Founded in the spring of 1994 by seven commercial banks, the central bank, finance ministry and the Compensation Fund, the ECDS keeps the register for dematerialised securities. It records the right of securities ownership and transactions carried out. Its operational statutes were adopted by the Estonian Government’s decree No 374 on 14 October 1994. Agreements were signed with the finance ministry and central bank for keeping the register and clearing security transactions through the Bank of Estonia’s clearing department.

According to an Estonian Government decree all dematerialised public issues of securities must be registered with the ECDS. The Central Register kept by the ECDS has four database:

• database for securities
• database of investors
• database of securities transactions
• database of corporate events and dividend and interest payments

ECDS FUNCTIONS

Under the Central Register’s statutes the ECDS arranges, keeps, uses, controls the input and ensures the accuracy of the information kept by the register. Its main functions are to deposit dematerialised securities, process, clear and register securities transactions, their ownership, loan and pledging. ECDS services are used by account operators, issuers, state authorities and investors. The courts and tax department can make specific legal inquiries. Brokerage companies which are not ECDS account operators have indirect access.

SERVICES TO ISSUERS

• Keeping the share register
• The increase and decrease of share capital
• Arranging security subscriptions
• Arranging shareholders’ general meeting (via postal notice to account operators)
• The increase and decrease of securities’ nominal value
• The payment of dividends and interest
• Supplying registry data
• Supplying overall information about investors, such as percentage breakdowns of their nationality and portfolio volumes.

Registering the securities

Companies registered with ECDS have several advantages - they can centrally manage the issuing of shares, fund units or bonds, carry out payments and call shareholders’ meetings.

To electronically register shares and bonds the issuer enters into a contract with the ECDS and provides all necessary documents including a list of the owners of securities, their account numbers and which securities they own. The securities will be registered with their own ISIN code. They will then be transferred to the owner’s account via primary recording within five banking days from the time the ECDS receives the list of securities’ owners, recording the right of the holder and all their personal information.

Increase and decrease of share capital

Under the ECDS/issuer contract the issuer must inform the depository of all circumstances which could effect security owners’ rights, including any decisions to increase or decrease share capital.

Any increase in a company’s share capital must be done through the ECDS. The ECDS issues subscription notes with temporary ISIN codes. Following registration with the Commercial Register those subscription notes will be turned into common shares with the same ISIN code as the shares that were registered before the increase of share capital.

A decrease of share capital is registered in ECDS by either cancelling the shares or decreasing the nominal value of shares.

Subscription of securities

To organise a share subscription a company enters into a contract with ECDS. The ECDS provides the account operators with prospectuses.

Securities subscriptions are forwarded to account operators by investors who enter them into ECDS’ computer system. After the subscription period the issuer determines the principles of distribution and the ECDS registers the securities on the accounts of new investors.

Should there be over-subscription the ECDS calculates what is to be repaid based on the issuer’s decision.

Shareholders’ general meetings

The computer system of ECDS enables ECDS to organise the General Meetings of Issuer’s Shareholders. With the help of the database of ECDS it is easy to register the participants of the meeting, organise the count of votes, and to make inquiries from the database of ECDS on the voting results.

Payment of dividends and interest

The ECDS can arrange payments to investors from the issuer’s securities. In this case the issuer must forward the necessary information for making the payment to the ECDS at least five days prior to the record date of fixing the list of holders. The issuer must also transfer the full amount of the payment to the ECDS’ account. The ECDS withholds the income tax from the payment. Should it be unable to make a payment the ECDS informs the issuer and the investor’s account operator.

Disclosure of register information

The issuer has the right to the list of securities’ owners. The ECDS does not generally release this to third parties without authorisation from the company. Excerpts of register data can go to legally authorised bodies such as the courts and tax department. Statistical analyses are also made available to issuers.

SERVICES TO INVESTORS (through account operators)

• Opening, crediting and debiting securities accounts Borrowing, pledging, presenting and bequeathing securities
• Issuing holding and registration information
• Payment of dividends and interest
• Closing accounts and changing account operators

Investors communicate with the ECDS through account operators who are responsible for opening securities accounts, putting investor’s details into the system, effecting transactions and issuing statements on holdings. In addition to the registration advises that are sent after every movement which has occurred on the investor’s account the ECDS sends an annual statement on holdings to investors.

Special purpose account

Investors can have several accounts in the ECDS and open special purpose accounts, i.e. pledging, temporary and client securities accounts in the depository.

ACCOUNT OPERATOR'S ACCESS TO THE REGISTER

• Opening securities accounts and changing bank requisites
• Printouts of investors’ accounts information
• Freezing securities so transactions can be settled
• Controlling clients’ accounts
• Entering subscription applications
• Passing on applications for transactions, pledges and transfers to the ECDS

ECDS account operators are legal entities who forward investors’ orders, make entries into the register and intermediate ECDS services. They are shareholders licensed as securities intermediaries and credit institutions. Account operators operate under contract with the ECDS. To clear security transactions between banks account operators authorise ECDS to instruct the central bank’s clearing department to debit the relevant operator’s account in the net amount of the transactions.

Account operators have only partial access to the central register. They cannot directly settle any transactions based on an investor’s order. An account operator’s role is only to enter transaction details into ECDS’ computer system, freeze the required amount of securities for the transaction and confirm there is enough money or securities in the investor’s account.

Operators oversee only those movements and transfers entrusted to them by the investors who have opened accounts through them. They cannot have information about other account operator’s transactions.

SETTLEMENT OF TRANSACTIONS

Orders for registration, transfer, clearing and freezing of securities are mediated with the ECDS by account operators. Amongst all the different transactions which can be made the most common is the purchase-sale. The purchase-sale order forwarded to the ECDS is executed either as a free of payment delivery or as a delivery versus payment.

Free of payment delivery

In cases of free of payment delivery the ECDS will not check the payment for securities. The pledging, presenting and bequeathing of securities are executed this way and securities generally change hands on the evening of the same day the order was given.

Delivery Versus Payment

If a delivery versus payment order is forwarded to the ECDS the clearing of the securities transaction will be checked and executed after the orders have been received from both parties. ECDS matches the information about the orders with the existence of securities in the seller’s account. If the order and securities match, the ECDS executes the transaction, the seller is guaranteed the money and the buyer is guaranteed the securities.

At the value date the ECDS records the transfer of securities from the seller’s to the buyer’s account only after confirmation is received from the central bank’s clearing department. All stock exchange transactions are executed on a delivery versus payment basis and settled on the third day after the date of transaction. Off exchange delivery versus payments can be settled on the date T+1 up to T+30, according to the investor’s order.