Approved at the Board meeting of CSDL
on December 11,2008, Minutes No. 6

STRATEGY FOR THE DEVELOPMENT OF THE CENTRAL SECURITIES DEPOSITORY OF LITHUANIA FOR THE YEARS FROM 2009 THROUGH 2011

1. Introduction

Continuity of the strategies

1.1. The Strategy for the Development of the Central Securities Depository of Lithuania (hereinafter referred to as the Depository) for the Years 2009-2011 is the fourth document of the Board (after the Guidelines for the Development of the Depository approved on April 17, 1997, the Strategy for Development and Economic Activity of the CSDL for 2001-2003 approved on August 31, 2000 and the Strategy for the Development of the CSDL for 2005-2007 approved on April 4, 2005 ), which is written for the purpose of strategic planning of the Depository's activities. The second half-year of 2007 and the year 2008 marked the following new developments, which significantly influenced the activities of the Depository:

1.1.1. At the end of 2007, the Depository was connected to the European Central Bank's (ECB) state-of-the-art payment system TARGET2 as a direct participant and an Ancillary system and started using SWIFT communication network and its cross border messaging system. The connection to SWIFT was realized through the Bank of Lithuania's (BoL) infrastructure. This enabled the Depository to make use of the operating experience gathered at the Bank of Lithuania and achieve substantial economy of resources in comparison with alterative expenses, which could have been incurred if it were connected to SWIFT directly.

1.1.2. The laws on Securities and on Markets in Financial Instruments with their supporting legal acts, implementing MiFID provisions, liberalizing trading in securities and arrangement of settlements in the EEA, became fully operational.

1.1.3. ECSDA together with the Federation of European Securities Exchanges (FESE) and the European Association of Clearing Houses (EACH) prepared and with the European Commission agreed upon the Code of Conduct for Clearing and Settlement (CoC) as the self-regulating instrument in place of a respective directive. Under this Code, which most of the European infrastructure organizations (including the Depository) have committed to comply with, the tasks of price transparency, open access and interoperability, service unbundling and accounting separation were pursued during 2007-2008.

1.1.4. All documents related to TARGET2 Securities (T2S) project prepared by ECB were analyzed; consultations with the participants of the Depository and other stakeholders were held in order to define the position of the Depository regarding the project. When introducing or drafting new projects, the Depository also assessed the prospects and impact of T2S, as a single future securities settlement platform for all Europe. Another assessment was carried out with regard to one more ECB's project closely related with T2S, namely CCBM2, designed for a more efficient use of collateral for ESCB credit operations, which will impact the national securities settlement systems.

1.1.5. In preparing and implementing Depository's action plans the initiatives taking place in Europe in the sphere of clearing and settlements on regional and European scale as well as possible interaction with them were assessed, namely: Nordic CSD clearing and settlement model, Euroclear Single Platform, expansion of Clearstream Banking Luxembourg (CBL) settlement module, Turquoise-EuroCCP-Citi project, BaSSS of Estonian and Latvian central depositories, LinkUpMarkets project initiated by seven depositories.

1.1.6. As a result of the formation of the NASDAQOMX group the largest world network of stock exchanges started its operations linking by means of advanced technologies these exchanges and the users of their services.

1.1.7. Two macroeconomic factors - the ongoing global crisis of the financial, real estate and energy markets and the fact that the unprecedented long-term growth of Lithuanian economy moved to its slowdown or even recession phase - had a negative impact on the Lithuanian capital market, share prices, their liquidity and investor expectations. However, such conditions resulted in the need of companies and banks to attract capital by issuing debt securities, thus enabling the Depository to develop its services in that sphere of activity. The abovementioned events are the main factors influencing the directions and contents of the New Strategy of the Depository Strategic planning includes carrying out of the SWOT analysis (strengths, weaknesses, opportunities, and threats), setting of the vision, preconditions, mission, the strategic goals and development of operational programs designed for their implementation. The SWOT analysis is presented in annex 1.

Purpose of the Strategy

1.2. The Depository is an exceptional infrastructural institution thanks to the efforts of which all the securities accounting and settlement systems operating all over Lithuania and the links with cross border settlement systems have been introduced and developed. A successful functioning of the Depository may favourably influence the development of the financial market of the Republic of Lithuania and ensure reliability, efficient operation and integration of the payment and securities settlement system infrastructure with the relevant EU and global infrastructures. Therefore strategic business planning of the Depository becomes significant and necessary in seeking:
- to satisfy more fully the needs of local and foreign markets participants;
- to ensure implementation of strategic goals;
- to systemically and precisely specify, carry out and develop the established functions, defined in separate programs or tasks.

Strategic planning helps the Depository in:
- better establishing the priorities for its activity and its place among other financial institutions of the country;
- maintaining competitiveness in the environment of integration and consolidation of clearing and settlement participants in the EU
- defining more precisely the interaction between the shareholders, governing bodies and subdivisions as well as their liability limits.
- more reasonably using the available opportunities and more efficiently planning the necessary resources.

