If you have any outstanding OTC derivative transactions relating to Russian assets or the Russian Ruble (RUB), these trade confirmations may reference a settlement rate that is quoted by the Moscow Exchange, which is commonly abbreviated as MOEX. If so, these transactions may be impacted by recent actions taken by the U.S. Office of Foreign Assets Control (“OFAC”).

Sanctions Order

On June 12, 2024, OFAC broadened the existing sanctions issued under Executive Order (E.O.) 14024 to target financial institutions and infrastructure that help to aid Russia’s war activity. Included on that list is MOEX, which is the largest exchange in Russia and provides services that include execution, clearing, settlement and custody.
With respect to the RUB in either foreign exchange (FX) transactions or other OTC derivative transactions referencing a Russian asset, the OTC derivative market typically uses MOEX either as the primary settlement rate¹ or fallback rate (usually to WM/Refinitiv MID (WMR03), which is a rate calculated by Refinitiv Benchmark Services (UK)) pursuant to trade confirmations that are based on forms published by ISDA (the International Swaps and Derivatives Association, Inc.) or EMTA (Emerging Markets Traders Association). Accordingly, it is plausible that any such trade confirmation could be captured by the sanctions imposed on activity with MOEX given the broad wording of the sanctions order. However, in respect of a non-deliverable FX transaction or other OTC derivative transaction with an FX component that references a rate quoted on MOEX, the mere reference to such a rate, which is publicly available information and does not require the use of MOEX’s services, may not be the focus of OFAC.

General Licenses

OFAC also issued two new general licenses referencing MOEX that serve to provide temporary relief against activity with MOEX that is prohibited by the sanctions order.
The first general license² permits, in part, transactions “ordinarily incident and necessary to the wind down of any transaction involving” MOEX through 12:01 a.m. eastern daylight time, August 13, 2024,” which can be viewed as a relief for transactions with MOEX or transactions involving its debt or equity issuances.
The second license³ permits, in part, transactions “ordinarily incident and necessary to . . . the conversion of currencies, involving” MOEX that is acting solely as a securities, trade, or settlement depository, central counterparty or clearing house, or public trading market, through 12:01 eastern daylight time August 13, 2024, which can be viewed as a relief for transactions involving MOEX in any of these capacities.

ISDA Master Agreement and Equity MCAs

In reference to the broad wording of sanctions orders once again, a counterparty to an OTC derivative transaction may view the sanctions order against MOEX to trigger certain provisions under an ISDA Master Agreement (such as an “Illegality”) or under an equity MCA (such as a “Change in Law,” “Hedging Disruption” or “Increased Cost of Hedging”). In addition, if the ISDA Master Agreement is cross-defaulted to other agreements between the parties (or affiliates) – or even third party agreements – there may be other provisions that may be viewed as being triggered by the sanctions order, such as “Impossibility,” “Impracticability” or any provision referencing the implementation of sanctions, government controls, or the like.

For questions relating to the terms of your contracts, please reach out to your Quadrangle representative. For questions relating to actions taken by OFAC or sanctions law generally, we recommend you consult with your sanctions counsel or other legal advisor.

Footnotes

1 For trade confirmations using industry templates published prior to June 6, 2022.
2 OFAC General License No. 99.
3 OFAC General License No. 100.