Political and legal proposals for leveling sanctions imposed by unfriendly states against the securities market of the Russian Federation

Kiselev Aleksandr Sergeevich ORCID: 0000-0002-5044-4721 PhD in Law Associate Professor; Department of International and Public Law; Financial University under the Government of the Russian Federation 109456, Russia, Moscow, 38 Shcherbakovskaya str., room 805 alskiselev@fa.ru

The sanctions imposed by unfriendly states on the securities market of the Russian Federation, one way or another, had a significant impact on the country's economy. Restrictions were imposed on trading in certain types of securities, as well as limited opportunities for investment in Russian securities. In addition, our country has faced asset freezes, bans on trading in some foreign securities, and restrictions on the issuance of new securities.

Russian companies and financial institutions have had a serious impact. The sanctions had a negative impact on companies whose shares fell in price after trading restrictions. These factors determine the need to develop measures to overcome the current sanctions imposed by unfriendly countries towards our country and economy. It is quite obvious that the only correct and systematic solution cannot be presented, nevertheless, both on the part of the scientific community and on the part of the authorities, systematic work is required to find ways to minimize the consequences of the imposed sanctions, increase the stability of financial markets, develop organizational and legal regulatory measures that contribute to the stabilization of the country's economy.

It is quite obvious that the plans to impose sanctions were planned in advance, as indicated by the sequence and systemic nature of the actions of the United States, Great Britain and other countries. There is no doubt that the assets of central banks, private shareholders, and commercial companies abroad are immune, and their freezing or use violates international law. In this regard, we are faced with the violation of a huge number of international conventions, laws and treaties. The reality is that today we have to take legal measures in an environment where our detractors are acting in a completely illegal way.

A.M. Timoshenkov points out: "At the beginning of March (03.03.2022), the London Stock Exchange suspended trading in securities of Russian companies, temporarily blocking their admission to trading. At the same time, Russia has taken retaliatory measures. The Bank of Russia, for example, has imposed a ban on Russian brokers to trade securities on behalf of foreign clients" ^{[1, p. 506]}.

In addition, payments on any dividends on domestic securities held by foreign holders have been frozen. Retaliatory mirror measures made it possible to maintain a certain sanctions parity. If such decisions had not been made, then foreign investors could safely continue to receive dividends and freely trade Russian securities. Taking into account the aggravated political situation, cases of fraud and other illegal financial schemes are not excluded.

At the same time, the Central Bank of the Russian Federation has restricted the circulation of 990 securities since May 31, 2022. It should be noted that no more than 15 percent of the securities owned by our compatriots were blocked. It turns out that if a client has 100 shares of Twitter, then only a part could be blocked, for example, 10-15 shares. And out of 100 Alibaba securities (Chinese shares), up to 50 securities could be blocked. This could be due to the fact that the securities were stored in the National Settlement Depository (hereinafter - NSD) in different proportions.

The Moscow Exchange reported that no additional restrictions are being imposed on it. It is still impossible to trade foreign securities with the postfix -RM and receive income from them (these securities were blocked due to sanctions on March 24, 2022). But, as before, trading on blocked securities will continue in the modes of negotiated transactions, as well as in repo modes. As V.M. Sukhova notes, "A feature of repo operations (short–term lending secured by securities) is that when the quotations of a stock or bond that is collateral decrease, the borrower is obliged to make additional collateral - otherwise the securities are subject to sale. The establishment of a standard procedure for determining the value of securities during repo operations helps to protect the legitimate rights and interests of private investors, since their securities can be used by their brokers in such operations (the investor must give prior consent to this, in return he usually receives preferential terms of service)" ^{[2, p. 220]}.

At the end of March 2022, work between NSD and Euroclear was blocked due to sanctions. Since then, market participants have been waiting for Euroclear to receive clarifications from the Belgian Ministry of Finance and the European Commission and decide whether to work with NSD. And many foreign shares that passed through the NSD–Euroclear chain were frozen.