1.3. Compliance with the Strategy is anticipated to be disclosed in the annual reports of activities by making assessment of the progress in the implementation of main goals of operation. These goals will be specified in the annual action plans and, under the necessity, adjusted in response to the changed circumstances and market needs.

1.4. The process of strategic planning is supervised by the Chairman of the Board, while the implementation of individual programs or projects is the responsibility of the Heads of divisions of the Depository.

2. Place in the market and Mission

Place in the market

2.1. The Depository is an important integral part of the Lithuanian financial and capital market infrastructure, the development of the activities of which during fifteen years has reflected and formed the whole history of the Lithuanian capital market creation. Thanks to the systematic incorporation in the legal basis of the Depository and the operation of its securities accounting and settlement systems, the participants of the Lithuanian capital market could enjoy all the advantages of the book-entry securities model and an obvious social benefit as compared with the alternative costs of production and circulation of material securities.

2.2. After the OMX group had acquired a significant share of the Depository's equity, the Depository plays an important role in the realization of a Joint Baltic Market conception. After the formation of the NASDAQOMX group, regional cooperation and integration remain relevant, however, these processes must efficiently develop into European and global structures. The Depository must secure its place within the common European infrastructure in creating a unified and/or harmonized European clearing and settlement market.

2.3. The Depository will strive to enhance the reliability and attractiveness of its services, its international competitiveness and become an efficient first choice of domestic and international market participants in safekeeping, clearing and settling Lithuanian securities.

Mission: The Depository's mission is to run securities accounting and settlement systems efficiently, safely and reliably, to develop and improve them and ensure their efficient integration with payment systems in accordance with the needs of local and foreign market participants, the legal framework of the European Union and the generally accepted standards as well as the standards-compliant national legal acts.

The Depository must:
- satisfy the growing and constantly changing needs of the market;
- taking into account the strategic goals of its shareholders, realize the tendencies of free capital movement and market integration;

The Depository's information systems must be safe, user friendly, ready to efficiently process the constantly growing flow of settlements, based on advanced and reliable information technologies and recognized international standards.

3. Vision and preconditions

3.1. The legal framework of the financial and capital market has been harmonized with the EU legal standards and international law conventions. Supervision of the Depository's activities is carried out by the Securities Commission, whereas oversight of the securities settlement system administered by the Depository is performed by the Bank of Lithuania.

3.2. The capital of Lithuanian financial institutions is dominated by foreign, in particular Nordic, capital due to which financial services are developed in accordance with the advanced experience and the state-of-the-art technologies. Competitiveness of the Northern European countries and dynamics of the Baltic states in the European area create a long-term basis for further mutual integration of these states and an increase of their roles within the EU and globally. The processes of regional and European integration and consolidation are going to last on the level of suppliers of investment services and issuers as well as market surveillance instututions, thus making it easier for the companies and the public sector to attract capital and expanding the ways, possibilities and scope of investment.

All this will cause further integration of the financial markets and their infrastructure institutions into the regional and EU structures, higher possibility for free capital movement in various forms and directions and greater market safety, at the same time ensuring reduction of aggregate costs.

3.3. It seems likely that the principal functions of the Depository provided by law will change very slightly. However, the TARGET2 Securities, CCBM2, European Code of Conduct for Clearing and Settlement, settlement links with the Polish central depository (KDPW) and with other foreign depositories, LinkUpMarkets, ECB/CESR recommendations and implementation in Europe and within the region of other prospective market integration and harmonization projects that are related with securities settlement, will expand the scope of the Depository's settlements with foreign institutions and partly change the content of the functions performed, the priorities of activity and the risk management.

3.4. During the long-lasting growth period (till the beginning of 2008) market activity had been growing constantly; the main groups of investors and their investment needs had been formed. However, facing currently the ongoing global financial crisis it becomes difficult to forecast and assess when the optimistic expectations and the cash flows could return to the global and Lithuanian financial markets. In the event that the crisis stays on, a part of the Depository's participants - brokerage firms, banks and issuers - may leave the market, and thus operational revenue of the Depository from the traditional groups of participants may go down. Therefore the Depository will ensure implementation of its statutory functions and rendering of its services by saving and reasonably using available resources, by a more efficient use of,the presently existing and introduction of new information technologies and projects. Innovations will require systematic coordinated work with market participants and public institutions, improvement of employee qualification and labour productivity, as well as enhancement of their motivation .

3.5. Reliability, safety and friendliness to the users constitute the priority task for the information systems; however, its implementation will be dependant on the requirements and demands of the Depository's counterparties in the joint projects as well as the development possibilities of individual systems of market participants.

4. Strategic goals

4.1. Universality and openness: for participants, financial instruments, services, and foreign investments

4.1.1. To expand the scope of activities of the Depository, which is the core institution of the financial and capital market infrastructure, in the sphere of securities accounting and settlement, develop its services and products, and improve the image of the Depository.

4.1.2. To continue pursuing the aim of including the maximum number of local and foreign participants and clients as well as securities and the maximum number of their types into the unified accounting system of the Depository. It helps to ensure the integrity of this system, achieve economies of scale, and reduce prices of the services rendered to the participants and clients of the system.

