CSA STAFF NOTICE 51-320 - OPTIONS BACKDATING As a result of recent media attention about the apparent backdating of options in the US, Canadian market participants have expressed interest in the dating of stock options granted by reporting issuers in Canada.Staff in the jurisdictions represented by the Canadian Securities Administrators (CSA), are publishing this notice to communicate our understanding of this issue in the Canadian context.Both sets of motivations arise from the quantitative and qualitative benefits, costs, and risks of issuing and receiving backdated options. Certain AMT may be carried forward and applied to reduce the general tax payable in subsequent years (to the extent that the general tax exceeds the tentative alternative minimum tax liability for the subsequent year). Most of the research to date has focused on supply side factors (e.g., accounting treatment, securities regulations, and corporate taxation), while there has been little discussion of demand side factors. If someone presents you with a spreadsheet of the last month's stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?
And this is why defenses to backdating sometimes get hard for me to understand.Sure the accounting rules are arcane and most people don't know them.But if someone asks you to write down a date from a month ago on a legal document, rather than today's date, doesn't it give you pause?The first step in untangling the causes of backdating is to acknowledge that the backdating phenomenon must be driven by both supply and demand factors. Lipman, Incentive Stock Options and the Alternative Minimum Tax: The Worst of Time, 39 Harv. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. From the supply side, the question is what motivates a firm to grant a backdated option, and from the demand side, what motivates an executive to demand (or, at the very least, accept) a backdated option?