The enactment of the first Company Law in 1990, which introduced public stock
companies as a type of corporate entities, entailed an urgent need for the
creation of the securities market that would be efficient, well regulated and
Development of the Lithuanian securities market began in 1992 when the National
Stock Exchange of Lithuania ("the National Stock Exchange") and the Securities
Commission of the Republic of Lithuania ("the Securities Commission") were
established. By the 30 October 1992 Resolution No. 815 the Government adopted
the Temporary Regulations of Issue and Public Trading in Securities and of a
Stock Exchange, which was the principal legal act regulating the securities
market until enactment of the Law on Public Trading in Securities in 1996. On
20 May 1993, Resolution No. 815 was amended to introduce the concept of
dematerialised securities and the book-entry trading system and to provide for
establishment of the Central Securities Depository of the Republic of Lithuania
("the Central Securities Depository").
On 16 January 1996, the Seimas (Parliament) passed a comprehensive legislative
act the Law on Public Trading in Securities. Safety, transparency, market
efficiency, protection of investors' interests and promotion of competition
between market participants were the main objectives of this enactment. The Law
on Public Trading in Securities, although relatively short in length, was
designed as "omnibus" legislation to govern most matters related to securities.
Subsequently, the Securities Commission adopted a number of sub-legislative
regulations implementing the Law on Public Trading in Securities.
An important benchmark in the development of the Lithuanian securities
legislation was adoption of the new Law on Securities Market (to enter into
force and replace the Law on Public Trading in Securities as of 1 April 2002),
which, on one hand, maintains the principles laid down in the Law on Public
Trading in Securities and, on the other, enhances securities legislation to
comply with the EU directives, the Objectives and Principles of Securities
Regulation of the International Organisation of Securities Commissions (IOSCO)
as well as the legal framework of the new Civil Code effective from 1 July
2001. Following enactment of the new Law on Securities Market, a number of the
secondary legislation acts are to be brought in compliance with it.
The securities market is also regulated by a number of legal acts of the
Government of the Republic of Lithuania, the Ministry of Finance, the
Securities Commission, the Board of the Central Bank (with respect to
governmental securities), the Board of the Central Securities Depository (with
respect to accounting of securities) and the Board of the National Stock
Exchange (concerning the trading of securities on the stock exchange).
The 18 July 2000 Civil Code of the Republic of Lithuania;
The 16 January 1996 Law No. I-1169 of the Republic of Lithuania "On Public
Trading in Securities (since 1 April 2002 replaced by the 17 December 2001 Law
No. IX-655 of the Republic of Lithuania "On Securities Market"*);
The 5 July 1994 Law No. I-528 of the Republic of Lithuania "On Companies";
The 1 December 1994 Law No. I-678 of the Republic of Lithuania "On the Bank of
The 5 July 1995 Law No. I-1018 of the Republic of Lithuania "On Investment
The 3 June 1999 Law No. VIII-1212 of the Republic of Lithuania "On Pension
The Securities Commission, consisting of a chairman and four members, is the
principal regulator and supervisor of the Lithuanian securities market. The
Securities Commission is an independent regulatory body, although it was
established by the Parliament pursuant to a proposal of the Government and is
financed from the State budget.
The Securities Commission is empowered under the Law on Securities Market to
perform the following main functions:
National Stock Exchange
to regulate activities of trading intermediaries and stock exchanges, including
the issuance of and public trading in securities;
to regulate disclosure related to securities and issuers;
to provide official interpretations and recommendations on issues concerning
public trading in securities;
to license stock exchanges and trading intermediaries;
to supervise trading intermediaries, stock exchanges and their members and the
Central Securities Depository and other securities account operators;
to register the issues of securities;
to apply to the courts for protection of investors' interests;
to apply sanctions;
to take other actions consistent with its authority.
The only stock exchange in Lithuania currently is the National Stock Exchange
which was registered with the Securities Commission on 11 May 1993. The first
trading session took place on 14 September 1993.