To prepare for the implementation of the CCBM2 (to the extent it is related with the securities settlement and accounting) and T2S projects. If it is feasible, to join the LinkUpMarkets project.

To enhance the accounting and settlement services applied to the transactions in financial instruments issued by Collective investment undertakings.

4.1.3. By using the potential of its own information systems, to develop the unified services as well as the services tailored to the needs of strategic clients, shareholders, and other important stakeholders.

4.1.4. To be a modern, competitive and customer-friendly service provider. The services and systems of the Depository must comply with European regulations and industry's best practices, they must also be cost-efficient and reliable. The competitiveness of CSDL must be at least at par with other neighboring CSDs in the Baltic region and must be regarded as such by its customers and other stakeholders.

4.2. Efficient handling of the securities accounting and settlement systems, their development and risk management

4.2.1. To ensure an efficient, safe and reliable management and development of the Securities settlement system (SSS), an exceptional place of this system in the Lithuanian market and its integration with the Baltic region market infrastructures (also adapting the SSS, to new developments in SAXESS and GENIUM/INET trading systems and cross-border settlements between the central depositories of the Baltic States) by increasing the possibilities to access the system and enhancing its attractiveness to participants and investors. To improve operational risk and participants' settlement default management. To provide efficient legal and operational facilities for securities lending/borrowing between the Depository's participants.

4.2.2. To ensure backup and safekeeping of securities accounting information, fully implement the disaster recovery plan and efficiently manage operational and liquidity risks of the SSS using for this purpose the necessary facilities and resources available.

4.2.3. To carry out internal audit and control of the SSS coordinating this activity with the supervisory institutions and the Bank of Lithuania performing monitoring of the system.

4.2.4. Taking into account market demands and further developing the Depository's functions and services, to ensure the optimal technological potential of the Depository in its capacity of the operator of the SSS that enables it to efficiently process the constantly growing and peak flows of settlements.

4.2.5 To continue and develop co-operation with other securities settlement systems providing the participants and clients of the Depository with wider and more convenient possibilities to keep foreign securities in custody on Depository accounts. If it is economically expedient, to set the conditions for foreign investors, issuers or their nominees as remote participants to open accounts with the Depository and keep on them holdings of securities issued in Lithuania. To comply with the provisions of the European Code of Conduct for Clearing and Settlement regarding price transparency, access and interoperability as well as with other requirements. In case there is a demand on behalf of market participants and a clear business case, to establish new links with foreign depositories and trading platforms (giving priority to reciprocal links): with Polish central depository (KDPW) and other Nordic, Central and Eastern European depositories, the cooperation with which may bring the highest benefit.

4.2.6. To increase cooperation with important international market players doing business in Lithuanian securities. To lower entry barriers for those players in Lithuanian market infrastructure institutions, to reduce operational, legal and other risks arising to them, to expand and develop value added services, to reduce their overall costs of participation in the Lithuanian market.

4.2.7 To accumulate, process and submit to the Bank of Lithuania the required information on the breakdown of the securities balances by investors' sectors and owners as well as the other data required for the monitoring of the SSS and for the ECB needs. To improve the accounting and settlement mechanisms for the assets eligible to secure the Bank of Lithuania's credit operations that are held in custody on the Depository's securities accounts.

4.2.8. To pursue implementation of the management of the centralized database of personal and other securities accounts, the unified payment of dividends and interest, as well as the unified securities income tax administration through the Depository; and to seek enhancement of the volume of services to the issuers and their shareholders (if respective amendments to the legal acts become effective).

4.2.9. To prepare for the introduction of EURO, if the respective decisions of the EU and Lithuanian authorities are in place.

4.3. Development of the Depository’s activity related to its principle functions by ensuring financial stability and profitability

4.3.1. To seek profitability from the execution of the Depository's functions prescribed by law by developing these functions and offering to market participants and investors the new services that would meet their demands.

4.3.2. To pursue a reliable and profitable investment policy and economic activity by employing financial resources and professional experience. To sell efficiently the Depository's building and thus to abandon the renting activities.

4.3.3. To maintain the optimal structure of the staff of the Depository and its high qualification with a view to the strategic goals of the Depository and market needs.

4.4. Purposive and efficient co-operation with the EU and international associations, participation in the initiatives related to the sphere of securities settlement development, transposition of advanced experience into the national legislation and the Depository’s operational activities.

4.4.1. To continue and develop co-operation with ECSDA, ISSA, AGC, ANNA and other associations, thanks to which international standards, requirements and other advanced experience in the securities settlement sphere are being introduced.

4.4.2. To allocate the necessary resources and constantly update information about the Depository in the most important internationally recognized questionnaires (CPSS/IOSCO, Thomas Murray, AGC, etc.), which ensure presentation of comprehensive and transparent information for foreign partners and investors on the payment and securities settlement systems used by the Depository and on the Depository's activities.

4.4.3. To develop the legal framework of the financial and capital markets taking account the market practice and needs, the legal basis of the European Union and the generally accepted standards. To participate in various working groups and offer suggestions concerning the development of the legal basis regulating securities market and securities accounting and settlement.

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