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Bank of Russia to limit sales of securities issued by unfriendly countries to non-qualified investors

6 September 2022

From 1 October 2022, brokers will no longer execute non-qualified investors’ orders to buy securities of issuers from unfriendly countries if the portion of such securities in the investor’s portfolio exceeds 15% following a respective transaction. It was the instruction that brokers received from the Bank of Russia.

From 1 November 2022, the threshold for such transactions will be set at 10% of a customer’s portfolio, and from 1 December — at 5%. From 1 January 2023, brokers will have to suspend the execution of any orders of non-qualified investors to increase their positions in securities of foreign issuers from unfriendly countries.

This decision is aimed at minimising the infrastructure risks faced by non-qualified investors, since foreign financial institutions maintaining the record of such securities may block the opportunity to dispose of purchased assets without any warning. Over five million investors have already become victims of such blocking. It is very difficult to protect the rights of holders of these securities after the fact, as the solution of the problem is beyond the scope of Russian jurisdiction.

The instruction also covers orders to buy and sell deliverable derivatives, the underlying asset of which is foreign securities of issuers from unfriendly countries, as well as orders to increase short positions in such securities.

The restrictions do not apply to operations to close short positions, as well as transactions in foreign securities of Russian companies and issuers from friendly countries.

Further on, the Bank of Russia will decide on operations with securities of issuers from friendly countries, drawing on the outcome of market participants’ efforts to set up a custody system without depositories from unfriendly countries.