21 Jun 2022 20:52

Deconversion of depositary receipts to be possible automatically or in compulsory manner - amendments

MOSCOW. June 21 (Interfax) - Deconversion of depositary receipts (DR) access to which is blocked due to sanctions restrictions will be possible both automatically and in a compulsory manner depending on whether right to receipts are recorded in a Russian or foreign depositary, according to amendments seen by Interfax.

For owners whose rights are accounted in Russian depositories there will be an automatic exchange without reference to foreign infrastructure. The exchange will be initiated by the Russian issuers themselves, they will be obliged within five working days from the date determined by the Bank of Russia to send a corresponding notice to the Russian depository.

Companies that are temporarily or indefinitely allowed to maintain a listing of receipts on foreign exchanges will be able to request that the Central Bank exempt them from the need for automatic conversion, or to allow it after the closure of the program.

The depositary must carry out operations aimed at the transfer to receipts holders of shares of Russian issuers within the time frame allotted by the board of directors of the Central Bank, the amendments said.

"For cases of conversion with a sanctioned element on the side of the issuer or holder, a declarative procedure of conversion through a Russian depository without the need to apply for operations to foreign infrastructure is provided," the Central Bank of Russia (CBR) said earlier.

The amendments provide for the creation of a mechanism of "compulsory" reconversion of depositary receipts if the rights to them are accounted for by foreign depositories and transactions with securities are blocked due to sanctions.

The holder of such receipts will be able within 90 days from the effective date of this norm to apply to the Russian depository where the depo account is opened for registration of rights to shares of a Russian company, with a request for compulsory conversion of DRs into shares of a Russian issuer. The application must be accompanied by documents "available in the prevailing circumstances" to confirm the rights to the receipts.

At the end of the 90-day period for filing such applications, the depositary will be required within 10 business days to debit the shares from the depo account of the depositary programs and credit the applicant's open account with the shares of the Russian company, indicating encumbrances and restrictions on disposition, if any, on the DR (such information must be specified by the applicant in the application for conversion).

Conversion will not take place if there are fewer shares of the Russian issuer on the depo account of the depositary than is necessary for conversion DR for all applications.

A similar procedure is proposed for cases where the rights to securities of a Russian company are recorded in the depo account of a foreign nominal holder and transactions with them are blocked due to sanctions. The holder of such securities will be able to apply to the Russian depository where the depo account of the foreign nominee holder is opened with an application for "compulsory transfer of accounting of rights."

During the consideration of the draft amendments at the meeting of the Duma Committee on the Financial Market, its head Anatoly Aksakov asked Deputy Finance Minister Alexei Moiseyev if there will not be a mess, if people will not have to "wander around depositories".

"We proceed from the fact that people don't get anything at all now. Any other option is better than what we have now," Moiseyev told him.


The amendments not only establish the mechanism of DR discounting, but also expand the range of persons who can use it. The 114-FZ law in effect provides that this option is available only to those holders of receipts who acquired them before April 27, 2022 - the effective date of this law.

The amendments introduce a number of exceptions. The exchange of securities will be allowed to those who received DR after April 27 on transactions concluded before that date, the actual transfer of securities on which should have been held later, or was not executed in time due to sanctions. Furthermore, the mechanism of deconversion will be available for new DR holders, who received them after April 27 via the second part of repo deal, concluded before that date. Deconversion will be allowed in the event that depositary receipts passed after April 27 to the legal successor of the previous owner, or to the person in whose favor they were foreclosed on.


These changes are necessary to ensure the implementation of the FZ-114 law adopted in April 2022, which banned the placement of receipts on foreign exchanges and obliged that existing ones be delisted f the government commission does not give permission for them to be maintained.

However, a breakdown in communication between Russia's National Settlement Depository (NSD) and the depository and clearing systems Euroclear and Clearstream made it impossible to convert DRs into local shares. Back in March, Euroclear restricted operations on NSD's account, and in late March, its account was blocked by Clearstream, the international depository.

Inclusion of NSD in the EU sanctions list on June 3 "ultimately legitimized the restrictions that had already been in place," the Central Bank said.