SEC will issue guidelines on options timing

The U.S. Securities and Exchange Commission aims to issue guidelines on the appropriate timing for companies to issue stock options this summer when it proposes new rules dealing with executive compensation, SEC Chairman Christopher Cox said on Monday.

Dealing with back-dating of options — the practice of setting a grant price retroactively at a lower, more profitable level — is of very significant interest to the agency in both policy terms and on an enforcement level, the SEC chief said.

"We expect to publish guidance this summer at the same time we vote on our final rules for executive compensation. The executive compensation rule will almost certainly contain some specific features dealing with options back-dating," Cox told reporters after a speech at Stanford University.

Though the practice is criticized, legal experts have said back-dating options is not prohibited under SEC regulations if it is disclosed in regulatory filings, is allowed by the company's compensation plan and if the accounting is proper.

"Back-dating ... can be illegal and might not always be illegal depending on the facts and circumstances," said Cox to a room full of corporate directors of publicly traded companies. "We're going to weigh each of these cases on those circumstances."

Dozens of companies have disclosed investigations from securities regulators to determine the nature of its back-dating options, including UnitedHealth Group Inc.

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Regulators tried to curb the practice of back-dating options within the Sarbanes-Oxley corporate governance reforms by requiring companies to report option grants within two days instead of the previous 45-day window.

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"Sarbanes-Oxley makes it very, very difficult to have the kind of egregious cases ... we might see by reading the newspapers about what happened in the 1990s in some cases," said Cox.

The chief U.S. securities regulator steered clear of controversial topics, such as the decision by a federal appeals court decision last week to toss out a rule requiring hedge funds to register with the agency.

When asked whether the ruling, which was seen as a setback to the SEC's efforts to regulate the hedge fund industry, was disappointing, Cox declined to move beyond a statement issued on Friday to reevaluate the agency's approach to the investment pools.