Trades on the National Stock Exchange are dematerialised, centralised and
mainly order-driven. The original trading system was installed with the
assistance of SBF-Bourse de Paris and SICOVAM (French Depository) in 1993 and
since then has undergone a series of modifications. An enhanced, reliable, fast
and flexible three-tier automated trading system TLAPS was implemented in 2000.
This system is much more user-friendly and allows market participants to
develop their own automated systems**.
The National Stock Exchange is a specialised public company that organises the
listing, quotation and trading of securities and promotes safe and efficient
transactions and settlements. According to the Law on Securities Market,
natural and legal persons may become shareholders in the National Stock
Exchange, however, block acquisitions are subject to the approval of the
Securities Commission. The law confers on the National Stock Exchange
regulatory powers to the extent that they relate to trading on the exchange
(e.g. rules of trading), however, such regulations are subject to approval by
the Securities Commission.
Central Securities Depository
The Central Securities Depository is a public company established by the
Ministry of Finance, the Bank of Lithuania and the National Stock Exchange.
According to the Law on Securities Market, shareholders of the Central
Securities Depository may be both the State of the Republic of Lithuania, the
Bank of Lithuania, other credit institutions, securities brokers and dealers,
insurance companies, investment companies, pension funds and their management
companies licensed in the Republic of Lithuania or the EU member state or the
state which has started official negotiations on accession to the EU as well as
stock exchanges and central securities depositories of such countries.
The main objective of the Central Securities Depository is to conduct the
general accounting of dematerialised securities in Lithuania. The Central
Securities Depository keeps track of the ownership of securities by operating
general securities accounts. It also seeks to ensure compliance with accounting
rules and regulations, proper and timely clearance of transactions in
securities between account operators and takes measures to ensure the integrity
and security of the overall securities management system. In certain cases, the
Central Securities Depository may manage not only general accounts but also
personal securities accounts. The instructions and directives of the Central
Securities Depository on issues relating to the accounting of securities are
obligatory to the market participants.
Financial Settlement (Clearing) Bank
The Financial Settlement (Clearing) Bank manages financial settlements
following securities trades on the National Stock Exchange. The Centre for
Financial Settlements under the Bank of Lithuania performs the functions of the
Financial Settlement (Clearing) Bank.
Securities Brokers and Dealers
According to the Law on Securities Market, securities brokers and dealers
(known under the law as "intermediaries of public trading in securities") in
Lithuania are brokerage firms and authorised commercial banks (further
collectively referred to as "brokers").
Enterprises must obtain a licence from the Securities Commission in order to
undertake the investment services as defined under the Law on Securities Market
(i) accepting and transmitting of the client's orders related to securities,
(ii) fulfilment of client's orders to acquire or transfer securities on the
client's account, (iii) fulfilment of client's orders to acquire or transfer
securities on the own account, (iv) management of the clients securities
portfolios, (v) offering of securities pursuant to agreements with issuers with
or without undertaking to distribute the issue of securities, (vi) safekeeping,
accounting and administration of securities, (vii) granting of loans to allow a
client to carry out a transaction in securities, where the person granting the
loan is involved in that transaction and (viii) investment advice concerning
securities. The broker must have a license to render at least one type of
investment services listed under items (i) through (v).
A Lithuanian commercial bank automatically has the status of a broker, unless
its banking license is restricted. Certain entities and individuals are
excluded from this licensing requirement, including insurance companies, the
Bank of Lithuania, the European Central Bank and central banks of the EU Member
States and / or institutions performing management of the state debt. The Law
on Securities Market also provides for cases when certain activities, although
formally falling within the definition of the "investment services", are not
subject to the licensing requirement.
The Securities Commission issues general and specialised licenses. Licensed
brokerage firms are divided into three categories: category "A" brokers are
permitted to trade on their own account, trade on behalf of their clients,
organise securities offerings and provide other investment services; category
"B" brokers may not trade on their own account and organise securities
offerings on a firm commitment basis; while category "C" brokers are precluded
from opening and operating cash and securities accounts, trade in their own
name and organising securities offerings on a firm commitment basis.
