The system LITAS-PHA started its operation on 19 November 2007 together with the system TARGET2-LIETUVOS BANKAS. The owner and operator of the system LITAS-PHA is the Bank of Lithuania.
The Purpose of the System
LITAS-PHA establishes conditions for financial institutions to make settlements in euro via the Bank of Lithuania as a direct participant of TARGET2-LIETUVOS BANKAS. Credit institutions may also receive intraday credit in euro, which are granted in the form of a credit line, in settlement accounts opened in the system LITAS-PHA.
The type of services provided in the system LITAS-PHA depends on the status of a financial institution in the payment system TARGET2-LIETUVOS BANKAS. If a credit institution participates in TARGET2-LIETUVOS BANKAS directly, it may use the credit line in the system LITAS-PHA and transfer the liquidity received using liquidity transfer orders to the PM account opened in the system TARGET2-LIETUVOS BANKAS. According to the Rules for the Granting of Intraday Credit in Euro, intraday credit should be repaid before the end of the business day. Therefore, the credit institution that used an intraday credit shall return the liquidity in the evening from the system TARGET2-LIETUVOS BANKAS to the LITAS-PHA settlement account for covering the liability.
If a financial system participates in the system TARGET2-LIETUVOS BANKAS indirectly via the Bank of Lithuania, conditions are established for it both to make settlements in euro with other institutions that have a similar status, and to initiate payment orders to and receive payments from the participants of the TARGET2 component systems. If such an institution is a credit institution, a possibility is also provided to it to receive an intraday credit in euro. In addition, the Bank of Lithuania may provide an additional service to financial institutions, i.e. to be a settlement bank, when such institutions participate in an ancillary system (for example, securities settlement system) that settles in the system TARGET2-LIETUVOS BANKAS.
All participants of the system LITAS-PHA may initiate credit transfers, and the Bank of Lithuania may initiate credit and debit transfers. Debit transfers are used for debiting the fees for the services provided to system participants. Direct participants of the system TARGET2-LIETUVOS BANKAS may provide liquidity transfers in the system LITAS-PHA, while they may use credit transfers only for the settlement with the Bank of Lithuania for the services provided.
The operation of the system is regulated by the Rules of Operation of the System LITAS-PHA and bilateral agreements concluded between the Bank of Lithuania and participants of the system.
Participation in the System
In addition to the Bank of Lithuania, the following entities may participate in the system LITAS-PHA: credit institutions and investment firms established in the European Economic Area and supervised by competent supervisory authorities, the Ministry of Finance of the Republic of Lithuania, the Central Credit Union of Lithuania and the institutions that provide clearing and settlement services and are supervised by competent institutions. In addition, branches of the banks established outside European Economic Area that have a permission issued by the Bank of Lithuania have a right to participate in the system LITAS-PHA.
The entities wishing to be admitted as participants in the system LITAS-PHA must have a bank identification code (BIC) and identify the numbers of its accounts and the accounts of its customers according to established standards, have the necessary hardware and system software, perform testing procedures, have sufficient technological resources and comply with other technical requirements.
On 19 November 2007, the participants of the system LITAS-PHA were the Bank of Lithuania, 8 commercial banks, 2 foreign bank branches, 1 financial brokerage company and the Central Credit Union of Lithuania. The constantly updated list of participants of the system LITAS-PHA is presented in the Official Systems List.
Operation of the System
The system LITAS-PHA operates on the same days as the payment system TARGET2-LIETUVOS BANKAS. Participants may submit payment orders from 7:45. The payment orders submitted are processed from 8:00. Participants may submit customer payment orders to 18:00 and interbank payment orders to 19:00. If customer or interbank payment orders are addressed to other participants of the TARGET2 component systems, their acceptance is terminated at 17:50 and 18:50, respectively.
