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On August 17, the Moscow Exchange begins trading in the US shares (see Kommersant dated July 9). As a source in a large broker told Kommersant, the issue of admitting the persons located in Crimea to such trading had not yet been resolved, since their participation in trading in the US securities could result in a potential risk of sanctions. According to such source, the exchange’s lawyers have already had a few meetings with companies and offer to deny such clients at the brokers’ level. “But it is not clear on what basis we would deny: the exchange provides us with no official document”, the source says.

The sources in two other large brokers confirmed the problem to Kommersant. One of them expressed a hope that the Moscow Exchange would anyway work out the solution. Another source told Kommersant that there were inquiries to the Bank of Russia, but there was no response. A Kommersant’s source close to the exchange also confirmed that the compliance departments of both the exchange and the central depository were working on the issue, but there was no clear solution so far.

Representative of the Moscow Exchange told Kommersant that the exchange did not conclude any contracts with individuals and legal entities who were clients of brokers, that is, all KYC procedures for identifying a client and determining the availability of products for investing were conducted by an exchange trading participant — a broker.

The problem of admitting the persons located in Crimea to trading in the US securities was discussed as early as last autumn in connection with the Saint Petersburg Exchange where foreign shares are traded in Russia. According to a top manager of one of the brokers, now the Saint Petersburg Exchange does not admit the persons located in Crimea to trading, but such denial comes not from the exchange itself, but from a superior broker through which the exchange puts in and takes out shares in the US market. Any investor intending to trade the US securities undergoes a simplified identification procedure, which, in particular, provides the information on his/her/its location. “In this case, the denial comes from the foreign company, which works under the US law”, the source explained to Kommersant. The second source in the stock market confirmed that admission to the Saint Petersburg Exchange was denied through a foreign person. The Saint Petersburg Exchange declined to comment it.

The severity of the consequences if the risk of a sanction restrictions violation is realized is difficult to overestimate: the person’s assets under the US control may be blocked and any transactions with the US legal entities and individuals may be prohibited, Natalia Abtseshko, Head of International Practice of Vegas Lex, says. <...>

The problem of sanctions has been acute for the Russian professional participants since 2014, and, during all this time, there has been a discussion on the interpretation of a rather vague US legislation, Maxim Kuzyakin, Deputy General Director of Aton, says. Aton is one of four Russian companies with the QI (Qualified Intermediary) status and may submit investor forms to reduce income tax to the US tax authorities. According to Mr. Kuzyakin, the consensus is that a broker should always know its client: this is, first of all, necessary to protect the interests of the investors themselves and to remove any risks of asset freezing by international depository and clearing agencies. For this reason, he says, all major actors have long since decided on their attitude to such risk.

Full text of the article may be found here: https://www.kommersant.ru/doc/4432856