Europe carves out Russian securities from financial markets

By Huw Jones

LONDON (Reuters) -Europe's financial market on Monday began severing Russia's ties to its critical plumbing for trading, clearing and settling securities as sanctions on Moscow started to bite.

Euroclear in Brussels said it had closed its link to rival settlement house Clearstream Banking in Luxembourg for settling trades in Russian securities in response to European Union financial sanctions, following Russia's invasion of Ukraine https://www.reuters.com/world/europe/russias-isolation-deepens-ukraine-resists-invasion-2022-02-28.

Euroclear, owned by exchanges and banks, and Clearstream, part of Deutsche Boerse, settle securities transactions.

Clearing ensures a trade is completed even if one side goes bust, while settlement is the final leg when legal ownership is swapped between the two sides.

European countries want to stop Russian companies from tapping their markets for financing by barring access to market infrastructure.

"We closed the bridge with Clearstream Banking Luxembourg for the settlement of all Russian domestic securities and all securities denominated in the Russian rouble," a Euroclear spokesman said on Monday, referring to settlement of trades transacted inside Russia.

Clearstream said that with immediate effect the rouble is no longer an eligible settlement currency for transactions inside or outside Russia.

"Current pending instructions will not be settled and penalty fees will not be applied. ... Customers should not seek to credit Clearstream Banking with rouble amounts," it said.

Euroclear said it will stop settling rouble denominated trades transacted outside Russia from March 3, giving market participants a little time to adapt.

The European Union set a series of sanctions https://www.reuters.com/markets/europe/russian-banks-face-exclusion-allies-deploy-financial-nuclear-weapon-2022-02-26 against Russia on Friday, including curbs on central securities depositories such as Euroclear and Clearstream from serving Russian counterparties.

UK Foreign Secretary Liz Truss said on Monday that Britain would introduce legislation to prevent Russian banks from clearing payments in sterling.

Without access to clearing, banks could not access Britain's financial system to trade in sterling denominated assets.

"With over 50% of Russian trade denominated in dollars or sterling, our coordinated action with the United States will damage Russia's ability to trade with the world," Truss said, adding it would initially apply to Russia's biggest bank Sberbank.

Deutsche Boerse said on Monday that it has suspended trading in some Russian listings.

Euroclear settles transactions on pan-European exchange Euronext, as well as for the London Stock Exchange through its Crest unit.

The closure of the bridge with Clearstream is not material to Crest, Euroclear said.

The LSE told its members on Monday they must conduct their own checks to ensure compliance with any applicable sanctions, as trading in UK listings of Russian energy giant Gazprom and Sberbank continued on Monday.

The European arm of Sberbank faces failure https://www.reuters.com/markets/europe/european-banks-set-open-lower-after-raft-fresh-sanctions-2022-02-28, the European Central Bank said on Monday.

The LSE declined to comment on whether it planned to suspend trading in its Russian listings.

The London exchange suspended membership on Friday of VTB Capital, the trading arm of Russian bank VTB, which has been targeted with sanctions. VTB's depository receipts on the LSE have not traded since Friday's close.

(Additional reporting by Alistair Smout; Editing by Chizu Nomiyama, Will Dunham, Jason Neely and Jan Harvey)