Russia: Introduction of a new mechanism for Depository Receipts conversions
New Federal Law No.319-FZ (the Law) which was published and came into effect on 14 July 2022, amends and introduces new provisions of the Federal Law No 114-FZ “On Amendments to Federal Law on Joint Stock Companies and Certain Legislative Acts of the Russian Federation” dated 16 April 2022. The Law has introduced two different procedures of depository receipt (DR) conversions into underlying Russian shares depending on the holding structure.
According to the information provided to Clearstream Banking by the DR agents, the Law allegedly enables the DR holders to obtain the Russian shares underlying their DRs in a manner that disintermediates and is outside of the control and oversight of the DR Agents and the ICSDs. As confirmed by the DR agents, this process is not in compliance with the terms and conditions of the applicable deposit agreement governing the DR Russian programs.
The Law foresees two processes to obtain the Russian shares underlying a Russian DR Program:
- The Automatic DR Conversion would apply to the Russian custodians only. The Automatic conversion procedure has been clarified in a Decision of the Board of Directors of the Central Bank of Russian Federation adopted on 22 July 2022.
The automatic conversion phase started on 15 August 2022 and should be completed on the Russian market at the latest on 7 September 2022. This process would take place in different steps which may occur at dates which may vary within this range from one program to the other in accordance with the starting date of the process by the issuer.
According to the information available, the earliest record date that could apply to this automatic conversion would be on 22 August 2022. In order to ensure that the DRs remain on the customer accounts until they are removed for mark down or delivery to the DR agents, Clearstream Banking will suspend the settlement of all DRs with Russian underlying shares after close of business 19 August 2022 CET until further notice.
Then, in coordination with the DR agents, Clearstream Banking will make every effort to ensure that positions subject to automatic conversion events beyond its control can be identified and reconciled.
- The Forced DR Conversion would apply to DR holders with accounts at non-Russian custodians who are unable to convert DRs due to applicable sanctions and is available within a 90-day period from the effective date of the Law (14 July 2022).
DR holders electing to follow this procedure should send an application directly to the Russian custodians where the account of the DR program is opened.
Each Russian DR custodian is likely to impose its own set of requirements to evidence the identity of DR holder, the possession of DRs and eligibility to apply. The DR custodians could deny the release of shares underlying the DRs if the custodian has reasonable doubts with respect to the completeness or accuracy of provided information.
This Announcement does not represent a legally binding description of the procedure set up by the Resolution and cannot be relied upon as such. It is based on information provided to Clearstream Banking by third party sources and Clearstream Banking cannot warrant any of its content and bears no responsibility to update it. Customers may wish to seek independent legal advice on the interpretation of the above procedure.
Clearstream Banking makes no recommendation and gives no investment, legal or tax advice regarding the above matters. Clearstream Banking shall not be liable, and customers electing to follow the above process shall bear sole responsibility, for any and all harmful consequences, losses or damages, which may be suffered by customers or DR holders in connection with the above procedure.
Clearstream Banking requests customers electing to follow the above procedure to always make an appropriate determination that such procedure falls within the permitted activities and is in compliance with all applicable sanctions, including those of the EU, United Kingdom and the United States.
For further information, customers may contact Clearstream Banking Client Services or their Relationship Officer.
1. Clearstream Banking refers to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany, and registered in Register B of the Amtsgericht Frankfurt am Main, Germany, under number HRB 7500.