Experts explained why things may not go beyond the concept
The Bank of Russia, together with the government commission for control of foreign investments, is developing a mechanism for the exchange of blocked assets through the mediation of depositories and professional participants. It will not take place in the form of exchange trading, but at the same time “at the market price.” This was stated by the Deputy Head of the Department of Investment Financial Intermediaries of the Central Bank of the Russian Federation Olga Sizova. The project is at the preparation stage. MK discussed with experts how real it is and who it will affect.
As Finance Minister Anton Siluanov said in August, 3.5 million Russian investors have blocked assets, and their total value is estimated at 1.5 trillion rubles. And in mid-November, the Bank of Russia presented a rough concept of a mechanism for exchanging frozen foreign securities (FBS) of Russian investors (worth up to 100 thousand rubles per portfolio) for assets of foreigners blocked in Russia in type “C” accounts. According to the head of the Central Bank, Elvira Nabiullina, more than 80% of Russian investors fall into this category. Let us remind you that a type “C” account is a special account that can be opened for a foreign investor at a bank, broker or depository. In particular, dividends on shares and coupons on bonds in rubles can be transferred to it. As the Central Bank of the Russian Federation reported in November last year, the total amount of funds in type “C” accounts exceeds 280 billion rubles.
The exchange mechanism proposed by the Central Bank of the Russian Federation will look like this:
1. The organizer of trading through the depository (the so-called professional participant in the securities market who is responsible for recording and storing rights to them) will send an invitation to make an offer (an offer to conclude an agreement with the addressee, which must describe its essential terms). Depositories must inform their clients that they have the right to make offers to sell blocked foreign securities.
2. Investors will send their offers for the sale of securities through brokers, who, together with the auction organizer, will have to control the threshold sales amount of 100 thousand rubles.
3. As part of the exchange, foreign securities (BS) of Russians will be sent to a special section of the securities account (this is the name of the account for recording, confirming the investor’s ownership of securities and for trading them on the stock exchange), then the already sold securities will be transferred to the account auction organizer.
4. When clients send offers and they are collected by the auction organizer. After which he will send an invitation to purchase the securities offered for sale directly to non-residents (foreigners). And they will have to send the offer to their intermediaries.
5. Foreigners will transfer money to the account of the auction organizer, including from type “C” accounts (this will require changing the regime on these accounts). Money from foreigners will be transferred to the accounts specified in the offers along with a list of securities sold and the prices at which the transactions were made. The broker can then transfer money to clients’ accounts if the client so chooses. At the same time, clients of Russian professional participants will not be charged for the exchange procedure.
Earlier, First Deputy Chairman of the Central Bank Vladimir Chistyukhin expressed hope that the proposed mechanism for exchanging blocked assets of investors will work in practice, but this requires the consent of regulators abroad. At the same time, the Central Bank of the Russian Federation itself emphasized that it is not conducting any discussions on the mechanism for unblocking foreign assets in NSD accounts either with foreign regulators or with potential participants in the exchange of blocked assets. This is indirectly confirmed by the European Commission, where, in response to relevant questions from the Russian media, they stated that they have no information about plans to exchange frozen assets with our country. There are not even negotiations on this topic.
Most of the experts surveyed are extremely skeptical about the possibility of implementing such a mechanism. “This will not work, because representatives of Western countries will not agree to this,” says Alexander Razuvaev, a member of the supervisory board of the Guild of Financial Analysts and Risk Managers. “We can only wait for the end of the conflict and the unfreezing of our investments abroad, including Central Bank reserves, and investments of non-residents here. I think that this will still happen one day, because otherwise the West would have already transferred the reserves of the Central Bank of the Russian Federation to Ukraine.”
“The mechanism for exchanging blocked assets with foreigners, proposed by the Central Bank, still looks crude,” Lazar Badalov, associate professor of the RUDN Faculty of Economics, continues the conversation. — There are too many nuances and details, without which such a procedure will be impossible to implement. But the main problem is that foreign depositories have not yet responded to such a mechanism and it can be assumed that their reaction will be negative.”
In addition, there are a number of questions that do not yet have answers. For example, representatives of the Central Bank talked about exchanging assets “at market price,” but what would be considered a market in this case and where it would be located. “How will the amount be repaid at the market price? — asks investment advisor Yulia Kuznetsova. — At what market price exactly? On what repayment date? Will everything be sold on the same day?” The regulator does not answer these questions.
And another important nuance lies in the legal assessment of such transactions, given that classic brokerage agreements do not provide for such an exchange procedure. Consequently, financial institutions may be reluctant to expose themselves to legal risks. Let us recall that on November 8, 2023, Russian President Vladimir Putin signed a decree on measures for the exchange of frozen assets of Russians and foreigners “On additional temporary economic measures related to the circulation of foreign securities.” The exchange mechanism proposed by the Central Bank of the Russian Federation looks like an attempt to implement this decree, but so far there are so many questions about it from lawyers, brokers, financiers and market participants themselves that it looks more like “good wishes” than a real action plan.