Many foreign politicians point out that Russia's actions in response to the withdrawal of the frozen assets of the Central Bank by the EU could lead to a global financial crisis. The Central Bank of Russia may file lawsuits to confiscate the assets of Belgian Euroclear, one of the world's largest settlement and clearing systems, which had frozen Russian foreign exchange reserves in its accounts after the start of the special operation. The Central Bank may also seize Euroclear assets in Russian jurisdiction. If Euroclear runs out of capital, the Belgian central bank will have to revoke the license, which is likely to lead to a financial crisis.

To date, the Central Bank of the Russian Federation has decided to separate all securities that are traded on the Russian market and are accounted for in Euroclear. This decision is aimed at protecting the rights and interests of investors and minimizing their risks. The St. Petersburg Stock Exchange has compiled a list of securities exceptions: HeadHunter; Yandex; Ozon; Cian; securities with primary listing not on American exchanges, in particular TCS Group and Fix Price. Apple, Tesla, Moderna and Virgin Galactic shares were also not included in the list of separate securities.

It is necessary to focus attention on the fact that the Central Bank of the Russian Federation has placed some securities in a group for which no auctions are held, respectively: they cannot be sold; they cannot be bought (but you can buy non-separate securities of the same name); income on them (dividends on shares, payments on Eurobonds) cannot be received, but they will not disappear and will accumulate; they are not taken into account for margin trading; they remain in the ownership of investors; they can be transferred to another broker, to another depository within NSD, but they will be blocked there too (data from Tinkoff Investments).

The blocked part of the securities can be automatically reflected in the portfolio of investors – in the application and on the broker's website. According to the information presented in the work of Y.K. Khizhnyak: "The blocking affected more than 5 million people, and the amount of frozen assets exceeds 300 billion rubles. A survey was conducted among retail investors who own blocked assets, the results of which show that the confidence in the stock market of investors whose assets are frozen has been undermined: they froze in anticipation of unblocking" ^{[3, p. 185]}.

The restrictions are not only related to the sanctions of unfriendly States. According to N.A. Stefanova and A.A. Korolev, "many domestic investors believed that the "tension" at the geopolitical level would last a short period of time and it would be profitable to carry out speculative manipulations with cheaper Russian securities" ^{[4, p. 99]}. Many individuals tried to take advantage of the situation by buying shares of large Russian companies in a falling market in order to resell them at more favorable prices. Such schemes are not unique; during periods of economic turmoil, similar processes were observed in many countries.

In order to stabilize the situation on the securities market, the Government of the Russian Federation has decided to conduct the purchase and sale of blocked securities in the Russian segment. Russian investors have the opportunity to submit assets up to 100,000 rubles for redemption. The buyers should be non-resident investors – persons who pay taxes on income to the budget of the Russian Federation from sources within the country. Such an exchange is taking place for the first time in modern history, and, of course, it is not without drawbacks, nevertheless, this step is one of the key attempts to solve the problem with frozen assets.

In addition, we note a significant proposal by O.A. Aslanova, who suggests the following: "... a response to the actual seizure of foreign stock market assets from Russian investors. Its implementation consists in the compulsory retaliatory withdrawal of Russian securities from foreign owners with subsequent sale on the market to compensate for the damage caused to Russian investors" ^{[5, p. 85]}.

There is no doubt that the proposed position is extremely interesting. It should be understood that the negative consequences, first of all, will be felt by private foreign investors, and not by politicians and coalitions whose interests included the destabilization of domestic financial markets. When imposing sanctions, unfriendly states understood perfectly well that in the event of blocking and forcibly withdrawing assets belonging to citizens of foreign countries, our country would discredit itself as a bona fide partner (as, for example, the United States and other countries that joined the sanctions have now done).

Now many investors from other countries are wary of the possible unpredictable impact of the United States on any financial market, which will become less attractive and more risky from such a harsh and aggressive policy.

We believe that investors can also overcome sanctions in the securities market by using various financial instruments such as derivatives, futures and options. For example, I.E. Belskikh is convinced that it is possible to "use a system of options for deferral with the use of state financing in order to increase the value of national cash flows in the securities market" ^{[6, p. 124]}. In domestic practice, the institute of options is not very popular, nevertheless, premium options as instruments of the futures market are quite firmly entrenched.

