Update: Deadline for Mandatory Conversion of Russian Issuers’ Depositary Receipts Has Passed – What’s Next?

March 14, 2023

The Russian Parliament required in 2022 Russian issuers to terminate their depository receipt programs that entailed the conversion of depository receipts into Russian underlying shares. This LawFlash discusses the current status of depository receipt conversion procedures as well as the regime applicable to Russian underlying shares received as a result of the conversion.

In 2022, Russia adopted significant legislation changing the regime of Russian issuers' depositary receipts (DRs). Initially, Russian Federal Law No. 114-FZ of April 16, 2022 (Delisting Law) prompted the termination of a range of DR programs which required the conversion of the relevant DRs into the underlying Russian shares as contemplated by the DR programs (Standard Conversion).

Thereafter, the Russian Parliament adopted Federal Law No. 319-FZ of July 14, 2022, amending the Delisting Law and introducing an additional conversion mechanism that allowed the DRs to be converted into the underlying Russian shares directly in Russia without reference to DR agents or foreign clearing systems (Mandatory Conversion).

On November 10, 2022, the deadline for submission of applications for the Mandatory Conversion expired. Most Russian custodians granted the final decisions on the conversion applications only as late as December 2022, and some applications are still being processed. A significant number of the DR holders were not able to use the feature of the Mandatory Conversion due to a number of factors, such as

  • a short statutory deadline;
  • strict requirements as to the form and substance of documents that had to be provided to prove eligibility to the Mandatory Conversion;
  • the unwillingness of foreign brokers to provide the supporting documents in the form required by the Russian custodians, as well as problems with delivery of the original documents to Russia; and
  • a high level of discretion that the Russian custodians exercised when considering the application for the Mandatory Conversion.


Following the expiry of the deadline for the Mandatory Conversion, some DR program sponsoring banks temporarily closed their books for the Standard Conversion in order to be able to reconcile them with the Mandatory Conversion. At the same time, some books still remain open for Standard Conversion and, depending on the underlying DRs, some DR holders are still able to proceed with the Standard Conversion. It should be noted that the Standard Conversion requires the cooperation of the foreign brokers and clearing systems where the DRs are recorded.

DR holders should therefore check with their brokers as to whether the Standard Conversion of their DRs is still supported.


In November to December 2022, the Russian Parliament and the Russian Central Bank (CBR) considered various options and solutions to improve the position of the investors who were not able to use the Mandatory Conversion. The committee of the lower chamber of the Russian Parliament responsible for the financial market proposed extending the deadline for the Mandatory Conversion. Nevertheless, as of today, no further legislation regarding the Mandatory Conversion has been passed.

The issue is still being considered by the Russian government and it cannot be ruled out that the Mandatory Conversion may be resumed at some point in the future.


Investors from the so-called “unfriendly jurisdictions” (the United States, Canada, EU member states, the United Kingdom, overseas territories of the United Kingdom, Ukraine, Montenegro, Switzerland, Albania, Andorra, Iceland, Liechtenstein, Monaco, Norway, San Marino, North Macedonia, Japan, South Korea, Australia, Micronesia, New Zealand, Singapore, and Taiwan) who obtained Russian shares as a result of the DR conversion should consider the following legal restrictions and limitations applicable to the Russian shares.

Type C Custody Accounts and General Restriction to Sell

All non-Russian residents from “unfriendly jurisdictions” have their Russian shares recorded on special “type C” custody accounts, which are effectively blocked due to an extremely limited number of transactions that are authorized with such accounts. The sale of converted shares to Russian purchasers by non-residents from “unfriendly jurisdictions” is generally prohibited absent approval from the Government Commission on Control over Foreign Investments (FDI Commission).

Segregated Accounting of Local Shares

Separate requirements regarding segregated accounting of local shares received as a result of the DR conversion were introduced by the CBR as early as April 2022. Since then, the CBR extended these requirements twice.

Ordinance of the Bank of Russia No. 018-34/12822 dated December 28, 2022 (Ordinance) effectively extended until June 28, 2023 the previous requirement that Russian custodians must ensure segregated accounting of shares received as a result of conversion and block any attempted transactions with these securities.

Only Russian residents and non-residents from “friendly jurisdictions” are entitled to fully terminate the segregated accounting if such investors acquired the relevant DRs before March 1, 2022. For non-residents from “unfriendly jurisdictions,” the Ordinance established a separate procedure for the partial automatic removal of segregated accounting: Each business day starting from December 29, 2022, the Russian custodians (without the client’s instruction) shall free up 0.2% of the total amount of local shares received by the relevant investor as a result of the DR conversion.

Effectively, this means that the Russian custodians keep two sub-records of shares (segregated shares and released shares), and non-residents from "unfriendly jurisdictions" are not allowed to transfer segregated shares both to Russian purchasers and other non-residents from "unfriendly jurisdictions."

Several global solutions are being considered in the market to address the issue of the blocked Russian shares held by investors from “unfriendly jurisdictions,” but none have yet materialized.

It should be noted that Russian Presidential Decree No. 138 of March 3, 2023 (Decree No. 138) establishes additional requirements and procedures for transactions with securities acquired by Russian residents and friendly non-residents after March 1, 2022, from unfriendly non-residents and credited to an account with a Russian depository. The main goal of Decree No. 138 is to control the transactions with securities that were acquired by Russian residents from non-residents from “unfriendly jurisdictions” within the foreign financial infrastructure (i.e., the transactions took place outside of Russia).

Generally, Decree No. 138 should not apply to the transactions with the underlying Russian shares if the investors (both Russian residents and non-residents) acquired the relevant DRs before March 1, 2022. Market participants are waiting for additional clarifications from the CBR regarding the correlation between the requirements of the Ordinance and Decree No. 138.


The procedure for dividend distribution to non-residents from “unfriendly jurisdictions” is governed by Russian President Decree No. 95—the dividend payments should be made in Russian rubles to a special blocked “type-C” bank account.

Pursuant to the CBR Regulations dated December 29, 2022, when the Russian issuer makes the first dividends distribution after the DR conversion, the Russian custodian where the shares of such issuer are held should automatically open to non-Russian residents from “unfriendly jurisdictions” a separate “type-C" bank account for dividends. Thereafter, all further dividend payments will be credited to such separate “type-C" account.

Those investors who successfully converted the relevant DRs into the Russian shares after the record date (the cut-off date established by a Russian issuer to determine which shareholders are eligible to receive dividends) cannot receive dividend payments automatically and should claim their dividend from a Russian issuer via a special procedure within three years after the dividend distribution. As a general rule, the shareholders can apply for the past dividend payments through the depository where shares are held.


The investors still have the possibility to convert some of the DRs using the Standard Conversion. Following the conversion, the sale of the underlying Russian shares by the investors from the “unfriendly states” will be generally restricted. The investors from "unfriendly jurisdictions" are able to receive dividends on the converted shares but such dividends are paid to the blocked "type-C" bank accounts.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: