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US banks ask Washington for a workaround for Russia sanctions
A swap panel has asked the US Treasury to temporarily allow trading in Russian assets
A group of 13 banks and asset managers have asked the US Treasury Department’s Office of Foreign Assets Control (OFAC) to temporarily allow trading in credit default swaps (CDS) on Russian government bonds, Bloomberg reports, citing people familiar with the situation.
The request reportedly relates to swaps that would allow investors who had bet on Moscow defaulting to receive payments owed to them. A potential payout of $1.5 billion is at stake after the Credit Derivatives Determinations Committee (CDDC) ruled that Russia missed an interest payment of just $1.9 million on a government bond, what has been dubbed a non-payment event is seen.
The ban on buying Russian securities on the secondary market, imposed by OFAC earlier this month, makes it more difficult for US financial institutions to conduct transactions in CDS on Russian government bonds.
According to reports, the CDDC, which regulates the credit derivative swap market, works with OFAC. A final decision could only be made after the conclusion of the Group of Seven summit this weekend.
“The first scenario is that CDDC asks OFAC for an extension and a pass for just one day so we can hold an auction and properly price the CDS at the right price.” Jochen Felsenheimer, Managing Director of XAIA Investment in Munich, to Bloomberg.
“I believe that this is currently being discussed, but it will take some time before it is over,” he added.
On Wednesday, Russian President Vladimir Putin signed a decree introducing a temporary procedure for paying off government debt in foreign currency. Under the scheme, the obligations are considered fulfilled by payment in rubles.
Russia’s Treasury Ministry confirmed that Moscow will pay its Eurobond liabilities in its local currency if it is unable to pay in foreign currency to defend its reputation as a reliable borrower. The department has repeatedly claimed that Washington is attempting to engineer an artificial default since the sanctions-hit nation has the means to pay its debts.
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