S&P Dow Jones Removes Russian Stocks (incl. ADRs/GDRs) from indices at a price of $0. (And why it does not matter.)
S&P Dow Jones has over 100,000 indices some of which include Russian stocks. Getting dropped from a major index is bad for a stock’s price. Good thing then the S&P 500 and Dow Jones Industrial Average do not include any Russian companies.
ADRs like $SBRCY, $OGZPY, $LUKOY are certificates representing legal claims to actual shares in Sberbank, Gazprom, and Lukoil traded on the Moscow Exchange.
S&P Dow Jones removing ADRs from their indices at a price of $0 does not mean the ADRs are worth $0 or would trade at $0 if markets were open. It just means S&P Dow Jones want to make headlines for backing Team America.
The more significant issue for the price of Russian ADRs is S&P Dow Jones downgrading Russia from “emerging market” status to “standalone.” The signal might dampen investor demand for Russian assets in general, although it’s basically just S&P Dow Jones’s opinion about Russia. I doubt Goldman Sachs and JP Morgan are going to boot their Russian traders from the Emerging Markets desk and make them go stand alone in the corner to trade.
Moreover, I have it confirmed in writing from the U.S. Department of the Treasury, Office of Foreign Asset Control, that existing U.S. sanctions currently do not and will not affect already-existing Russian equity/ADRs that issued prior to November 28, 2017. The sanctions prohibit trading in “new equity” and “new debt” only, meaning you cannot purchase equity or bonds if Sberbank or Gazprom decide to raise capital through an issuance in future.
Here is OFAC’s statement:
Directive 2 under Executive Order (E.O) 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions” (Russia-related CAPTA Directive) comes into effect on March 26, 2022. Please review FAQs 964, 966, and 967 for further information.
Please remember that Directive 1 under E.O. 13662 still applies to transactions with Sberbank involving new debt with a maturity of greater than 14 days and new equity issued after November 28, 2017. For further information on that, please review FAQs 370 and 371 in particular.
Please note, Sberbank is also subject to Directive 3 under Executive Order 14024 which, similar to Directive 1 under E.O. 13662 above, prohibits all transactions in, provision of financing for, and other dealings in new debt of longer than 14 days maturity or new equity of Sberbank issued after February 24, 2022. Directive 3 comes into effect on March 26, 2022. Please review FAQs 966, 983, 984, 985, 986, 987, 988 and 989.
Submitted March 05, 2022 at 09:50AM by Law_And_Politics
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