Securities settlement system

Securities settlement systems (SSSs) are managed by central securities depositories (CSD). The Nasdaq CSD operates three securities settlement systems – the Estonian SSS, the Latvian SSS and the Lithuanian SSS each with a national jurisdiction: in Estonia, Latvia and Lithuania, respectively. The systems in all three countries use a single technical platform with slightly different features in each country. Having the same technical base allows all the systems to use the same principles, while the details of each securities settlement system can be adapted to follow the law of each individual country. The system manager Nasdaq CSD is headquartered in Latvia and services are provided in Estonia and Lithuania through local branches of it.

The members of the securities settlement system are the account operators, which are banks. The banks intermediate Nasdaq CSD’s services to their clients who have bought securities or want to do so.

The Nasdaq CSD provides the following services through its Securities Settlement Systems:

  1. settlement of stock exchange trades

  2. matching of over-the-counter (OTC) transactions

  3. settlement of over-the-counter free of payment (OTC FoP) transactions

  4. settlement of over-the-counter delivery versus payment (OTC DvP) transactions

  5. settlement of cross-border exchange and OTC transactions made through the CSD connections

To provide Nasdaq CSD services to their clients, the banks must apply to open a securities account for them and maintain it in the Estonian securities settlement system. Securities are held in custody accounts, which are accounts opened in the name of clients, or end-investor accounts. To make securities transactions, the investor’s securities account is linked to their cash account at their account holding bank. The banks use technical messages to send settlement instructions to Nasdaq CSD, or they use a client app in the registry system. All transactions are registered and they can be followed within the system using their audit trail. The Nasdaq CSD executes account holders’ settlement instructions only if the account operators have fulfilled all the requirements set out in the Rulebook and Operating Manual.

T2S-eligible securities are settled using the single security settlement platform of the Eurosystem. TARGET2-Securities (T2S) is a single IT platform operating across the Eurosystem that validates and matches or aligns transfer orders for securities. This platform is also used for settlement of securities transactions. Securities accounts and cash accounts opened at the central bank are both opened for settling securities in T2S. Settlements are made in central bank money. Transactions in the securities accounts in T2S are reflected in the Estonian securities settlement system. The T2S dedicated cash accounts are connected to the cash accounts of account managers in the TARGET2. Securities that are not T2S-eligible are processed in the Estonian securities settlement system.

Securities transactions are settled in T2S between 08.00 and 19.00, and delivery versus payments (DVP) transactions are settled until 17.00. Stock exchange trades, OTC DvP, and OTC FoP transactions are all settled at the same time. Settlement is performed trade-by-trade under the gross settlement principle. Settlement of securities transactions is final once T2S confirms the transaction regardless of whether the data in the central securities depository have been synchronised with those in T2S. Once the settlement in the T2S platform is final, the data on the securities account in the Estonian securities settlement system are synchronised with the T2S data.

Nasdaq CSD has created links with two foreign depositories. Links between the Nasdaq CSD and other CSDs give Nasdaq CSD participants access to securities maintained at those other CSDs. In building such links, the Nasdaq CSD manages non-local assets for local participants and enables their access to international investors in the respective markets. By networking with other European CSDs, the Nasdaq CSD makes it possible to improve Baltic investors’ access to asset servicing all across Europe.

Nasdaq CSD maintains the existing unilateral CSD link arrangements with the following foreign CSDs:

  • Clearstream Banking Luxembourg

  • Krajowy Depozyt Papierów Wartościowych (the Polish CSD)