Deep freeze. The dumb about unblocking foreign shares of Russians turned out to be fake

Anna Snezhina

On New Year's Eve, Russian business publications reported: The National Settlement Depository (NSD, part of the Mosbirzhi group) has received approval to unlock the assets of Russian private investors.

The corresponding licenses were issued on December 20 and 22, 2022 by Luxembourg and Belgium, the regulators of Clearstream and Euroclear depositories. The agreement will allow non-sanctioned citizens to unblock their securities, which have been suspended after the start of a special military operation in Ukraine.

A month later, these idle information shots only annoyed investors even more.

It should be recalled that operations on NSD accounts in the international depositories Euroclear and Clearstream ceased to be carried out in March 2022. On June 3, NSD itself came under EU sanctions, as a result, some of the securities of Russian investors were frozen by the decision of the Central Bank of the Russian Federation, dividends and coupons for them stopped coming. Payments are accumulated in foreign depositories, but cannot reach the accounts of Russians.

The licenses issued by Luxembourg and Belgium for unblocking Russian securities were aimed at terminating legal relations between European depositories and NSD. The finance ministries of the countries provided European operators with the opportunity to withdraw from obligations under operations, contracts and agreements with NSD until January 7. - When rumors about the unblocking of securities began to appear, it was immediately clear that there was no clarity on the details at all, and this was alarming.

I remember my feelings about Luxembourg – it is impossible to assess the reality or unreality of defrosting, because there is no specifics, which means that we have to treat these reports with a degree of skepticism. So it turned out, at least with Luxembourg – it did not come to practical actions," says Igor Nikolaev, Doctor of Economics, Professor, chief Researcher at the Institute of Economics of the Russian Academy of Sciences.  At the moment, Clearstream (Luxembourg) has refused to execute the license, citing the fact that it is not possible to fulfill all the requirements of the Ministry of Finance.

The number of assets in this depository was only 1/6 of all the blocked assets of Russians. Euroclear (Belgium) reacted much more loyally to the situation, but the hype that was inflated in the media significantly distorts the original message of European depositories, commented Igor Butakov, Chairman of the Board of CPC Capital of Regions, to NI:- Many investors began to wait for the soonest unblocking of assets.

But in the draft license, it was exclusively about the sale of assets, firstly, and secondly, according to brokers who applied for individual permits for clients, Euroclear insists on a full Due Diligence check of the owners of securities, i.e. a comprehensive assessment of all participants from the securities storage chain. This procedure should be carried out by a third-party auditor who has authority for the Belgian Ministry of Finance. Investors who have passed these checks at least once in their lives know that this procedure can take months, this is definitely not solved in a week. Now, given the increased number of requests to Euroclear, such a check can easily stretch for a year or longer," the expert says.

Even while waiting for licenses, brokers reported: after the approval of European regulators, unblocked assets from the sanctioned NSD will be transferred to "safe storage places". What are these places?

Withdrawal of securities from European depositories to Russian jurisdiction is an unreliable option, experts agree. It would be better if NSD, thanks to the licenses issued to it, could simply transfer Russian assets to other international depositories, and not to NSD's sub-accounts.

- There is practically no need to talk about safe storage places today. Conditionally safe assets can be stored directly in Euroclear and without the participation of third-party depositories, especially depositories from the Russian Federation. An alternative jurisdiction from the EU, for example, the UAE, Belize or Kazakhstan, can serve as an additional storage place," says Igor Butakov.

- Probably, when talking about "safe storage places", Russian brokers mean non-international, Russian jurisdictions. But you have to understand the iron rule: the value of shares is determined by the fact that they are listed on international capital markets. What kind of Russian depositories are we talking about? Moreover, currently there are no completely safe places in the whole world, - Igor Nikolaev believes.

So where were the frozen funds of Russian investors after January 7? It seems that some of the funds still ended up in the jurisdiction of Russia.

Broker Tinkov Investments informed NI that on the morning of December 30, as part of the Clearstream unblocking process, on behalf of NSD, some of the securities were transferred to "separate accounts". After that, on the same day, NSD informed brokers that it could not unlock assets under the general license.

By the end of this week, that is, in the first days of February, it is planned to unblock securities that, in agreement with NSD, were transferred to non–trading accounts - these are depository receipts of quasi-foreign holdings: YNDX, TCSG, VKCO, AGRO, ETLN, MDMG, GLTR, OKEY.

In the second half of January, Tinkoff Investments announced a "new opportunity": owners of frozen shares in Russia can now again make transactions with some securities – "on the OTC market inside Tinkoff." From the explanations that followed, it became clear that these are transactions exclusively of the broker's clients with themselves (?!)

"At over-the-counter trading in Tinkoff Investments, transactions take place only between our clients, and the broker himself acts as an intermediary. Thanks to this, it is possible to buy or sell assets for which trading has been temporarily stopped until the interaction between NSD and Euroclear is restored. Over-the-counter transactions can be concluded on working days from 14:00 to 19:00 Moscow time. We do not know when trading on the stock exchange will be restored," the broker Tinkoff Investments replied in the comments of "NI".

In addition to the actions of NSD, there are two ways to unlock the assets of a private individual, explained Sergey Glandin, partner of the NSP law firm, to RBC:"The first way is according to Article 6b (5) of Regulation (EU) No. 269/2014, when securities and money are issued in connection with the termination of relations.

It is difficult or virtually inaccessible for private investors, since it involves the termination of legal relations with European depositories with the help of a permit for the withdrawal or return of assets in accordance with permits from the Treasury Department of the Ministry of Finance of Belgium and the Ministry of Finance of Luxembourg.The second way is to obtain an individual license under Article 6 of the same Regulation No. 269.
"The competent authority of an EU member state has the right to allow partial unblocking, defrosting, and asset recovery at its discretion and in accordance with the conditions it deems necessary. Therefore, private investors who have individually submitted such an application can get any permission. Only when they get it is a question."The path of submitting an individual application to the depository of Belgium or Luxembourg and considering it by the regulator has not yet been fully passed by anyone, and filing such an application can cost tens of thousands of euros without any guarantee of success, experts emphasize.

At the moment, the market does not know the positive outcomes of individual appeals, court proceedings in favor of Russian investors-individuals. Of course, there is hope for unblocking assets, but it is already clear that without a full Due Diligence procedure, it is hardly worth waiting for success. The only thing that can now be advised to Russian private investors is not to spend money on legal services, as precedents are only expected. No one knows what the result will be and no one can give guarantees, says Igor Butakov.

One way or another, the unfreezing of Russian assets by the European Union will remain a big field for trading until the issue with the assets of foreigners frozen by Russia is resolved.