Huw Jones

LONDON (Reuters), -Monday saw Europe’s financial sector cut all ties to Russia, as the sanctions on Moscow began to take effect.

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.

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

Clearing allows for a successful trade even when one side is insolvent. While settlement, which is the last leg of legal ownership swap between the sides, ensures that the transaction is complete.

European countries are trying to block Russian companies accessing their markets for funding by closing off market infrastructure.

A Euroclear spokesperson said Monday that Clearstream Banking Luxembourg had closed its bridge to Russia for settlement of Russian domestic securities. This refers to trades inside Russia.

Clearstream stated that the Russian rouble has been removed from eligibility as a settlement currency in transactions within or outside Russia.

“Current pending orders will not be resolved and penalties fees will not apply. Clearstream Banking advised that customers should refrain from crediting Clearstream Banking using rouble sums.

Euroclear announced that it would stop settlement of rouble-denominated foreign trades from March 3. This will give market participants some time to adjust.

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.

Liz Truss (UK Foreign Secretary) stated Monday that Britain would adopt legislation to prohibit Russian banks from receiving payments in sterling.

Without clearing access, banks couldn’t access Britain to trade in sterling-denominated assets.

Truss stated that more than 50% of Russian trade is denominated either in sterling or dollars and his coordinated actions with the United States would harm Russia’s ability trade with the rest of the world. He also said it would first apply to Russia’s largest bank, Sberbank.

Deutsche Boerse announced Monday that trading has been suspended in certain Russian listings.

Euroclear is able to settle transactions both on Euronext’s pan-European counterpart, and for London Stock Exchange transactions through its Crest unit.

Euroclear stated that the closure of Clearstream’s bridge isn’t important to Crest.

LSE advised its members Monday that they should conduct their own checks in order to comply with all applicable sanctions. On Monday, trading continued in UK Gazprom listings (MCX:), and Sberbank.

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.

LSE refused to comment about whether or not it intended to stop trading on its Russian listings.

VTB Capital, the trading division of Russian bank VTB Bank, was suspended by London’s exchange on Friday. This has resulted in sanctions being imposed against VTB Capital. VTB Capital’s depository receipts at the LSE were not available for trading since Friday close.