Western financial sanctions have not yet destroyed the Russian economy, as the ruble hits short term highs; however, individual investors at Russian exchanges are being severely impacted as the Kremlin has frozen foreign securities.
Few could have imagined that these funds would suddenly be blocked. But that’s exactly what happened last month when the Central Bank ordered the St. Petersburg Stock Exchange (the main foreign securities exchange in Russia) to block a large part of its clients’ assets. The move affected all securities whose storage and settlement passed through the National Settlement Depository (NSD). The only exceptions were foreign shares issued by Russian companies HeadHunter, Yandex, Ozon, Cian, TCS Group and Fix Price, wrote Russian independent news outlet The Bell.
International securities settlement house Euroclear ceased operations with the NSD and blocked its account back in March. But last week’s Central Bank freeze orders definitively separated freely-traded foreign securities from those which are now not tradable. The Central Bank restrictions impacted 995 foreign issuers out of more than 1,650 that previously traded on the exchange. Fortunately, some popular stocks – including Tesla, Apple and Microsoft – were not affected because they were not stored at NSD.
In addition, the NSD was hit by EU sanctions earlier this month, ending any prospect of unfreezing the securities in the near future.
The main problem for those seeking to get rid of frozen shares is finding buyers, said Konstantin Asaturov, director of the securities department at Sistema Capital Management, and, even if a buyer is found, the discount will likely be over 50 percent.
It’s difficult to know how many Russians use foreign brokers, but there are probably tens of thousands. Interactive Brokers estimated in April that it had up to 20,000 Russian-speaking clients.