Registration of Securities (Electronic Format)
The registration of securities refers to the process of converting the certificate evidencing ownership of a security from physical form (i.e., paper) into electronic form. This process is known as “dematerialization” (book-entry) and is carried out exclusively by specialized financial intermediaries licensed by the relevant regulatory authorities, known as “securities registrars.”
Pursuant to the Law on Securities No. 9879, dated 21.02.2008, “dematerialized securities are electronic records of a securities account in the registrar’s computer system, through which the issuer undertakes to fulfill, towards the rights holder, the obligations contained in the securities.”
In Albania, the institution licensed by the Financial Supervisory Authority to perform the functions of registering securities issued by entities other than the Government, as well as the institution responsible for managing the settlement and clearing services for transactions involving such securities, is the Albanian Securities Registry (ALREG).
The registration of securities eliminates the risk faced by investors in relation to the theft or loss of certificates evidencing ownership of their securities, as well as the risk of obtaining counterfeit securities.
Securities Depositary and Record-Keeping
A depositary is a financial institution that professionally provides custody services (record-keeping) and the administration of securities or other financial instruments on behalf of third parties.
In exchange for a fee, the depositary carries out all operations related to the deposit and centralized administration of financial instruments. All securities are managed in dematerialized form (electronic format).
In Albania, the Albanian Securities Registry (ALREG) performs the functions of the depositary for financial instruments issued by entities other than the Government, as well as the management of clearing and settlement services for securities transactions through the operation of the QuickClear system.
Clearing and Settlement
Clearing and Settlement is the process of calculating the reciprocal obligations arising from trades executed by Brokerage Companies on or off the Stock Exchange and the transfer of ownership of securities against payment.
Clearing and Settlement relate to the post-trade phase.
Clearing
Clearing is the first stage of the post-trade process, which takes place after a transaction has been executed and before the final settlement of the transaction. Clearing is the process of verifying and updating the accounts of the parties to the transaction and preparing them for the transfer of securities and cash. During the clearing process, the net obligations of the parties to the transaction are calculated (netting).
Settlement
Settlement is the final stage of the post-trade process and refers to the transfer of cash and securities (net positions) between the parties to the transaction on the designated settlement date.
The principle applied to the clearing and settlement of transactions is the “Delivery versus Payment” (DVP) principle. There are three DVP models, as follows:
- Model 1 (gross-gross) – a settlement model that performs the final settlement of securities and cash based on instructions submitted individually for each trade. The principle is that at the same time the security is transferred to the buyer, the cash is transferred to the seller.
- Model 2 (net-gross) – a settlement model that performs the final settlement of securities based on instructions submitted after the netting (clearing) of securities, while cash is settled sequentially for each transaction.
- Model 3 (net-net) – a settlement model that performs settlement after the netting of both the securities and cash accounts.
The Clearing and Settlement Institutions in Albania are as follows:
- AFISaR – For transactions involving securities issued by the Government (Treasury bills, Treasury bonds, and Bank of Albania bills), clearing and settlement are carried out through the Central Securities Registration and Settlement System (AFISaR), which is the clearing house designated for this purpose by the Albanian Government and the Bank of Albania.
- ALREG – For transactions involving securities issued by entities other than the Government (securities issued primarily by companies), clearing and settlement are carried out by the Albanian Securities Registry (ALREG), which is the clearing house designated for this purpose.
- Albanian Interbank Payment System (AIPS) – for the settlement of monetary funds (cash).
Securities Custody
A Securities Custodian is a financial institution licensed by the Financial Supervisory Authority that provides custody and administration services for securities or financial instruments on behalf of third parties.
The safekeeping of securities, which is carried out primarily in dematerialized form, is performed within advanced financial systems by a Central Securities Depository (CSD).
Pursuant to Article 72 of the Law on Securities, activities related to custody perform the following functions:
- Safekeeping and custody of securities.
- Reporting on dividend, interest, and other receivable payments.
- Providing information on meetings of securities issuers and on rights related to shares and other securities held in custody, and executing clients’ orders for the exercise of such rights.
- Providing information on legal changes that, directly or indirectly, affect the reporting provided to the client regarding the status of the custody account.
- Providing services for the organization of general meetings of shareholders.
- Providing other services related to securities, including the exercise of rights and fulfillment of obligations arising from securities, as agreed between the client and the custodian, provided that such services are not contrary to the law.
Securities custody services are governed by a contract under which the custodian undertakes to perform one or more of the operations referred to above on behalf of the client, in exchange for a fee.
Operations related to securities custody are carried out by banks authorized to perform such activities by decision of the Financial Supervisory Authority.
For the purpose of carrying out activities related to securities custody, the custodian establishes dedicated units within its organizational structure.
Distribution of Interests
A bond is a form of loan that the buyer provides to the issuer. In the same way as a loan, a bond pays interest periodically (in the form of coupons) and, on the maturity date, returns the principal amount (the amount initially invested by the buyer).
The dates on which bondholders receive coupon payments (interest) are referred to as interest payment dates. Bond coupon payments are typically made every six months.
Organizing the Shareholders’ Meeting
According to the Law “On Traders and Commercial Companies”, joint-stock companies must organize a meeting of the Shareholders’ Assembly at least once a year. During the meeting of the Shareholders’ Assembly, the managers present the annual report to the shareholders regarding the company’s performance and strategies. The Supervisory Board of the company is also approved at the Shareholders’ Assembly.