Academic journal article Journal of Accountancy

New SEC Rules Speed Exercise of Insiders' Stock Options

Academic journal article Journal of Accountancy

New SEC Rules Speed Exercise of Insiders' Stock Options

Article excerpt

The Securities and Exchange Commission recently changed the "insider" stock options rules, allowing insiders and corporate executives to accelerate the exercise of stock options. Richard M. Cummins, CPA, national director of personal financial services, and Janet Fuersich, national director of compensation consulting in the actuarial, benefits and consulting group, both at Coopers & Lybrand, New York, New York, explain the new rules.

Until now, the SEC's insider rules have limited some executives' and insiders' ability to realize gain from the sale of company stock for six months after exercising a stock option. Under the SEC new rules [240.16(b)-31], which went into effect May 1, 1991, and are still subject to various transitional rules, executives can sell shares immediately after exercise. However, they must first hold the option for six months.

The new rules also given insiders the opportunity to finance their options without cash, a technique that formerly was not available to them. Under a cashless exercise, an arrangement is made between the company and a broker to sell an amount of stock equal to the exercise price and to deliver shares to their employee net of that price. …

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