As of 31 December 2000 there were 11 category "A" brokers including commercial
banks, 15 category "B" brokers, 2 category "C" brokers as well as 2 investment
management and consulting firms***, which upon entering of the Law on
Securities Markets will be regarded as category "C" brokers. Brokerage firms
are subject to initial capital requirements. Each category of brokers must also
comply with the capital adequacy requirements coherent with the EC Capital
Adequacy Directive. Failure to meet capital requirements may result in a
refusal to grant a licence or a licence withdrawal.
The Law on Securities Market is applicable to securities which could be traded
in the securities markets:
Furthermore the Law on Securities Market is also applicable to "investment
means" which are the following securities and contracts:
shares of companies and depository receipts representing shares;
securities which grant rights to securities mentioned in (i) and (ii) above by
way of subscription or exchange, including those which grant the right only to
The Government of the Republic of Lithuanian and the Bank of Lithuania
securities as well as securities representing debt of international financial
organisations, of which the Republic of Lithuania is a member or which have the
permit of the Minister of Finance of the Republic of Lithuania to offer their
securities, are regulated by the Law on Securities Market only to the extent
offering and circulation of these securities relate to the activities of
brokers, accounting of these securities, the respective violations of law or
the powers of the Securities Commission.
investment means confirming participation in the investment funds;
money market means (which are usually traded in the money market as deposit
financial future contracts, including those which only grant the right to cash
future interest rate contracts;
interest rate, currency, share or share indices swap contracts;
call or put options in relation to securities and investment means, including
investment means which only grant the right to cash consideration as well as
currency and interest rate options.
Registration of Securities
The Law on Securities Market requires any issuer to register its securities with
the Securities Commission if any of the following conditions are satisfied:
The procedure for registration with the Securities Commission involves the
presentation of a prospectus, which contains basic information about the issuer
and the securities being offered (if the securities are intended for private
placement, an abridged version of the prospectus, a "memorandum", may be
submitted). The Securities Commission must, within 30 days from the receipt of
the prospectus and other relevant documents, register the securities, reject
registration or require additional information. The registration of securities
is not a confirmation of the truthfulness of the disclosed information, but is
merely a verification that the information furnished by the issuer is in
compliance with the requirements of the law.
the issuer is a public stock company (already in existence or in the process of
formation or transformation); or
securities are intended to be issued for public trading in the Republic of
Lithuania (under the Law on Securities Market "public trading" is defined as
offering, allotment or transfer of securities by addressing the public or by
addressing more than 100 persons).
After securities are registered with the Securities Commission, the order and
terms of allotment as established in the prospectus or memorandum may only be
changed with the permission of the Securities Commission. It is prohibited to
change the price, nominal value, class or kind of securities being issued. In
case when the securities are being offered through the stock exchange and other
cases determined by the Securities Commission, the minimum and maximum issue
price could be established.
The Securities Commission is authorized by the Law on Securities Market to set
various levels of disclosure requirements taking into account the nature of the
issuer's activity, type of securities issued (to be issued), number of the
securities holders and the fact whether the securities are intended to be
listed on the stock exchange.
It is noteworthy that the Law on Securities Market provides for the right of
the Securities Commission to grant exemptions from the registration. Moreover,
the Securities Commission under the new law is entitled to determine cases when
securities are registered without a prospectus or memorandum as well as to set
specific registration procedures for the securities issued according to special
programs and registration of securities the prospectus of which was verified by
the supervisory institution of the EU member state.
The system of dematerialised securities (i.e. securities that exist only in a
form of a book-entry) is one of the essential features of the Lithuanian
securities market. The Law on Securities Market establishes that all securities
(except those defined as "investment means") falling within the sphere of its
regulation, and which are described in section "Securities" above, must be
recorded through an entry in the personal securities account opened in the
owner's name. However, the pledged securities may be accounted in the name of
the holder of the pledge, provided the owner of the security is also indicated
in the account of pledged securities. The securities held by foreign brokers on
behalf of their clients may be recorded in the securities accounts opened in
the name of such foreign brokers, however, it must be indicated that the
securities are held on behalf of their clients.
