Investors of Russian-based stocks in limbo as exchanges mull halted stock market
Trading in stock of Russian-based companies on U.S. stock exchanges is now in limbo after being halted this week, and it's anyone’s guess how long restrictions will last.
Sanctions and securities law experts say the uncertainty surrounding when or if investors can move their assets stems from the unprecedented scope of the federal government’s retaliatory actions and the speed with which they’re unfolding.
“It really is the case that the law today may not be the same as the law yesterday, or as what the law will be tomorrow,” Schuyler Schouten, a sanctions law expert and partner with Jones Day, told Yahoo Finance. “In the case of this current crisis, we are effectively seeing a year's worth of sanctions changes compressed into a single week.”
'We have no clue what is going to happen'
The halts were imposed over “regulatory concern” by Intercontinental Exchange Incorporation’s (ICE) New York Stock Exchange (NYSE) and by the Nasdaq following wide-ranging U.S. economic sanctions against Russia, meaning that investors holding impacted shares are blocked from selling them on either exchange until the trading holds are released.
Neither the NYSE nor Nasdaq responded to requests for comment.
Prior to the U.S. exchange halts, Russia’s Central Bank closed the Moscow Stock Exchange — sending shares of Russian stocks listed in the U.S. tumbling. Investors on London’s Stock Exchange, which didn’t impose a halt until Thursday, also dumped shares. The sell-offs, Barron’s reports, have whittled shares in some of Russia’s multi-billion-dollar companies into penny stocks.
Schouten underscored how significantly the complex interrelationships between involved parties drive uncertainty over the fate of shares on U.S. exchanges.
“I think it's fair to say that this is a militarily, politically, and legally complex sequence of events, and that we are likely at the beginning,” he said.
Matteo Gatti, a professor of corporate and securities law, noted that under traditional circumstances, trading halts are temporary in nature and put in place to protect price stability. The current sanctions-related halts, on the other hand, aren’t necessarily tethered to those rules, making their duration difficult to predict.
“Just like anything else out of Russia right now, we have no clue what is going to happen,” Gatti told Yahoo Finance.
A Wall Street Journal report described the suspended trading as a temporary measure intended to give each exchange’s regulatory teams time to study their compliance obligations under the new U.S. sanctions.
“At the end of the day, sanctions are legal instruments,” Schouten said, explaining that for that reason, potentially impacted parties commonly take time to assess new restrictions.
'Regulatory concerns can also be something neutral and technical'
The halts come amid a flurry of activity meant to punish Russia for invading neighboring Ukraine.
On Monday, the OFAC announced the immobilization of all assets of the Russian Federation’s central bank, its National Wealth Fund, and its Ministry of Finance, held either in the United States or by U.S. citizens. The sanction includes Russian financial services companies, including the Joint Stock Company Management Company, and the Russian Direct Investment Fund.
On Wednesday, emerging markets index providers MSCI and FTSE Russell said they planned to remove Russian equities from their indices. An executive for MSCI reportedly told Forbes that the U.S. sanctions toll on Russia’s market has rendered it “uninvestable.” Asset manager BlackRock, which manages the $308 million iShares MSCI Russia ETF (ERUS) cautioned investors on Tuesday that it had temporarily suspended creating new shares.
ICE has also prohibited Russia from using its markets to raise new capital.
OTC Markets Group, which hosts Russian-based company stocks, and the Depository Trust and Clearing Corporation reportedly told Reuters they are evaluating the sanctions on Russia.
Gatti noted that even if sanctions do not legally obligate the exchanges to continue the trading halts, Moscow’s decision to close the country's primary stock market could trigger their continued suspension.
“Regulatory concerns can also be something neutral and technical, such as Moscow being closed,” he said, citing the exchanges’ own respective rules that, in addition to U.S. law, govern when trading must pause.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
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