Russian Central Bank working on framework for pools of holders of frozen foreign shares for redemption with money from 'C' accounts

MOSCOW. June 20 (Interfax) - The Central Bank of Russia (CBR) is working on a framework that is designed to allow Russian investors to exit foreign securities frozen since last year owing to sanctions, and to do so at a premium rather than at a discount, Central Bank First Deputy Governor Vladimir Chistyukhin said on Tuesday at a meeting of the committee on the budget and financial markets of the Federation Council.

Chistyukhin was asked during the meeting what investors should do with their portfolios of frozen foreign stocks and bonds, and does the regulator have any vision for exiting the situation, "or should one be patient."

The first option is to exchange blocked assets, Chistyukhin recalled.

"The question currently arises regarding how to try to overcome the sanctions restrictions that are primarily imposed on Russian infrastructure and are distributed through the infrastructure to Russian holders of securities, primarily to Russian retail investors. There is the first option. If we take, in principle, an investor as such, when there are direct reciprocal obligations. Not a frequent option, but it occurs, and in this sense, the Russian individual has an obligation to a foreign individual, a foreign person to a Russian person, and they can actually exchange these obligations, including by replacing them with securities," Chistyukhin explained.

"In order to do this, we must pass a licensing intergovernmental commission, and some sort of permission must be obtained abroad from their sanctions authorities, though these transactions are implemented. The question is whether they are large. No, they are not. In terms of volume, they could be quite good, though these are isolated cases," Chistyukhin said.

The second option that the Central Bank is discussing and working out is establishing pools of holders of foreign securities, who "could exercise their will to sell their securities," Chistyukhin said.

"At the same time, we believe that they should be sold at a premium rather than at a discount. Sell for what? At the expense of funds on 'C' type accounts that foreign legal entities and individuals have. Why at a premium? Because many foreign persons have already reserved funds that are in 'C' type accounts for a long time, meaning that they actually cost zero for them. In this sense, receiving at least something is already a big plus," Chistyukhin said.

"Implementing this type of framework, a liquidity pool, is a very large legal process, and it needs to be properly formalized, as well as a technological or organizational process," Chistyukhin said. The CBR is currently working on this framework, "but it is very difficult to implement," Chistyukhin said.

The CBR disclosed the amount of funds accumulated on special "C" accounts for the only time at the beginning of November 2022, when the amount exceeded 280 billion rubles. According to Interfax sources, the figure was close to 600 billion rubles at the end of 2022. The CBR has not commented on what the amount currently is.