Exclusive: Russian companies, global banks could reap unexpectedly from delisting of depository receipts

A photo illustration shows US dollar and Russian ruble notes in Sarajevo, March 9, 2015. REUTERS / Dado Ruvic / File Photo

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WASHINGTON / NEW YORK, April 14 (Reuters) – Russian companies and global banks, including BNY Mellon, Deutsche Bank, Citigroup and JPMorgan could benefit if Moscow moves to delist Russian companies’ depository receipts from foreign exchanges, according to two people with knowledge of the case.

The potential windfall is due to the fees that custodians of depository receipts can contractually charge investors when they cancel the product.

It is unclear how much companies and banks can earn, or whether the banks will charge the fees and risk annoying investors who say it would be unfair given the extraordinary circumstances that have been triggered by Russia’s invasion of Ukraine.

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However, the charges could potentially turn into hundreds of millions of dollars, according to Reuters’ calculations based on fee data from the sources.

The attack on Western sanctions Moscow is preparing to delist Russian corporate depository receipts from foreign exchanges and convert them into local Russian securities in an attempt to reduce foreigners’ control over these companies. Read more

Custody certificates are certificates issued by a bank representing shares in a foreign company traded on a local stock exchange. They allow investors to frolic in overseas stocks in their own geography and time zone.

There are more than 30 certificates of deposit in Russian companies, including Gazprom, Rosneft, Lukoil (LKOH.MM) and Norilsk Nickel (GMKN.MM) issued by BNY Mellon, Deutsche Bank, Citigroup, JPMorgan, among others trading in US and European markets.

Under standard agreements, depository receipts can be canceled by the issuer or investor. When this happens, the investor typically receives cash from the sale of the underlying shares, although they are instead entitled to take over the deposit.

Banks charge an administration fee, typically around $ 0.05 per. receipt, which can be shared with companies, said two sources.

If Moscow deletes Russian depository receipts, banks will have to cancel the products. Banks could still charge the fees even if their hand was forced, according to three sources.

For example, an investor in Rosneft with 150 million depository receipts representing the same number of shares in the company could be on the hook for $ 7.5 million in cancellation fees, according to Reuters’ calculations.

Pervasive Western sanctions can make it challenging for banks to transfer money to some companies.

Either way, some investors say the fees should not apply. A global asset manager told Reuters that if Russia passes the delisting law, there should be no fees as investors would have no choice in the matter. However, the other two sources say that the banks still have to cover their costs.

BNY Mellon, Deutsche Bank, JPMorgan and Citigroup declined to comment. Russian companies did not respond to a Reuters email seeking comment.


When Western sanctions hit Russian stocks from the end of February, the Moscow Stock Exchange closed and the Russian central bank banned foreigners from transferring shares from their depot. It also prevented foreigners from selling Russian shares.

The restrictions made it nearly impossible for banks to cancel receipts when asked by investors eager to cut back on their Russia exposure.

With the recently lifted restrictions on custodians, BNY Mellon, Citi and JPMorgan have resumed processing cancellations. But because the foreign banks still can not sell the shares, investors must instead take custody. To do this, investors need an account in Russia, which many do not have.

As a result, many investors are likely to hold on to the receipts for the time being, according to three people.

However, many investors are concerned about the delisting law that Russia is preparing. Read more

Aside from the potential cancellation fees, investors are worried about what will happen if they are unable to open a local depository.

In a note to customers, JPMorgan said that clients may be able to open a Russian account in some unspecified circumstances if the new law is passed.

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Edited by Michelle Price, Megan Davies and Nick Zieminski

Our standards: Thomson Reuters Trust Principles.

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