republic of Lithuania participant of a system in which the rights and obligations of participants arising from the participation in the system fall under the law of a Member State, must notify the Bank of Lithuania about its participation in that system and its cancellation or suspension. 4. The Bank of Lithuania must immediately notify the responsible institution of a Member State about a participant registered in that Member State that participates in the system where the rights and obligations of participants arising from the participation in the system fall under the law of the Republic of Lithuania. Article 11. Entry into Force of the Law 1. This Law, except for Article 10, shall enter into force on 1 July 2003. 2. Article 10 of this Law shall enter into force from the day of Lithuania’s accession to the European Union. Article 12. Implementation of the Law 1. The Bank of Lithuania shall, before the day of entry of this Law into force, adopt legal acts required for implementing the functions of the Bank of Lithuania provided for in this Law. 2. No later than in 6 months after the day of entry of this Law into force, operators of systems in which the rights and obligations of participants arising from the participation in the system fall under the law of the Republic of Lithuania must address the Bank of Lithuania regarding the registration of the system. I promulgate this Law passed by the Seimas of the Republic of Lithuania. PRESIDENT OF THE REPUBLIC ROLANDAS PAKSAS Annex to Law of the Republic of Lithuania No. IX-1597 of 5 June 2003 LEGAL ACT OF THE EUROPEAN UNION BEING IMPLEMENTED Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on Settlement Finality in Payment and Securities Settlement Systems.

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