Investors reimbursed for losses on Russian stocks

Posted: 8 March 2022 2:30 pm

Should investors hit by stock market losses due to the Russia-Ukraine conflict be reimbursed? At least one platform seems to think they should.

Trading platforms have been reacting to the plunging value of Russian stocks, following Russia’s invasion of Ukraine and the sanctions imposed on the country.

eToro announced last week that it would liquidate any open client position in Russian supermarket Magnit PJSC. 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”. 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”. So should more share trading platforms be doing the same?

eToro’s one-time reimbursement

eToro’s decision to reimburse clients for losses due to its decision to remove Magnit from its platform is an interesting one. For eToro clients, it is the platform taking responsibility for its decision to dump the stock.

According to Bloomberg, before the reimbursement announcement, unhappy eToro investors had already sent complaints to the Financial Conduct Authority and consulted lawyers about next steps. eToro is now having to decide whether it will continue to offer 9 other Russian stocks, including Gazprom, Lukoil and Severstal.

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.

But some traders are buying cheap Russian stocks. The FTSE100 has seen a turnaround at the start of this week due to investors wanting to secure stock 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 then see a recovery in value 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. 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 to research about what regulatory bodies are available if you do want help or to challenge a decision that has been made.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested, so your capital is at risk. Past performance is no guarantee of future results. If you're not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.

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