Only issuers of securities (until 1 January 2004; thereafter, the issuers will
be obliged to transfer accounting of their securities to the brokers), the
brokers, including authorised commercial banks and the Central Securities
Depository are allowed to manage personal securities accounts. Account
operators are required to become members of the Central Securities Depository
and open a general securities account. Because the general accounts represent
the aggregate number of securities managed by a particular account operator and
the number of securities of a particular issue, the Central Securities
Depository is able to ensure the proper general accounting of securities and
control the passing of title to securities.
Transfers of securities are performed through crediting and debiting of the
relevant personal securities accounts and, when transaction involves
transferring the securities to another broker, - also general securities
Point of Interest
The new Civil Code (effective from 1 July 2001) recognises holding of other persons' property in trust, thus providing for the basis for development of the beneficial ownership of securities in Lithuania. However, due to the fact that the said norms of the Civil Code were introduced a relatively short time ago holding of securities in trust is not yet common in Lithuania.
In addition to the requirement to submit a prospectus or memorandum to register
securities, the issuer whose securities have been registered is also
responsible to meet the following on-going disclosure requirements:
In addition, anyone who, acting independently or in concert with other persons,
acquires a block of shares of the issuer that results in the crossing, in
either direction, of the 1/10, 1/5, 1/3, 1/2, 2/3 or 3/4 thresholds of total
votes, must within 7 days inform the Securities Commission and the issuer of
the total number of shares granting the right to vote and the votes that belong
to the person.
filing of annual audited prospectus-reports and semi-annual and quarterly
reports with the Securities Commission and the stock exchange on which the
securities are listed;
filing of information on shareholders holding more than 5% of the votes of the
issuer (as an annex to the annual report-prospectus); and
presentation to the Securities Commission and the stock exchange, and at least
two information agencies or daily newspapers indicated in annual
prospectus-reports, of details of every "material event", known or ought to be
known to the issuer, which may have material influence on the price of the
issuer's securities. Confidential information does not need to be published.
According to the Law on Securities Market, if a person, acting independently or
in concert with other persons, acquires more than 40% of the voting rights in
the general meeting of shareholders of the issuer that has registered the issue
of securities with the Securities Commission, he must within 30 days submit a
mandatory tender offer to buy, at the price stated in the offer, the remaining
securities with voting rights as well as securities containing the right to
acquire securities granting voting rights or, alternatively, dispose of the
securities exceeding the aforementioned limit. The price of the mandatory
tender offer must be registered with the Securities Commission and shall be the
maximum price of the securities bought by the offeror during the 12-month
period before exceeding the 40% limit.
The procedures for registration and implementation of the mandatory tender
offer, as well as cases where the mandatory tender offer is not necessary, are
established by the Securities Commission.
Trading in Securities
Primary and secondary trading in securities is distinguished. Primary trading
is defined as the offer made by the issuer or broker, based on a contract with
the issuer, to acquire securities at the time of their issue and their transfer
to investors. Primary offering may also be exercised on the stock exchange.
The following requirements of the Law on Securities Market apply to the primary
public offering of securities:
Except for the requirements regarding advertisement of the securities issue,
the other above mentioned rules are also applicable to non-public primary
the advertising and announcement of subscriptions for unregistered securities
a potential investor has the right to see the prospectus and other documents
which were the basis for registration of securities;
an investor has the right to cancel the acquisition in case of change of
information provided in the prospectus and/or after publication of the notice
of a material event;
each investor must be guaranteed equal terms and conditions of acquisition;
only information contained in the prospectus and the annual
prospectus-statement may be used in the advertising of offered securities;
every advertisement must state where and when an interested investor may
familiarise him/herself with the prospectus and reports of the issuer.
Secondary trading in securities is defined as an offer to acquire securities
and their transfer upon completion of the primary trading (i.e. after the
securities have been issued).
The rules applicable to secondary trading in securities are generally concerned
with the way in which securities are traded (i.e. privately or publicly) and
place at which the securities transactions may be executed (i.e. on a stock
exchange or off-exchange).
