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BlackRock blocks fresh cash from MSCI Russia ETF after dip

(Bloomberg) — BlackRock Inc. is suspending the creation of new shares in an exchange-traded fund tracking Russian stocks, effectively halting the flow of the product as Wall Street grapples with the fallout of the war in Ukraine.

BlackRock said in a press statement Tuesday that the creation of shares — the process by which new cash enters the ETF — in the $105 million iShares MSCI Russia ETF (ticker ERUS) will remain “temporarily suspended.” It said that buying and selling of shares in the secondary market will continue.

“It’s essentially a closed-end fund now,” said Athanasios Sorophagis, analyst at Bloomberg Intelligence ETF. “The point of silver is that it is still trading so that customers can still get money, but at a more uncertain price.”

BlackRock’s move comes as money managers of all stripes race to tackle the blizzard of sanctions imposed on Russia in response to President Vladimir Putin’s invasion of Ukraine. The Moscow Stock Exchange was closed for a second day on Tuesday as Russia reels from measures some say the country has become “irreversible”. Foreign listed shares of Russian companies declined.

ERUS is down more than 50% in the past week.

BlackRock said in its statement that the liquidity of Russian securities and the country’s currency had “experienced a significant decline” following sanctions, subsequent market closures and Russia’s own capital controls. The firm cautioned that ERUS may no longer meet its investment objectives and may experience tracking error and significant distortions in its valuation compared to its assets.

Late on Monday another issuer, Direxion Shares ETF Trust, announced that it is discontinuing the only leveraged Russia ETF, the Direxion Daily Russia Bull 2X Shares ETF (RUSL). The decision was made after the suspension of stock creation last week.

Read more: Leveraged Russia fund is down 50% in one week, exhausted amid rout

ERUS, which had assets of $566 million in mid-February, tracks the MSCI Russia 25/50 Index. MSCI Inc. has said it is closely monitoring the accessibility and investability of Russian equities and is seeking feedback from market participants on fair treatment of the market. A possible decision to reclassify its Russia index could result in an influx of billions of dollars from the country’s stock market.

“I don’t think a full-out closure is a complete closure if MSCI eventually decides to reject all Russian securities,” Psarofagis at BI said of ERUS.

Read more: Russian markets are turning disinvestment as sanctions bite

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