One of the clients intends to collect money from Univer Capital and the depository for securities sold on account of the broker’s debts. Getting them will be problematic due to the financial problems of the company, experts say.
Photo: univer.ru
The joint-stock company GFT Mutual Investment Funds filed a lawsuit against the Univer Capital broker (Univer Capital LLC) and the National Settlement Depository (NSD), which is part of the Moscow Exchange, follows from the documents of the filing cabinet of arbitration cases. The lawsuit concerns one Eurobond of the Russian Federation with a par value of $200,000.
The case file states that GFT Mutual Investment Funds asks to oblige Univer Capital and NSD in the event of redemption of Eurobonds of the Ministry of Finance to pay the holder of the paper its face value in the amount of $200 thousand and a coupon in the amount of $4.5 thousand “or a similar amount, calculated in Russian rubles, at the exchange rate of the Bank of Russia on the date of transfer. According to NSD, the Eurobond, which is the subject of the claim, should be redeemed on April 4, but the Ministry of Finance announced an early redemption of bonds in ruble terms and on March 31 announced the redemption of 72.4% of the issue volume.
GFT Mutual Investment Funds is asking the court to oblige Univer Capital and NSD to conduct a transaction to transfer the Eurobond of the Ministry of Finance owned by the plaintiff. The instruction for this transaction was handed over to the broker by GFT Mutual Investment Funds on March 11 (at that time, securities were not traded on the Moscow Exchange). Other details of the transaction are not disclosed in the court documents, RBC sent a request to GFT Mutual Investment Funds and NSD.
A representative of Univer Capital confirmed to RBC that GFT Mutual Investment Funds is a client of the company. As the broker previously reported, at the end of March, after the opening of the stock section of the Moscow Exchange, the securities of its clients (OFZ and Eurobonds) were forcibly sold to fulfill Univer Capital’s obligations to the National Clearing Center (NCC, part of the Moscow Exchange group).
Broker “Univer Capital” announced the forced sale of OFZ clients
“The broker did not separate clients’ assets from their own securities, all of them were accounted for on a single broker’s account with the NCC. Due to the fact that the broker had a debt on transactions, NCC forcibly sold these assets to fulfill the obligations of the broker and withheld money from the sale of securities, ”Alexey Ponomarev, a member of the Board of the Association of Bondholders (ABO), explained to RBC. Left without money and assets, the client of the broker in this case can apply to the court with a demand for the return of both money and securities belonging to him, Ponomarev said.
The problems of the Univer Capital broker became known at the end of February after the collapse of quotations of Russian securities on the Moscow Exchange and the subsequent suspension of the trading floor. As a representative of the Moscow Exchange explained, the broker had accumulated debts on transactions concluded before February 28. Univer Capital has lost the ability to independently enter into REPO transactions (sale of securities with an obligation to repurchase them) in order to obtain additional liquidity. This function was transferred to the NCC, which entered into such transactions at penalty rates and used clients’ assets. After the opening of the stock section of the Moscow Exchange, the assets of Univer Capital’s clients began to be forcibly sold in fulfillment of the broker’s obligations. After the forced sale, Univer Capital asked the Bank of Russia for reorganization. The regulator, in turn, noted that the recovery mechanism is provided only for insurers, NPFs and banks.
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What could be the outcome of the case?
The relationship between a broker and an investor has a risky nature of civil transactions with securities, recalls Nikolay Shashin, Leading Lawyer of Horizon Global. “When concluding a brokerage service agreement, it is necessary to carefully read its terms, paying special attention to the provisions on risks, and after signing the agreement, execute it not only with profit, but also with losses,” the expert points out. On the one hand, the responsibility for what happened lies with Univer Capital, which could open separate settlement codes (segregated accounts) at the NCC for clients’ assets and protect them from forced sale, the expert explains.
“On the other hand, brokers should open segregated accounts for clients only if the clients do not give the right to use their assets. That is, if the assets sold forcibly [c единого счета брокера]were provided by the clients themselves, this already applies to the economic risks of the clients themselves,” notes Shashin.
NSD is the technical side of this process, therefore, it cannot be a defendant, adds Vladislav Kholodkov, senior lawyer at RCT law firm. In his opinion, one can try to recover losses from the broker if he had a real opportunity to prevent some of them: “For example, to add collateral to the NCC or not to enter into dubious REPO transactions.” You can also try to recover them from NCC if it acted in bad faith or went beyond the clearing rules when setting rates on penalty REPOs, adds Kholodkov.
Broker “Univer Capital” turned to the Central Bank for reorganization
Ponomarev believes that it will be problematic to recover funds from a broker or NCC. The structures of the Moscow Exchange acted according to the regulations, and the aggressive strategy of the broker did not fit into the current market, the expert explains. If Univer Capital files for its own bankruptcy (the broker announced such an intention earlier), then its clients may appear in the register of creditors, Ponomarev continues. “But given that after the sale of securities, the amount of the broker’s debt still remained very significant, it is unlikely that funds will be received as a result of bankruptcy,” the ABO council member states.
Broker “Univer Capital” will ask to declare himself bankrupt
According to the broker’s own data, Univer Capital serves 2.16 thousand non-zero brokerage accounts. The broker estimates the volume of client and own securities accounted for at NSD at prices prevailing as of February 18 at more than 40 billion rubles. More than half of these assets were just sold federal loan bonds (OFZ) and Eurobonds of the Ministry of Finance.