Options Backdating

AAA

DEFINITION of 'Options Backdating'

The process of granting an option that is dated prior to the date that the company granted that option. In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date. This process makes the granted option in-the-money and of value to the holder.



INVESTOPEDIA EXPLAINS 'Options Backdating'

This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date. Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within a two-month period. The company would then grant the option but date it at or near its lowest point. This is the granted option that would be reported to the SEC.

The act of options backdating has become much more difficult as companies are now required to report the granting of options to the SEC within two business days. This adjustment to the filing window came in with the Sarbanes-Oxley legislation.

RELATED TERMS
  1. Options On Futures

    An option on a futures contract gives the holder the right to ...
  2. Sarbanes-Oxley Act Of 2002 - SOX

    An act passed by U.S. Congress in 2002 to protect investors from ...
  3. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  4. Option Pricing Theory

    Any model- or theory-based approach for calculating the fair ...
  5. Exercise Backdating

    A practice where option holders fraudulently claim to have exercised ...
  6. Backdating

    Dating any document by a date earlier than the one on which the ...
Related Articles
  1. The Dangers Of Options Backdating
    Options & Futures

    The Dangers Of Options Backdating

  2. The
    Options & Futures

    The "True" Cost Of Stock Options

  3. Should Employees Be Compensated With ...
    Options & Futures

    Should Employees Be Compensated With ...

  4. The Controversy Over Option Expensing
    Options & Futures

    The Controversy Over Option Expensing

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center