1 Feb 2024 14:50

CBR hoping to unblock SPB Exchange client assets, but problem of excessive compliance exists

MOSCOW. Feb 1 (Interfax) - The Central Bank of Russia (CBR) is hoping for a positive result in the matter of unblocking assets of clients of the SPB Exchange , which has been sanctioned by the U.S., and is making every effort to do so, First Deputy Governor of the Central Bank Vladimir Chistyukhin said.

"SPB Exchange is making every effort to fulfill all obligations within the framework of those authorizations given by OFAC. You know that, unfortunately, even though there are authorizations, a number of counterparties simply react through compliance by suspending, actually blocking the operations of the sanctioned entity. I very much expect that SPB Exchange will achieve a positive result," Chistyukhin told reporters on Thursday.

The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) placed SPB Exchange on its sanctions list in early November 2023. At the same time, a license was issued to curtail operations with it by January 31.

After the sanctions were imposed, trading in foreign securities on the exchange was suspended and investors' assets were blocked. As the exchange explained, foreign counterparties, including those from friendly jurisdictions, suspended interaction with the trading floor due to fears of liability for violating the U.S. sanctions regime, including the application of secondary sanctions.

In December, the SPB Exchange agreed on a strategy proposed by international legal advisors. It includes removing the exchange's settlement depository - SPB Bank - from under its control by reducing its stake in the authorized capital, clarifying the OFAC general license to extend its validity to trading participants' clients and extending its term, and issuing a special license or a new general license to unblock client assets.

In early January, SPB Bank forwarded this strategy to OFAC. The Exchange noted that trading participants and their clients have the right to independently apply to OFAC for individual authorizations to withdraw assets from SPB Bank to other depositories.

After the introduction of U.S. sanctions, investors saw the blocking of about $3 billion in securities.

BCS said on Thursday that in January it received a letter from the SPB Exchange's settlement depository with a list of actions required to unblock assets: opening a depo account, as well as a bank account with SPB Bank, to which it plans to transfer blocked securities and investors' funds.

BCS has also received from SPB Bank a description of the procedure for transferring Hong Kong securities to another depository. The exact terms have not been set yet and depend on the decisions of higher depositories, the report said.

"SPB Bank is systematically working to unblock assets, including with counterparties from friendly jurisdictions. One of the possible options for unblocking Hong Kong assets involves withdrawal of client assets to an external depository. As part of preparatory work on this scenario, market participants have been offered to open accounts in another settlement depository," an SPB Bank spokesperson told Interfax.

He noted that the transfer of Hong Kong assets will be realized only if counterparties from friendly jurisdictions, which account for the rights to these, agree to such actions. "SPB Bank is conducting the relevant negotiations, no decisions have been made yet," the spokesperson added.

In an asset unlocking strategy presentation released in December, the exchange and SPB Bank said that SPB Exchange and SPB Bank were in talks with Hong Kong companies, with unblocking of non-U.S. securities likely to happen faster.

SPB Exchange launched trading of primary listed securities on the Hong Kong Exchange in June 2022. As of early November 2023, 115 such shares were available to investors.

In total, more than 2,000 shares and depositary receipts of international companies, as well as ETFs, were traded on the exchange before it was subject to U.S. sanctions.