Major U.S. Clearinghouse Halts Settlement Services on Venezuelan Bonds -- 2nd Update

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08/30/2017 | 09:46 pm


By Julie Wernau



The Depository Trust & Clearing Corp., one of the largest securities clearinghouses in the U.S., said it would no longer settle certain Venezuela bond trades, the latest blow for investors in the South American nation in the wake of U.S. sanctions.



The New York-based clearinghouse said in a notice on its website that, based on a recent executive order, it has suspended settlement services that allow Venezuelan bonds to change hands, including those of state-owned oil company Petróleos de Venezuela SA. A clearinghouse acts as an intermediary between buyers and sellers to exchange payments, and is crucial to bond trading.



Late Wednesday, following further review, the company issued a notice reinstating services for some bonds, narrowing its initial guidance.



The move is the latest complication for traders of Venezuelan bonds and shows a rising awareness of the risk of dealing in these securities. Fears of falling on the wrong side of U.S. or Venezuelan policy have pushed some major institutional players out of the market and driven down liquidity. That is causing concerns that bondholders will find it difficult to find buyers when and if they decide to sell those securities.



On Tuesday, Cantor Fitzgerald LP stopped trading Venezuelan debt. The move was the first blanket restriction on Venezuelan bonds by a large U.S. financial institution.



This month, Credit Suisse Group AG said that it prohibited its traders from buying and selling two existing Venezuelan bonds because of the risk the trades would finance human-rights abuses.



An executive order from President Donald Trump on Friday prohibited U.S. institutions from trading new bonds with the government of President Nicolás Maduro. Officials said the move aims to punish Mr. Maduro and his administration for a move toward authoritarianism and that more financial sanctions would come if the repression continues.



Bond traders said that the majority of Venezuela bond trades are cleared through Europe-based settlement houses, including Euroclear in Brussels and Clearstream in Luxembourg, but that DTCC's move raised concerns that other clearinghouses would follow suit. Euroclear and Clearstream didn't respond to requests for comment.



Europe doesn't have the same restrictions on Venezuela as the U.S. But the Treasury Department has warned that even indirect bond transactions involving Caracas, such as through European markets, would violate its sanctions.



DTCC is co-owned by investment banks and brokers on Wall Street, and says it processes trillions of dollars in securities transactions each day.



Venezuela's Information Ministry didn't respond to a request for comment. In the past, Mr. Maduro has accused Wall Street of being part of the "economic war" against his government.



"This is only adding fear and uncertainty," Juan I. Sosa, co-chairman of Portfolio Resources Group Inc. in Miami, said Wednesday. With a large amount of his business in Venezuelan bonds, he was sending along information to his brokers and clients as new notices restricting trade came across his desk.



Trading in Venezuelan debt, until recently among the most easily purchased emerging-market bonds, has slowed to a trickle this week, reflecting typical end-of-summer trading as well as investor efforts to evaluate the impact of the U.S. sanctions.



--Anatoly Kurmanaev contributed to this article.



Write to Julie Wernau at [email protected]





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