It should also be remembered about possible problems in the implementation of this initiative. Z.T.Subeev draws attention to the fact that "unfair competition, which is associated with price manipulation, is a big problem. Do not forget that another problem is the rather undeveloped competition in the Russian stock market" ^{[7, p. 115]}. Unfortunately, even before the start of the special military operation, there were facts of fraudulent securities schemes. Many Russian investors considered investments in real estate, foreign currency and precious metals as a more pragmatic and reliable way to save and multiply capital. Investing in securities implies the need to understand the mechanisms of operation of this financial market. From year to year, the securities market, not only in Russia, but also in foreign countries, is becoming more risky and unpredictable due to political, financial and economic global problems.

Representatives of the middle class understand high risks and prefer to invest in real estate and other less risky things that, if necessary, can be sold with the least financial loss. An attempt to attract people to invest in securities through easing and temporary preferences is not without drawbacks. A.V. Sladkova is convinced that "if we leave regulatory easing in the securities market, this can lead to much more serious consequences for its development and functioning" ^{[8, p. 87]}. Agreeing with the researcher's opinion, we will outline an important detail: trying to solve one of the modern tasks of market development, it is possible to launch system processes that will entail extremely adverse consequences in the future.

In addition to the proposed scheme, it is theoretically possible to overcome sanctions in the securities market by diversifying its customer base. This allows you to expand the company's sphere of influence and enter the largest foreign markets (for example, China).

E.V. Zhiryaeva and K.Kalman in their work describe a similar scheme, according to which "nothing prevents the expansion of support for small and medium-sized foreign enterprises. The model bilateral investment agreement of the Russian Federation adheres to the approaches adopted by developed countries" ^{[9, p. 69]}. The researchers are convinced that the creation of favorable preferential conditions can attract a large number of investors if they receive guarantees of potential benefits that will be higher than in their countries. However, do not forget that Chinese legislation has specifics, so before Russian investors start buying and selling Chinese shares, they should carefully study not only the securities market itself, but also the legislation.

A.Georgiou and P.Kontakos hold a similar position: "For a foreign investor, tax incentives allow to increase profits and, if it is profitable, to increase dividend payments to shareholders" ^{[10, p. 157]}. We believe that such investors can only be representatives of friendly states (for example, China, India, Cuba, Brazil, South Africa, etc.). Earlier in 2015, the Central Depositories of Russia and China agreed to develop cooperation in the field of depository and settlement operations (Finam website. The Central depositories of Russia and China have agreed to develop cooperation in the field of depository and settlement operations // URL: https://www.finam.ru/publications/item/centralnye-depozitarii-rossii-i-kitaya-dogovorilis-o - razvitii-sotrudnichestva-v-sfere-depozitarnyx-i-raschetnyx-operaciiy-20150625-15046/ ?ysclid=lxbuzwtedh353045535 (accessed: 07/31/2024)).

Such steps are an excellent political and legal tool for starting long-term mutually beneficial economic agreements and cooperation. In general, these proposals correspond to the goals of the Strategy for the development of the financial market of the Russian Federation until 2030 (Decree of the Government of the Russian Federation dated 12/29/2022 No. 4355-r (ed. dated 12/21/2023) "On approval of the Strategy for the development of the financial market of the Russian Federation until 2030" // Collection of Legislation of the Russian Federation. 2023. No. 1. Article 476.). New national markets will reduce the impact of Western sanctions on unfriendly states in both the short and medium term.

This mechanism is undoubtedly complicated, since now many foreign companies, as well as countries, are afraid of possible sanctions from the United States. There are already precedents when personal sanctions were imposed on some companies from China and CIS countries, allegedly because of cooperation with the Russian military-industrial complex or simply with companies representing our country.

In addition, a client-oriented approach is required here. It is necessary to interest foreign investors in the acquisition of Russian securities. This can be done by creating sufficient conditions for investing in securities of Russian companies. This idea is actively supported by such experts as A.P. Garnov and E.V. Afanasyev, concluding that today it is especially important to attract individuals to the stock market in the context of economic sanctions imposed against Russia ^{[11, p. 101]}.

