European clearing houses, including Clearstream in Luxembourg, have stopped trading in Russian and rouble securities. Matic Zorman/archives

European clearing houses, including Clearstream in Luxembourg, have stopped trading in Russian and rouble securities. Matic Zorman/archives

The European response to the Russian invasion of Ukraine may well bring to a halt, at least temporarily, the activities with Russia of the two European clearing houses, Clearstream in Luxembourg and Euroclear in Belgium. The risk is that many transactions will be manually investigated by compliance teams.

The arrival of the new package of sanctions against Russian individuals and entities should not cause too much of an uproar for most banks. However, there are others with significant exposure to Russia due to their strategic role in international financial trade for which the arrival of these sanctions poses a real operational problem. This is particularly the case for Clearstream, whose parent company is in Luxembourg.

Since 2006, Clearstream has been offering its customers access to the Russian market. In 2012, the clearing company extended this service to Russian government bonds, Obligatsyi Federal'novo Zaima (OFZ), on an over-the-counter basis. With the 2013 entry into service of the Russian central securities depository, the National Settlement Depository (NSD), which has a direct link to Clearstream, custody fees have been reduced by 52% for European investors passing through Clearstream.

Possible sanctions still to come

Unfortunately, the announcement of the new sanctions decided by the European Council has already been made. In a communication to its clients on Monday, the Deutsche Börse subsidiary indicated that it would stop "with immediate effect" the settlement of Russian domestic securities and transactions in roubles until further notice.

The clearing house also announced that securities linked to Russian financial institutions--such as VTB Bank and Sberbank, which just announced it is leaving Europe due to safety risks and cash outflow issues--are no longer eligible. In its , Clearstream leaves the door open to other possible sanctions: "This is not a comprehensive list of security codes that may be subject to sanctions-related restrictions in the future.”

Closed door for Russian security codes

Contacted by Delano’s sister publication, Paperjam, the clearing house confirms: "Cleastream is implementing measures to ensure compliance with applicable sanctions and believes it is well-placed to absorb the impact of existing and proposed measures."

The Luxembourg financial institution adds: "Settlement in certain securities codes is no longer possible, and it is no longer possible for certain entities to distribute new instruments. The Bridge is closed for all Russian ISINs.”

The impact of the sanctions has not only affected Cleastream. Its Belgian counterpart, Euroclear--Europe's second largest clearing company--has, for example, closed its bridge with Clearstream since 25 February for the settlement of both all Russian domestic securities and all securities denominated in roubles, according to a document for clients.

Increased due diligence

The message sent by Euroclear to its clients concludes with a note of caution regarding the possibility that transactions may be suspended or blocked due to an investigation by compliance teams, disclaiming any liability for damage or loss resulting from delays that may be caused. In the event of a negative result, the transaction concerned will simply be rejected.

Finally, Euroclear reminds participants in its clearing network, as well as the entities with which they do business, of the importance of due diligence and compliance with international sanctions at every stage of the custody cycle.

This article was originally published on and has been translated and edited for Delano.