Picture: BLOOMBERG VIA GETTY IMAGES/LUKE MACGREGORA decision last month by FTSE Russell and MSCI to remove Russian stocks from their indices has left some of the world’s largest banks inadvertently holding potentially valuable positions, several sources familiar with the trades told Reuters.
Reuters could not ascertain the size of the positions, because of the opaque nature of derivative trading books, and the sources said that profits were not a given for the banks.Overall, billions of dollars tracked MSCI and FTSE Russell indices that included Russian stocks before Moscow's invasion of Ukraine, which the Kremlin calls a “special military operation”.
Traders in these divisions sell derivatives such as index swaps to sophisticated investors including hedge funds. Investors then get a return from an index, without them having to buy the stocks that make up that benchmark. The Russian shares and derivatives were placed in separate trading books, and it is now up to each bank concerned to decide what to do with them, the five sources said.
But three of the sources said that any profit should accrue to the bank, since their clients had bought exposure to the index through swaps rather than the individual constituents.There is no guarantee that banks will be able to realise any profits from the stocks, two of the sources said. Any gains will depend on the value assigned to the asset and how the Russian exposures were hedged in the first place, the five sources said.
Some banks may opt to exit Russian risk before sanctions are lifted and trading resumes, forfeiting any chance of a profit.