Mark it zero, dudeAll your SNS are belong to us. In a swift move the Dutch state nationalized the bank and insurance group SNS Reaal on February 1st. It was in the air for a while, but still shocking to see shares drop from 84 cent to, well, zero.

As expected, trading in shares SNS is suspended at Euronext. The option market on SNS Reaal (SR) has been closed as well. Not possible to trade through the prof market facility nor exercise any options. 

The big question mark is what will happen with the existing option contracts in SNS. The last closing price of the stock is still 84 cent. And exercising put option contracts isn’t possible. There has been some speculation in the news (fd.nl) and by Cees Smit on IEX (both Dutch). I believe both of them missed the point.

There are rules. The latest set of rules regarding corporate actions doesn’t have a paragraph on nationalization issues. But let’s suggest this is what we would call special circumstances.

6.9 Special Circumstances

If the underlying Share of the options and/or futures is no longer tradable and/or deliverable due to circumstances not described in the Corporate Actions Policy, NYSE Liffe will decide on a case by case basis what the consequences for the options and/or futures will be, and will inform the regulator of the relevant NYSE Euronext Market Undertaking on which the options and/or futures are traded before issuing a Corporate Action Notice.

In any other scenario (regular delisting), cash settlement would be the road ahead. Here Euronext Liffe can decide what to do. Settle all the options with the stock at zero will most likely be their decision, against intrinsic value (see rules, 6.5 Liquidation). Any other scenario against the closing price of Thursday would harm the confidence of investors in the market. The cautious investor being long stock with put options as protection can’t be ignored.

Another possibility would be to resume trading in SNS claims, which eventually could get some little value after legal battles in the coming years. And in the meantime, everything could be settled as normal. Euronext Liffe has got two weeks to go before the February expiration to announce their solution.

Jack
Jack