Securities may be traded either privately (off-exchange) or through the stock
exchange. On the stock exchange a full procedure (central market) or a
simplified procedure for the registration of block trades is available.
The stock exchange is the only venue for the execution of the secondary
purchase-sale of securities registered by the Securities Commission to be
publicly traded and included in the official or current trading lists of the
stock exchange registered in Lithuania.
The block trades take place on the National Stock Exchange when brokers deliver
matching purchase and sale orders regarding listed securities. The minimum
amount of the block trade in the securities listed in the Official List is LTL
40,000 (EUR 11,585). There are no price fluctuation limits for the block
trades. The block trades are registered with the National Stock Exchange and
the terms, price and volume of the transaction are published.
Secondary public trading must always be carried out through a broker.
There are currently three market tiers operating on the National Stock
Exchange, namely, the Official List, the Current List and Unlisted Securities.
The National Stock Exchange's listing and disclosure requirements for members
of the Official List are relatively high (e.g. market capitalisation of the
shares must be not less than LTL 10 million (EUR 2,896,200) during the last
financial year; financial statements of the issuers must be prepared in
accordance with international accounting standards.
Securities are admitted to the Current List upon the decision of the Board of
the National Stock Exchange, provided that: the company's minimum authorised
capital is not less than LTL 4 million (EUR 1,158,480); at least 25% of an
issue with a nominal value of at least LTL 1 million (EUR 289,620) is
considered to have been distributed to the public and the number of
shareholders in the issue is not less than 100; securities subject to secondary
trading are fully paid up; and all securities are accounted for in compliance
with the requirements of the laws of Lithuania and other accountancy
As of 31 December 2001, there were 1,118 securities listed on the National
Stock Exchange, of which 6 securities were listed on the Official List, 46
securities listed on the Current List and the remaining 1,066 representing the
tier of Unlisted Securities.
Trading procedures on the National Stock Exchange are centralised,
dematerialised and mainly order-driven. Different trading procedures apply to
trading in shares and in debt securities.
Securities on the Official List and the Current List are traded daily and some
securities on the list of Unlisted Securities are traded daily as well. In
practice, transfers of securities, however, are still carried out through
The National Stock Exchange operates an automated trading system of continuous
trading at variable prices. Orders are matched and executed within a price
sequence. Orders to buy at the highest price and to sell at the lowest price
are executed first (the price priority principle). If the same price is
indicated in two or more sell or buy orders, these orders are executed
according to the time of entry (the time priority principle). Fluctuation of
prices between trading sessions is limited so that the rate of securities may
vary from the last established rate by not more than 5%. During continuous
trading, in general, the price of a security may not vary more than 10% from
the opening price during a trading session in question.
Clearing and Settlement
As the Central Securities Depository operates in conjunction with the National
Stock Exchange and the Financial Settlement (Clearing) Bank through a common
computer network, the liaison between these three institutions ensures that
once a trade on the National Stock Exchange has been confirmed, notice is given
to both the Clearing Bank (that debits or credits the cash accounts of the
brokers involved in the trade) and the Central Securities Depository (that
debits or credits the appropriate securities accounts).
The clearing and settlement system is based on a delivery versus payment
principle. Trades in shares and debt, excluding treasury bills, at the central
market (full procedure) are settled within 4 business days including the day of
transaction, while trades in treasury bills on the central market are settled
within 2 business days including the day of transaction. Settlement terms of
trading in securities through direct transactions are indicated in the order
and may not exceed 6 business days including the day of transaction.
The National Stock Exchange has established the Guarantee Fund to insure
settlements of central market transactions. The Guarantee Fund is financed
mainly through variable contributions made by registered brokers. In the event
of a broker's default, the Guarantee Fund will indemnify investors. However,
the protection of the Guarantee Fund does not apply to direct transactions.
* Taking into account that this publication will be issued after the new Law on
Securities Market comes into force, the provisions of this law and not the Law
on Public Trading in Securities will be described below. ** Annual Report of
the National Stock Exchange, 2000. *** Annual Report of the Securities