Settlement & Depository

Overview of Settlement and Depository

1. What is Securities Depository Center?

   The Securities Depository Center is a financial institution operating business including securities registration, acting as securities registrar, securities depository, securities transfer and securities settlement.

   • Book-Entry

     Book-Entry shall refer to the electronic account for recording the securities deliver or transfer automatically in the electric system.

2. What is Clearing?

   A series of processes that a Central Counter-party (CCP) performs the process of transmitting, reconciling and, in some cases, confirming payment orders or securities transfer instructions to guarantee the settlement by netting the credits and liabilities between the sellers and the buyers and instruct the settlement agency to settle.

   • Trade Comparison

     The comparison is a legal action in which traders compare trading conditions with trade details. It is done by Clearing Houses for an organized market and by Settlement Institutions for OTC.

     • Settled unless cancelled by trading parties.
     • High credibility of market participants and reduction in costs & efforts.

   • Netting

     Netting is the process of reducing multiple credit/ debit obligations among multiple traders to several credit/ debit obligations. Through netting, LSX fixes the final settlement size. After netting, original credit or debit obligations are replaced with a single credit or debit obligation.

3. What is Settlement?

   Settlement is the completion of a transaction, wherein the seller transfers securities or financial instruments to the buyer and the buyer transfers money to the seller.

   • LSX Settlement Characteristics are:
     • Settlement Method : DVP/ DNS / Rolling Settlement.
     • Settlement Time : 14:00 PM, T+2.
     • Settlement Bank : BOL.
     • Correspondent Bank : Commercial Bank.

   • Delivery versus payment (DVP)

     A securities settlement mechanism which links a securities transfer and a funds transfer in such a way as to ensure that delivery occurs if - and only if - the corresponding payment occurs. No principal risk does not exist.

   • Delivery and Acceptance of Securities

     Concerned securities company subtract respective investor’s sell and buy quantities among 1) securities company (Sell Side; Investor) and LSX, 2) LSX and securities company (Buy Side; Investor) through account substitution process (Book-Entry).

   • Cash Delivery and Cash Acceptance

     Concerned securities company subtract respective investor’s buy and sell payment amount among 1) securities company (Buy Side; Investor) and LSX, 2) LSX and securities company (Sell Side; Investor) through fund (money) transfer via settlement bank (BOL).

   • Settlement Method

     Settlement can be gross or net, and conducted in real time or at designated times.

     • Gross vs Net Settlement

       - In gross settlement, each payment instruction is passed on and settled individually across the accounts of the paying and receiving banks, resulting in a debit and credit entry for each and every payment instruction settled.

       - In net settlement, payment instructions are netted in accordance with the rules and procedures of the system, and the number of resulting bilateral or multilateral net claims is smaller than the number of original payment instructions.

     • Real-time vs. Designated-time settlement

       -  Real-time settlement occurs on a continuous basis during the operational day.

       - Designated-time settlement occurs at pre-specified points in time, ranging from a single settlement cycle at the end of the day to frequent settlement cycles during the day.

4. What is Registrar?:

   Public companies typically use the Registrar to keep track of the individuals and entities that own their stocks and bonds. They entrust the Registrar as an agency to handle with corporate actions. LSX provides Registrar Services to a corporation by three following categories:

   • Transfer Agent:

     • Manage shareholders’ book & bondholders’ book.
     • Establish/Cancel pledge.
     • Notify shareholders of corporate actions.
     • Administer matters associated with destroyed, lost, or stolen securities.

   • Paying Agent:

     • Calculate and Pay (dividends, bond principal, and interest).
     • Notify shareholders of new issues, dividends payments, and general meetings of shareholders.
     • Other services accompanied by the above.

   • Securities Holders’ Certificate Issuing Agent:

     • Consulting companies on securities issuance.
     • Custody for securities certificate forms.

   • Corporate Action:

     • An action or event decided by the issuer of securities which has an impact on the holders of that security. This may be optional, in which case those holders have a choice (for example, they may have the right to purchase more shares, subject to conditions specified by the issuer). Alternatively, it may be mandatory, whereby those holders have no choice (e.g. in the case of a dividend payment or stock split). Corporate actions can relate to cash payments (e.g. dividends or bonuses) or the registration of rights (subscription rights, partial rights, splits, mergers, etc.)