In our opinion, it will not be easy to do this, since the shares of many domestic companies have fallen. On the other hand, the same circumstance may motivate foreign investors to buy shares, since, quite obviously, after the completion of a special military operation, their growth can be assumed. The grounds for such conclusions are already available today: no matter how paradoxical it may look, according to the US Treasury Department, US investors in 2023 increased investments in Russian securities by 10.3%, to $28.6 billion, the total volume of investments increased by 2%, to $30.5 billion. It is quite natural that most private commercial enterprises do not care about the policy of the current US authorities, they are more concerned about personal benefits and the multiplication of financial assets. Therefore, we do not rule out a sharp rise in demand after the cancellation or change of the sanctions policy against our country.

It is also noted that in 2024, the Russian Federation and the People's Republic of China are launching joint projects on end-to-end technologies and shipbuilding. The Ministry of Economic Development of the Russian Federation added that the accumulated volume of direct investments from China to Russia increased by 40% year-on-year in the first quarter of 2023. Russian investments in China increased by 18% (TASS website. Deputy Head of the Ministry of Economic Development Vladimir Ilyichev called China Russia's main trading partner. // URL: https://tass.ru/ekonomika/19569709?ysclid=lxbvmclmdo628398896 (accessed: 07/31/2024)). Cuba has invited Russian investors to participate in the development of tourism infrastructure, currently there are 24 joint ventures with Russia in Cuba (Prime website. Cuba invited investors from Russia to develop the tourism infrastructure. // URL: https://1prime.ru/20240612/kuba-849098921.html?ysclid=lxbvqx4xil111142990 (accessed: 07/31/2024)).

In order to develop investment policy, Russian President Vladimir Putin signed a law (Federal Law No. 275-FZ dated 08.08.2024 "On Amendments to the Federal Law "On Banks and Banking Activities" and Certain Legislative Acts of the Russian Federation" // Collection of Legislation of the Russian Federation. 2024. No. 33 (Part I). Article 4971), allowing foreign banks to open branches in Russia from September 1, 2024, but no more than one. This will help create conditions for the development of the international settlement system, and will also help attract even more foreign investment into the Russian economy.

We agree with researcher O.M. Shevchenko in the following component: "The formation of economic and legal relations with any foreign financial institutions should be carried out in such a way as to ensure the autonomous functioning of the Russian financial system" ^{[12, p. 69]}.

In the current conditions, some experts speak about an increase in the issue of government securities. For example, Ya.A. Kuznetsov suggests the following: "Government securities can be used to attract additional funds to finance budget expenditures, such as social programs, national defense and infrastructure projects." ^{[13, p. 550]}. Such a proposal seems quite logical, in our opinion, the most optimal form would be social bonds.

Today, the budget funds of the Russian Federation are limited, however, social spending has not decreased, since this area has been and remains one of the most important and significant for the state. Since the securities market for domestic investors is currently seriously limited, it is necessary to consider the possibility of attracting private capital for the implementation of socially significant government projects. Without denying the high efficiency of national projects and federal government programs aimed at social needs, it is worth noting that attracting additional funds will accelerate the pace of construction, improve the quality of ongoing projects, and, ultimately, reduce the burden on the federal budget.

The importance of social bonds is quite high today. For example, E.N. Sidorenko studies the possibilities of using social bonds as additional sources of financing for the creation of infrastructure facilities, the tourism and recreational industry of Ingushetia ^{[14, p. 99]}, O.L. Shuleiko sees social bonds as a promising form of financing social entrepreneurship ^{[15, p. 325]}. I.A. Phillipov rightly notes that "social bonds have their advantages for companies – it is an opportunity to enhance their image in the eyes of investors, to show that the company cares not only about making a profit, but also about striving to be useful to society" ^{[16, p. 357]}. In other words, we are talking about obtaining competitive advantages for a company that will participate in the purchase of government securities over other competitors.

