Russia’s largest provider of foreign ETFs (Exchange Traded Funds) FinEx plans to appeal to the Belgian Ministry of Finance and the Central Bank of Russia (CBR) for permission to buy back shares in its funds from Russian clients, according to Kommersant daily.
The funds remain blocked in the National Settlement Depository’s (NSD) accounts of Euroclear due to EU sanctions for Russia’s military invasion of Ukraine. In the past, Clearstream and Eurostream depositories have given explanations about the EU’s sixth sanctions package, where they say that any operation with the Russian NSD will be considered sanctions-busting.
However, as reported by bne IntelliNews, this week the EU allowed transactions with NSD from EU counterparties on two conditions. Firstly, NSD shall not receive any profit from the transactions. Secondly, the transactions must be approved by the counterparties’ respective national regulators.
For example, in the case of Euroclear, it will be necessary to obtain approval from the Belgian financial administration.
FinEx will now have to obtain a positive statement from the Belgian regulator that such transactions do not breach sanction restrictions. Eventually down the long regulatory road, FinEx could be able to redeem its ETF shares from unsanctioned Russian investors into the accounts of another foreign broker.
According to the Moscow Stock Exchange, FinEx had 22 ETFs listed on it at the end of 2021 with a total net asset value of RUB 99 billion, which is 98.5% of all funds of this type on the exchange.
FinEx has resumed net asset value (NAV) calculations for 21 of the 22 remaining ETFs with combined assets of $1bn (RUB60.5bn), but actual operations have been suspended due to a Euroclear ban.
Earlier, Tinkoff Bank (TCS banking group) said it would buy back blocked ETF Tinkoff Perpetual Portfolio USD for RUB500mn, according Kommersant.
Some analysts surveyed by Kommersant doubt that the Belgian Ministry of Finance will dare to set a precedent for releasing toxic Russian assets. Others believe that a positive outcome is possible, but note that there are not many qualified lawyers in Russia who can handle such a complex sanctions case.
FinEx will also have to carry out its own due diligence to identify sanctioned customers in the customer base. Finally, the company will have to convince the CBR to waive the ban on transactions with “unfriendly” countries.
It was previously estimated that over 1 million Russian retail investors have seen their investments in foreign stocks and other securities worth over RUB2 trillion blocked due to the fallout from Russia’s military invasion of Ukraine.
NSD is a subsidiary of the Moscow Stock Exchange and the Central Securities Depository of Russia, which is the main register of property rights to securities. NSD also has depository receipts for the Russian issuers that were listed abroad before the invasion, but are now delisted abroad apart from a dozen state-approved exceptions.