Information is exchanged between the system LITAS-PHA and its participants by means of electronic messages signed using the digital signature. A payment order submitted to the system LITAS-PHA is verified to check whether its structure conforms to the message structure requirements described in the technical documentation of the system LITAS-PHA. If the payment order is verified and recognised as correct, an attempt is made to settle it immediately, i.e. the settlement account of the sending participant of LITAS-PHA at the Bank of Lithuania is debited and the settlement account of the receiving participant is credited. This moment is considered to be the moment of entry into the system, from which the payment order acquires legal protection established in Paragraph 1 of Article 7 of the Law of the Republic of Lithuania on Settlement Finality in Payment and Securities Settlement Systems. The moment from which a participant of the system LITAS-PHA or a third party may not revoke a payment order entered into the system coincides with the moment of entry into the system.
If the payment order is addressed to a participant of the TARGET2 component system, the Bank of Lithuania forms respective message to the payment system TARGET2-LIETUVOS BANKAS according to the received payment order of a LITAS PHA participant and sends it via the SWIFT network. The system TARGET2-LIETUVOS BANKAS debits the PM account of the Bank of Lithuania and credits the PM account of the receiving participant (irrespective of the TARGET2 component system, in which the account is opened).
If the sending participant of LITAS-PHA does not have sufficient funds, payment orders are placed into the payment queue. Participants of the system have various possibilities for the payment queue management: changing priority of the submitted payment order, revoking or suspending the payment order.
Risk Management
Participant of the system do not face credit risk, since payment orders are processed in real time via settlement accounts opened at the Bank of Lithuania. Meanwhile, various risk management measures are applied in the system LITAS-PHA to prevent other classical risks occurring in payment systems – liquidity and operational.
The issue of liquidity is important to the participants of the system LITAS-PHA, including those that participate in TARGET2-LIETUVOS BANKAS directly. Credit institutions in Lithuania maintain their required reserves (the main source of liquidity in the payment system LITAS-RLS) in litas. Credit institutions may use various ways of obtaining the liquidity necessary for making payments in euro: by using incoming payments, transferring from nostro accounts, borrowing in the interbank market, exchanging currency or they may use intraday credit received from the Bank of Lithuania, which is granted in accordance with the Rules for the Granting of Intraday Credit in Euro.
The possibility of system monitoring, which allows the participants of the system LITAS-PHA to monitor the change of their available funds and the state of payment orders submitted by them effectively, is also used for the management of liquidity risk. When the participants have a possibility of monitoring their payment order queue, they can manage it efficiently by changing priorities of the submitted payment orders, revoking or suspending them.
The payment system LITAS-PHA shares the same hardware and software with the payment systems LITAS-RLS and LITAS-MMS. Therefore, the same operational risk management measures are used for all payment systems. They include, in addition to other measures, alternative network providers for the sending of payment orders, reserve hardware located at different buildings, preparation of reserve work places and other measures that comply with national and international standards (e.g. ISO 17799:2005). Special attention is devoted to the business continuity planning and the preparation for various scenarios of extreme events. The prepared business continuity plans are regularly tested and updated.
Service Fees
The service fees of the system LITAS-PHA have been set in accordance with the Procedure for the Calculation of Service Fees of the System LITAS-PHA approved by the Resolution of the Board of the Bank of Lithuania No. 142 of 25 October 2007 “On Service Fees of the System LITAS-PHA”. Service fees were set following the principles of cost recovery, transparency and equal rights of system participants and taking into consideration the decisions of the Governing Council of the European Central Bank regarding the fees applied in the system TARGET2.
The fee of EUR 0.83 for the settlement of a payment order of a participant of the system LITAS-PHA addressed to another participant of the system LITAS-PHA or a participant of TARGET2 and the monthly fee of EUR 100 are applied from 19 May 2008.
The fee of EUR 0.83 is applied for the settlement of a liquidity transfer order from the system LITAS-PHA to the system TARGET2-LIETUVOS BANKAS.
System Statistics
The comprehensive statistics on the flows of the payment system LITAS-PHA is available here.
