Backdating stock options definition
While options backdating has been used to enhance or increase the value of options contracts while reaping the tax benefits of having issued “at the money” contracts, the practice is also frequently necessary in order to accommodate situations in which lengthy issuance procedures or corporate policies require more than one day to complete an approval process, thus showing an earlier issue date than that on which the contracts are actually issued.
The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.
I have a decent understanding of financial options, and I cannot figure out what it means from this sentence.
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But are options really as great for all parties as many have assumed?
The stock option “backdating” scandal has implicated several (mostly technology) companies over the past few months.
Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.
XYZ stock was at a share 20 weeks ago; now it's at 0. The employee getting the strike price on 100,000 shares will have appreciated 0 per share times 100,000 shares or... But if the employee had received as their strike price the average of 0 and , assuming an arithmetic set of closing price gains, the strike on their options would have been 0.
Since then, laws about backdating have gotten stricter.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.
In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.