(Adds Euroclear statement, investor quote)
By Davide Scigliuzzo
NEW YORK, March 31 (IFR) - Luxembourg-based Clearstream has suspended settlement for any security in the Argentine market, after its local custodian Citibank was barred from providing such services in the South American country, a spokesperson for the clearing house told IFR on Tuesday.
The move, albeit temporary, raised concerns that a broader set of bonds could be impacted by Argentina’s decade-long battle with holdout creditors - a dispute that has already resulted in the default of bonds issued under the 2005 and 2010 exchanges.
“Clearstream has suspended settlement in the Argentine market following an earlier announcement by the Argentine securities regulator that Citibank Argentina is no longer allowed to offer custody and related services in Argentina,” the spokesperson said.
One London-based investor said he was caught off-guard by the news. “We are by no means especially slack here, so if we didn’t completely appreciate the scale of this, nor did the majority of our competitors,” he said.
Clearstream’s decision was unexpected as it included any security in the local market, even government bonds not covered by a US court injunction that prevents Argentina from servicing exchange debt unless it also pays holdout creditors.
US judge Thomas Griesa earlier this month extended the reach of his injunction to a handful of local law, dollar-denominated sovereign bonds, including a par bond whose coupon was due Tuesday.
Clearstream has said it aims to restore settlement on Argentine securities in the local market, except the local law bonds mentioned in Griesa’s ruling, once regulators and Citibank clarify some of the custodial issues.
Judge Griesa gave Citi the green light to facilitate two debt payments as the US bank works to pull out of its role as local custodian of the Argentine-law bonds in question. However, other intermediaries find themselves bound by the ruling.
Clearstream’s suspension also means that market participants will be unable to buy or sell the affected securities across a trading bridge with rival Euroclear.
“Following Clearstream Banking Luxembourg’s suspension of its Argentinian securities settlement via the bridge, processing of such securities over the bridge is - until further notice - no longer possible,” Euroclear said later on Tuesday in a note to clients seen by IFR. (Reporting by Davide Scigliuzzo; Editing by Paul Kilby, Shankar Ramakrishnan.)