Russia has approved the rules and conditions for the conduct of auctions for the purchase by non-residents of foreign securities held by residents, including using funds on C-type bank accounts

1. Collection of sale offers from Russian investors (individuals): 25 March – 8 May 2024
2. Formation of lots by the auction organiser: 13–31 May 2024
3. Collection of bids from potential buyers (non-residents): 3 June – 5 July 2024
4. Determination of sale price and acceptance of bids: 29 July 2024

The auction organiser will be Investitsionnaya Palata LLC.

The auction conditions cover:

• shares of foreign issuers (Apple, Amazon, Intel, Tesla, Соса-Сola, et al.);
• depositary receipts for shares of foreign issuers;
• investment units;
• ETF securities – exchange-traded investment funds which are registered outside Russia but whose shares can be purchased on the Russian stock market.

The auction conditions do not cover, inter alia:

• Eurobonds;
• shares and receipts of issuers which are registered abroad but whose main business is in Russia (Yandex, Ozon, X5, CIAN, et al.);
• structured notes;
• unclassified foreign financial instruments.

A full list of foreign securities which may be offered for purchase is available on the website: https://vykupicb.investpalata.ru/. 

Decree No. 844 specifies that only foreign securities recorded in accounts held by the central depository (NSD) with foreign organisations may be offered for purchase. Securities held via SPB Bank (without the NSD in the holding chain) are not eligible for auction.

Securities remaining in a portfolio over and above securities with an aggregate initial value of 100,000 rubles will not be eligible for auction and will remain frozen.

Sellers of foreign securities may be Russian individuals who are holders of foreign securities and those who have placed foreign securities under individual trust management or hold unit investment funds (UIF) units which include foreign securities (hereinafter, “Holders”). 

The aggregate initial value of securities owned by one resident which are to be sold may not exceed 100,000 rubles (the 100,000 ruble limit applies to the total of all sale offers from one investor, including offers relating to UIF units).

Offers to sell foreign securities must be sent to the auction organiser not directly but through professional securities market participants (brokers, trustees or management companies of UIFs). According to clause 6 of Decree No. 844, professional securities market participants and management companies of UIFs must not charge resident individuals a fee for the handling of transactions (operations) involving foreign securities. The auction organiser will not charge those individuals a fee for the organisation and conduct of auctions.

After resident sellers have submitted a sale offer, they will retain ownership of the foreign securities offered for purchase but will be temporarily barred from disposing of those securities.

Resident private investors do not need to obtain a permit to participate in auctions.

The initial value of foreign securities will be determined in rubles using the Bank of Russia exchange rate based on the closing price of the foreign securities on 22 March 2024 (primary listing exchange prices expressed in rubles using the Bank of Russia exchange rate will be taken as the basis). If a particular security was not traded on 22 March 2024, prices on an earlier date will be used.

The actual sale price of foreign securities will be determined through a competitive process among potential non-resident buyers. The actual sale price of each foreign security may not in any event be lower than the initial value of the foreign security.

It is important to note that an offer made by a resident seller to sell foreign securities by auction is irrevocable, and foreign securities which are the subject of a sale offer will be subject to restrictions preventing the Holder from disposing of them until the expiry of the offer or the completion of settlements for the purchase of the securities, whichever occurs first. During this time the market value or prices of the foreign securities may change, rising above or falling below the initial value. Furthermore, there is no guarantee that all the foreign securities will be purchased by non-resident buyers and the auction organiser is not under any obligation to purchase foreign securities from Holders or to sell them to non-resident buyers. Thus, Holders assume all risks associated with changes in the market prices of foreign securities and in currency exchange rates which occur while the disposal of foreign securities is restricted.

Buyers of foreign securities may be non-residents (including persons of unfriendly foreign states).

Non-resident buyers, acting independently or through authorised representatives, submit offers to the auction organiser to purchase specific lots of foreign securities, defined by the auction organiser, for rubles at a price not lower than the starting price of the lots (set by the auction organiser as the initial value of the foreign securities). Non-resident buyers must also attach supporting documents required by the auction organiser (including foundation documents and documents confirming the authority of the signatories) and transfer a sufficient amount of funds in rubles from a bank account or a C-type bank account to the organiser’s bank account to pay for all the lots specified in the purchase bid at the stated price.

After the bid selection process has been completed and the final price has been determined, the transaction is concluded:

• Russian resident private investors receive the funds deposited by non-residents (the funds are transferred by the auction organiser to the accounts of brokers, trustees or UIF management companies for subsequent transfer to resident individuals);
• non-resident buyers receive foreign securities (the securities are transferred to their special transit custody accounts which enable purchased securities to be transferred from the Russian depositary infrastructure to a foreign infrastructure without additional authorisations from Russia).

The conditions of a special transit custody account are established by a Decision of the Board of Directors of the Bank of Russia of 26.12.2023. An application to open such account for a non-resident and to credit to it foreign securities purchased by the non-resident through an auction is submitted by the auction organiser. The depositary opens the account without concluding an agreement with or receiving an instruction from the non-resident and without carrying out identification procedures required by AML/CFT legislation. However, the non-resident (depositor) will have to go through identification procedures and conclude a depositary agreement in order to carry out future operations on the account, including the withdrawal of foreign securities from the account for transfer to an account with a foreign depositary.

Unsold foreign securities are not debited from the custody accounts of their holders, and funds of non-residents which have not been used to make purchases will in this case be returned to their ruble accounts (including C-type bank accounts).