Employee Stock Options as a Hedging Tool - 26 May 2009
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FOR ESO HOLDERS AND THEIR ADVISORS
This
article is to announce that the CBOE and the ISE have proposed to the
SEC to make ESOs good collateral for margin purposes for hedging their
ESOs using sales of nearer term calls. Below is a link with the latest
amended proposal of May 3, 2009.
https://www.cboe.org/publish/RuleFilingsSEC/SR-CBOE-2008-055.a1.pdf
The
idea is that if the CBOE and the ISE can get the proposal accepted by
the SEC, and there is at present a comment period going on now, the
ESOs could be considered good collateral for margin purposes. This
means that a holder of vested options can sell (write) nearer term
calls to the extent of his/her ESO holdings without advancing any
margin.
Of course, there are several hurdles between the SEC
accepting the plan and the holder of the ESOs actually using his ESOs
as collateral for hedging. The largets one of which will be, in my
view, getting the company/employer to agree to alter its Stock and
Options documents to allow pledging the ESOs.
There are
apparently some unresolved issues regarding what would be SEC
acceptable for officers and directors complying with SEC Rule 16 c-4.
There
is also an expression in the proposal that the present margin
requirements make hedging strategies prohibitive and impractical,
illustrating that the CBOE and the ISE perhaps wish to "sell" this plan
over other presently avaiable strategies or have an extensive learning
process ahead before they master the workings of emploee stock options
vis-a-vis listed options.
But it could be a step in the right direction.
Cheers:
John Olagues
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Truth in Options, 413 Sauve Rd., River Ridge, LA 70123 504-305-4449 olagues@gmail.com
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