Statement of Chairman Christopher Cox Regarding Use of Market Instruments in Valuing Employee Stock Options
summary
SEC Chairman Christopher Cox announced no fraud or enforcement action, but instead encouraged private-sector innovation in developing market-based instruments to value employee stock options for financial reporting, with no charges, penalties, or misconduct alleged.
paragraph
The U.S. Securities and Exchange Commission, under Chairman Christopher Cox, issued a policy statement supporting the development of market-based instruments to estimate the fair value of employee stock options following FASB’s 2005 expensing requirement. No individuals or companies were accused of wrongdoing, no dollar amounts were cited, and no legal charges were brought. The SEC emphasized openness to multiple valuation methodologies, acknowledging limited empirical data and committing to ongoing evaluation of private-sector proposals.
narrative
On September 9, 2005, SEC Chairman Christopher Cox issued a public statement outlining the Commission’s stance on valuing employee stock options for financial reporting purposes. The statement followed the Financial Accounting Standards Board’s recent requirement to expense stock options and responded to the need for better valuation methods. The SEC did not accuse any party of fraud, impose penalties, or mandate specific models; instead, it actively encouraged private-sector innovation and competition among emerging market-based valuation instruments. Internal staff reports from the Chief Accountant and the Office of Economic Analysis were referenced to highlight preliminary analyses of candidate methodologies. Cox emphasized that due to limited empirical data, multiple approaches were acceptable and experimentation should be welcomed, not restricted. The SEC’s goal was to foster the development of market-priced instruments that could more accurately reflect the true cost of option grants. No litigation, enforcement actions, or financial penalties were involved—only a policy commitment to ongoing evaluation and openness to new ideas.
Classified non-corporate(confidence 100%). No EDGAR filing fingerprint (criminal/DOJ-side scheme). detection rule →
Parties
chief accountantchristopher coxcontinuing support of sec in evaluating stock options valuation proposalsfinancial accounting standards boardmarket instrumentsec commission staffSecurities and Exchange Commission
Keywords
employee stockstock optionsstockemployeeoptionsmarket instrumentsvalue employeemarketchairman christophervaluing employeestatementstatement chairmaninstruments valuinginstrumentsstaff
Extracted insights
Entities 7
- person chief accountant
- person christopher cox
- agency continuing support of sec in evaluating stock options valuation proposals
- person financial accounting standards board
- person market instrument
- agency sec commission staff
- agency Securities and Exchange Commission
Triples 10
- Christopher Cox announced Issuance Of Informal Staff Progress Reports On Employee Stock Options Valuation
- Financial Accounting Standards Board issued Statement Requiring Expensing Of Stock Options
- SEC published Staff Accounting Bulletin Regarding FASB Standard Implementation
- SEC Commission Staff issued Informal Commentary On Market Approaches To Employee Stock Options Valuation
- SEC encourages Development Of Market Instruments To Value Employee Stock Options
- Chief Accountant provided Overview Of Employee Stock Options Valuation Approaches
- Office Of Economic Analysis issued Progress Report On Candidate Instrument Designs For Stock Options Valuation
- Market Instrument has advantages over Model-Based Approach For Estimating Fair Value Of Employee Stock Options
- Christopher Cox pledged Continuing Support Of SEC In Evaluating Stock Options Valuation Proposals
- Statement issued on September 9, 2005
Extracted body text (3,283c)
STATEMENT OF CHAIRMAN CHRISTOPHER COX REGARDING USE OF MARKET INSTRUMENTS IN VALUING EMPLOYEE STOCK OPTIONS FOR IMMEDIATE RELEASE 2005-129 Washington, D.C., Sept. 9, 2005 - U.S. Securities and Exchange Commission Chairman Christopher Cox announced today the issuance of informal staff progress reports on the ongoing Commission evaluation of proposals to value employee stock options for financial reporting purposes. The full text of his statement follows: "It has been nine months since the Financial Accounting Standards Board issued its statement requiring the expensing of stock options, and almost six months since the SEC published a Staff Accounting Bulletin regarding the implementation of the FASB standard. Today, the Commission's staff are issuing informal commentary that assesses progress toward using market approaches to valuation of employee stock options. This commentary is intended to stimulate discussion and promote further efforts at the development of market instruments to value employee stock options. "As our previous staff guidance has stated, it will be rare when there is only one acceptable choice in estimating the fair value of employee stock options. Indeed, many valuation approaches and measurement techniques are currently under study, or in various stages of development and implementation. The Commission's approach