Many scientists point out that "projects based on the investment of social bonds may include the construction or modernization of infrastructure facilities, support for health and education, the implementation of environmental protection projects and other socially significant initiatives" ^{[17, p. 189]}. As a result, it is possible to popularize social bonds and make them an excellent financial instrument that has a positive impact on the infrastructure of cities, social institutions and the entire economy as a whole.

The issue of social bonds solves two goals at once – social and economic. Let's reveal the scheme of the social bond: initially, securities are issued, then the company or individual entrepreneur attracts funds to a specific project with clearly defined final results.

In fact, the implementation of state–significant programs is shifted to the investor, who is obliged to fulfill obligations in the social sphere as a result - for example, to build a cafe where a mandatory part of the profit will be directed to the repair of schools, hospitals, polyclinics, and urban infrastructure.

The results of the project are evaluated by an independent company acting as an appraiser, which gives an appropriate conclusion. If the result is positive, the state transfers to the investor the amount of funds spent plus interest, if all the stated social goals are achieved. At the moment, the volume of the Russian social bond market is only about 50 billion rubles. We believe that increasing the issue of this type of securities will increase the stability of the domestic economy. The legal framework has been in place for quite a long time, therefore, organizational political decisions are required to launch this process.

In addition to these schemes, in order to overcome sanctions, it is worth betting on the digitalization of management processes in the insurance market. S.A. Nikiforova is convinced that "in the long term, the role of digital technologies in the evolution of the financial sector of the Russian economy will increase" ^{[18, p. 445]}. S.S. Kravchenko, analyzing the experience of foreign companies in the application of the latest technologies In the insurance, he concludes that "promising areas for the development and implementation of innovative tools are: contactless registration of policies, mobile applications for managing accounts and policies, the use of big data and artificial intelligence for customer segmentation and personalization of tariffs and conditions, etc." ^{[19, p. 728]}. A similar position is held by E.A. Asyaeva and V.S. Folomeeva, who, nevertheless, note that new technologies are just beginning to be used by insurance companies in the Russian Federation ^{[20, pp. 43-44]}.

Thus, it can be concluded that further development of digital tools is required that increase convenience for both policyholders and insurers.

Conclusions. Overcoming sanctions in the securities market can be a complex process that requires a wide range of organizational, political and legal solutions. We propose the following measures to overcome sanctions in the securities market:

1. Issue of government securities in the form of social bonds. The main goal is to reduce the country's dependence on foreign currency and strengthen the ruble. The second goal is to attract funds from the sale of securities for social projects, such as the construction of schools and hospitals. In this way, two goals will be solved at once – social and economic. We believe that an increase in the issue of social bonds will increase the stability of the domestic economy.

2. We propose to diversify the client base of holders of Russian securities by creating attractive preferential conditions for them. This allows you to expand the company's sphere of influence and enter the largest markets. However, a customer-oriented approach is required here. It is necessary to interest foreign investors in the purchase of Russian securities. This can be done by creating sufficient conditions for investing in securities of Russian companies.

3. Creation of strategies for cooperation and partnership with foreign depositories and their financial institutions through the signing of international agreements. The essence of the strategies will be reduced to the sale of blocked securities on over-the-counter trading in the NSD perimeter. The algorithm is as follows: a contract is signed, the parties agree on the price, the broker will make an entry in NSD. Shares are transferred from one account to another, and nothing will need to be changed in Euroclear.

4. Creating a strategy of cooperation and partnership with foreign companies and financial institutions from friendly countries to strengthen a stable position in the global securities market. Joint projects and investments can mitigate the negative effects of sanctions. This allows you to compensate for losses from restrictions on the securities market and ensure stable demand for your products or services. It is proposed to allow citizens of the Russian Federation to participate in the exchanges of friendly states listed in the list approved by Decree of the Government of the Russian Federation No. 2828-r on October 14, 2023. This assumption is organizational and political.

Each of the proposed strategies can be effective in overcoming sanctions in the securities market, but it is important to adapt them to the specific situation and goals of the company or investor. A combination of different methods may be most effective in mitigating the negative effects of sanctions by unfriendly States and ensuring the stability of the entire financial market.