SIAS Against Timing Opportunism When Companies Issue Stock Options

Date: June 13, 2006

SIAS refers to the study performed by Associate Professor Mak Yuen Teen and alumnus Beh Shao Yong titled “Do Singapore companies time the granting of options to benefit execs and directors?” published in The Business Times on 7 June 2006. The findings of the study indicate that most companies sampled used a variable options issue schedule and that share prices tend to be lower before the grants of options and higher in the days after thereby indicating possible timing opportunism.

SIAS notes that in the US, the Securities and Exchange Commission (SEC) is looking into questionable stock option practices such as backdating. We are alarmed at the prospect that options backdating may be happening in Singapore listed companies as well and would like the authorities to look into the issue here. Clearly, back dating of stock options issuance to coincide with low stock prices are detrimental to investors as it de-links pay from performance. These lowered exercise prices may also result in a higher dilution effect on the company’s shares due to lower amounts of funds received upon conversion.

We feel that the current practice of granting options could be more transparent. SIAS wants a requirement for companies granting share options to disclose the size of grant and its exercise price to the public within 2 business days of the grant date.

SIAS urges company directors to ensure that timing opportunism is not used during the issue of stock options. Particularly, in taking advantage of a rally of share prices to backdate stock options exercise prices or to issue stock options just before positive corporate developments. Issuing large number of options just after market crashes or crises to take advantage of abnormally low prices should be avoided as that would not be in the interest of shareholders. Similarly, replacement of options before their expiry with new ones at lower prices should also be avoided.

SIAS also urges investors to be more observant of the stock options issuances of companies and to register their objection to such unacceptable practices.

Mr David Gerald J.
President & CEO
Securities Investors Association (Singapore)