has been, and remains, the encouragement of robust efforts in the private sector to design market instruments that have the potential to accurately measure the cost of employee stock option grants to the issuer. Because so little empirical data is available, the views expressed today are necessarily tentative and subject to ongoing assessment. "Over time, as issuers and accountants gain more experience in valuing employee stock options for financial reporting purposes, particular approaches may begin to emerge as best practices, and the range of potential methodologies will likely narrow. For now, however, it is not our intention to narrow the field and to limit experimentation, but rather to welcome it. "Today's incremental advancement of this cause comprises two documents: an overview by the Chief Accountant, and a brief progress report by the Office of Economic Analysis, setting forth their analysis to date of candidate instrument designs that have come to their attention in the last six months. "As the OEA memorandum makes clear, the use of an appropriate market instrument for estimating the fair value of employee stock options has some distinct advantages over a model-based approach. Most importantly, the instrument's price could establish the issuer's true cost of the option grant, by having it priced by the market. "We remain committed to the promotion of competition between different approaches. Ideally, that competition will also lead to further innovation in models used to value employee stock options. I thank the professional staff of the Commission for their diligent work on this subject thus far, and pledge the continuing support of the SEC in evaluating the wide range of proposals that we expect will be submitted for our review." See Chief Accountant's Statement See Office of Economic Analysis Memo http://www.sec.gov/news/press/2005-129.htm Home | Previous Page Modified: 09/09/2005
OCR text (3,283c · plain-text · 99% conf)
STATEMENT OF CHAIRMAN CHRISTOPHER COX REGARDING USE OF MARKET INSTRUMENTS IN VALUING EMPLOYEE STOCK OPTIONS FOR IMMEDIATE RELEASE 2005-129 Washington, D.C., Sept. 9, 2005 - U.S. Securities and Exchange Commission Chairman Christopher Cox announced today the issuance of informal staff progress reports on the ongoing Commission evaluation of proposals to value employee stock options for financial reporting purposes. The full text of his statement follows: "It has been nine months since the Financial Accounting Standards Board issued its statement requiring the expensing of stock options, and almost six months since the SEC published a Staff Accounting Bulletin regarding the implementation of the FASB standard. Today, the Commission's staff are issuing informal commentary that assesses progress toward using market approaches to valuation of employee stock options. This commentary is intended to stimulate discussion and promote further efforts at the development of market instruments to value employee stock options. "As our previous staff guidance has stated, it will be rare when there is only one acceptable choice in estimating the fair value of employee stock options. Indeed, many valuation approaches and measurement techniques are currently under study, or in various stages of development and implementation. The Commission's approach has been, and remains, the encouragement of robust efforts in the private sector to design market instruments that have the potential to accurately measure the cost of employee stock option grants to the issuer. Because so little empirical data is available, the views expressed today are necessarily tentative and subject to ongoing assessment. "Over time, as issuers and accountants gain more experience in valuing employee stock options for financial reporting purposes, particular approaches may begin to emerge as best practices, and the range of potential methodologies will likely narrow. For now, however, it is not our intention to narrow the field and to limit experimentation, but rather to welcome it. "Today's incremental advancement of this cause comprises two documents: an overview by the Chief Accountant, and a brief progress report by the Office of Economic Analysis, setting forth their analysis to date of candidate instrument designs that have come to their attention in the last six months. "As the OEA memorandum makes clear, the use of an appropriate market instrument for estimating the fair value of employee stock options has some distinct advantages over a model-based approach. Most importantly, the instrument's price could establish the issuer's true cost of the option grant, by having it priced by the market. "We remain committed to the promotion of competition between different approaches. Ideally, that competition will also lead to further innovation in models used to value employee stock options. I thank the professional staff of the Commission for their diligent work on this subject thus far, and pledge the continuing support of the SEC in evaluating the wide range of proposals that we expect will be submitted for our review." See Chief Accountant's Statement See Office of Economic Analysis Memo http://www.sec.gov/news/press/2005-129.htm Home | Previous Page Modified: 09/09/2005