Market makers fight to recover millions trapped in former Russian broker

Sova Capital fell into special administration after Russia invaded Ukraine

Three of Europe’s biggest market makers, Jane Street, Flow Traders and GHCO, are fighting to recover millions of dollars in assets after Russian broker Sova Capital went into special administration following the invasion of the Ukraine by country.

The trio all had funds held with the London-based company which filed for bankruptcy on March 3, just a week after the dispute began, as Russia was hit by a wave of financial sanctions from the west.

Consulting firm Teneo was appointed as a special co-administrator of Sova Capital, whose main activity was to provide its clients with access to Russian markets. At the time of its collapse, the company had $1.85 billion in assets on deposit and another $249.4 million in client money.

In its latest set of financial results, liquidity provider GHCO said it was seeking to recover $3.3 million in assets, including $1.2 million in two title transfer agreement (TTCA) accounts. ) and an additional $2.1 million in trades that had been executed but not yet. settled by Sova Capital.

Jane Street did not reveal how much they trapped in Sova Capital, however, ETF feeds understands that their assets represent almost 1% of the total funds held by the broker at the time of liquidation, or approximately $18 million.

According to its latest annual report, Flow Traders said it entered into an “interest-bearing credit facility” with Sova Capital in 2021, but did not disclose the value of the loan.

Jane Steet and Flow Traders will be an integral part of fundraising. The former was named a member of the creditors’ committee and the latter an observer, according to the first progress report from Teneo’s administration, published on September 26.

Jane Street and GHCO declined to comment. Flow Traders did not respond to a request for comment.

However, GHCO’s latest accounts have revealed that it expects to receive 40-60% of the value of its trapped assets within the next 12-24 months.

The company added that it had begun to reduce its exposure to Sova Capital in the week before the dispute began, due to “the potential impact of GH LLP’s activities” from sanctions imposed on Russian entities and the depository. Russian National Regulations. .

After the conflict, Western nations sought to limit Russia’s access to money, which ultimately led to the closure of the Moscow Stock Exchange, sending shockwaves through the ETF market.

MSCI said it was removing Russian stocks from its emerging markets indexes, while ETF issuers were forced to halt creation and redemption orders in primary markets.

In an October 6 creditors’ update, Teneo said it had received an offer to buy trapped assets worth £289million at a 15% discount from Dominanta, owned by the prominent man Russian businessman Roman Avdeev, also owner of the Moscow Credit Bank.

To proceed with the purchase, Dominanta LLC would need approval from the Central Bank of Russia, the Foreign Investment Control Commission or the President of Russia.

If approved, it is unclear whether Jane Street, Flow Traders or GHCO would receive any of the funds.

The dispute has had a far-reaching effect on ETF issuers, leading many, including BlackRock, to shut down their Russia-focused ETFs.

In September, ITI Funds said it was preparing to shut down its ETF business following the suspension of its two ETFs.

In August, PIMCO introduced the option to set up side pockets – cutting out highly illiquid assets from a fund – on its fixed income ETFs which are exposed to Russian sovereign debt.

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