On the asset exchange between NSD and Euroclear: was there even an exchange?
Last week,
Vedomosti reported that foreign investors would receive compensation for assets distributed in Russia.
"The Belgian depository Euroclear will compensate its clients for losses caused by counter-sanctions and legal proceedings in Russia using funds from its frozen account at NSD. The Belgian Treasury issued a permit to Euroclear to unfreeze part of the funds, and Euroclear informed its clients on April 1."
Based on the questions I received from subscribers, it became clear that most people don’t understand what exactly happened, why the Belgian Treasury suddenly decided to release something to someone, and what and to whom they will actually compensate. Let’s break it down.
A bit of background:
As you may remember, after the landmark case of Bank Saint Petersburg — the first in Russia to sue Euroclear, win the case, and recover funds from Euroclear’s accounts in Russia through enforcement proceedings — a stream of investors followed suit, eager to replicate the bank’s success.
However, it’s important to understand that Euroclear doesn’t have any property in Russia per se. The accounts opened under Euroclear’s name are essentially accounts that hold its clients’ assets. But that hasn’t stopped Russian courts or bailiffs. They have been willing to enforce judgments against Euroclear by seizing assets that legally belong to its clients — something that is legally questionable.
To cool down investor enthusiasm and stop the endless debits from so-called “type C” accounts (primarily Euroclear’s accounts), the President of Russia issued a decree in early January 2024 banning enforcement actions on type C accounts. This made it practically impossible to enforce judgments won against Euroclear by Russian investors.
In the letter cited by
Vedomosti, Euroclear for the first time revealed the names of those lucky few who managed to enforce claims and recover funds from Euroclear’s type C account in Russia
before the presidential ban took effect:
- Efim Naumovich Malkin (former senator from Chukotka)
- Asset Management Company “Lider”
- MTS Bank
- Rosbank
The total amount debited from Euroclear’s type C account in NSD based on these enforcement orders:
₽9,111,493,792.59.
Part two of the “Marlezon Ballet” (as they say) was:
Presidential Decree No. 198 dated March 19, 2024, titled
"On additional temporary economic measures related to the fulfillment of obligations on certain securities".
It allowed Russian residents and CFCs (Controlled Foreign Companies) to receive payments on Russian securities from type C accounts, which were opened in the name of higher-level unfriendly non-residents (i.e., intermediaries like Euroclear).
Under this decree, all remaining rubles in Euroclear’s type C account at NSD were debited.
Now let’s look at the other side:
You are a Euroclear client (or a client of a Euroclear client).
If Euroclear had reflected the debits made by NSD from its account, one day you'd open your statement and suddenly see that your rubles were gone.
Naturally, you would:
- File claims
- Sue Euroclear
- Demand compensation for your losses
Fully aware that this would lead to a flood of claims and lawsuits, Euroclear appealed to its regulator for help in resolving the situation. In the EU’s 15th sanctions package, Article 6b of Regulation 269/2014 was amended to include paragraph 5j, which grants the Belgian Treasury the authority to issue licenses for unfreezing funds frozen by Euroclear on NSD accounts
under the following conditions:
- The NSD debited funds from Euroclear’s account opened at NSD in accordance with Russian law, decree, regulation, court or administrative decision, or any other action directly or indirectly related to Russia, without Euroclear’s prior consent.
- The unblocked funds will be used exclusively by Euroclear to fulfill its legal obligations to its clients, and only up to the amount debited by NSD from Euroclear’s account. Using this new provision, Euroclear requested such a license from the Belgian Treasury — and has now received it.
What does this license allow?
It permits Euroclear to debit the following amounts from NSD’s accounts held at Euroclear:
- The total claims of Malkin, Lider, and MTS Bank
- The total ruble amount debited by NSD under stage 1 of enforcement of Decree No. 198: payments on Russian securities to Russian residents and friendly non-residents that were credited to Euroclear’s type C account before March 19, 2024
Euroclear is still awaiting the Treasury’s comments regarding the possibility of debiting an amount equivalent to
Rosbank’s claim.
What does this mean in practice?
Euroclear’s type C account at NSD is in
rubles.
In contrast, NSD’s accounts at Euroclear are in
16 foreign currencies.
Euroclear has
notified its clients in writing that on
May 12, it will:
- Debit the ruble balances from the ruble accounts of clients whose funds Euroclear was holding on its type C account at NSD
- Credit equivalent amounts in foreign currency, debited from NSD’s accounts at Euroclear
️For clients who are
not U.S. persons or citizens, Euroclear will credit the compensation directly to their accounts, and the funds will
not be blocked.
Clients are encouraged to verify their asset custody chains and determine whether additional licenses or permissions from local authorities are needed.
️Funds for
U.S. persons will be credited
as instructed by OFAC (Office of Foreign Assets Control), which asked Euroclear to distribute and
freeze these compensations.
The funds will remain
blocked until the recipients obtain a
specific OFAC license.
