eToro reimburses investors for losses on a Russian stock

Posted: 8 March 2022 9:30 am
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Should investors hit by stock market losses due to the Russia-Ukraine conflict be made whole? At least one platform seems to think they should, if only for one stock.

How should trading platforms react to the plunging value of Russian stocks, and sanctions imposed on Russia following its invasion of Ukraine?
Investing platform eToro reacted to a plunge in the value of Russian supermarket Magnit PJSC last week by announcing it would liquidate any open client position. Magnit’s shares traded in London had lost more than 99% of their value.
Initially, eToro said that the positions would be liquidated “at the last tradable rate in the market,” and that “the value of the position at the time of closure will be returned to the account balance.” Essentially, they’d be rendered worthless.
But investors complained, forcing eToro to take it one step further.
The platform has since announced that it will be issuing a “one-time reimbursement for the total initial invested amount of real stock positions.” Investors would lose nothing from the plunge.
So should more stock trading platforms be doing the same with more stocks?

eToro’s one-time reimbursement

eToro’s decision to reimburse clients for losses after removing Magnit from its platform is an interesting one. For eToro clients, it’s the platform taking responsibility for its decision to dump the stock.
Before the reimbursement announcement, unhappy eToro investors had already sent complaints to the Financial Conduct Authority and consulted lawyers about next steps, according to Bloomberg.
eToro must now decide whether it will continue to offer nine other Russian stocks, including Gazprom, Lukoil and Severstal, or if it would reimburse stockholders for losses upon removing the stocks. So far, Magnit could just be in isolated incident and not a trend.

What can investors expect?

Last week the London Stock Exchange stopped trading in 27 Russian companies, while the NYSE and Nasdaq took similar action and suspended trading in a handful of Russia-linked stocks in the US. Investors in those stocks are basically put on hold to see when, or if, they trade again.
But some traders are buying other cheap Russian stocks. The FTSE100 has seen a turnaround at the start of this week due to investors wanting to secure these stocks at low prices.
If trading platforms take the decision to dump stocks of Russian companies, then those investors hoping to buy at rock-bottom prices and see a recovery in value will have their hands tied to some extent.

eToro is walking the tight rope between offering investors opportunities and reacting to the market.
Other trading platforms will also have to make tough decisions around offering Russia-linked stocks, with some Russian companies suspended from trading and the Russian stock market remaining closed since the start of the invasion. A severe lack of liquidity in the underlying market represents a huge risk.
Meanwhile, as an investor, it could be a good idea to look closely at your trading platform’s terms and conditions and understand what your rights are in this type of situation. Also, research what regulatory bodies are available if you do want help or to challenge a decision that’s been made.

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