BofA’s Two-Hour Halt in Rosneft Trading Shows Sanction Confusion

Aug 03, 2014 8:16 pm ET

Aug. 4 (Bloomberg) -- Bank of America Corp. and Nomura Holding Inc.’s electronic-trading unit Instinet temporarily banned trading in Russian energy stocks OAO Rosneft and OAO Novatek last month after the U.S. sanctioned the firms over Russia’s policy on Ukraine, four people with knowledge of the matter said.

Bank of America suspended trading in both stocks for about two hours as a precautionary measure after the U.S. Treasury issued sanctions on July 16, said two people, who asked not to be identified because the information hasn’t be made public. Nomura placed a ban on both companies’ shares for 24 hours on July 28, one of the people said.

“The first reaction for risk managers will be to cut trading when these sanctions occur,” Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory and former chief strategist at Sberbank CIB, said in an interview. “We will see this trend of voluntary prohibitions repeated because there are no medals for bravery, and risk managers will err on the side of caution.”

Sybille Mueller, an external spokeswoman for Nomura in London, and Victoria Garrod, a Bank of America spokeswoman in London, both declined by e-mail to comment on trading restrictions. Mikhail Lozovoy, a spokesmen for Novatek, Russia’s second-biggest natural-gas company, declined to comment by phone. A spokesman for Rosneft, the nation’s largest oil producer, didn’t respond to calls or e-mails seeking comment.

‘Very Expensive’

International banks have been hit by almost $12 billion of fines since May for sanction breaches including a record $8.9 billion penalty for BNP Paribas SA. France’s largest lender admitted on June 30 to violating U.S. sanctions against Sudan, Iran and Cuba. Deutsche Bank AG plans to add about 500 people in compliance, risk and technology in the U.S. by year-end amid heightened regulatory scrutiny, Jacques Brand, head of Deutsche Bank North America, said in an interview this month.

“For the banks, getting this wrong is potentially very expensive indeed, and the challenge shows no sign of getting easier,” Tom Stocker, partner at law firm Pinsent Masons LLP in London, wrote in an e-mailed report on July 31.

Russian stocks fell to a six-week low and the ruble weakened the most against the dollar in four months after the U.S. curbed financing options for some of the country’s largest corporations, including Rosneft, Novatek and lenders OAO Gazprombank and Vnesheconombank. VTB Group, Russia’s second- largest lender, was added to the U.S. list on July 29.

The penalties don’t prohibit U.S. persons from trading in Russian stocks. They do ban U.S. persons from providing financing for or otherwise dealing in new debt of longer than 90 days maturity or new equity with the state-controlled banks, the U.S. Treasury said.

--With assistance from Jake Rudnitsky in Moscow.