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Accounting for Stock Options Requires Comprehensive System, Says OptionEase CEO

OptionEase CEO Kim Kovacs says on-demand system can help companies comply with complex stock option accounting rules and avoid penalties.

With all the public anger over Wall Street bonuses, coupled with regulatory scrutiny of executive compensation packages and corporate scandals over backdating stock options, the topic of complying with accounting regulations for accounting for stock options is heating up. There is increasing demand for technology that can help companies to comply, audit and value their corporate stock option plans, according to Kim Kovacs, CEO and co-founder of OptionEase Inc.

Yesterday, OptionEase Inc., based in San Juan Capistrano, Calif., reported 60 percent growth in both revenue and new clients in 2009 for its on-demand software-as a service (SaaS) application, which provides equity administration and compliance. The company also received $3.5 million in Series A financing led by GADS Option Fund, Miramar Venture Partners and with participation from the company's current investors.

According to Kovacs, companies require a comprehensive solution that streamlines equity administration and compliance. "A stock option isn't just looked at by one or two people. You've got your broker, the SEC, the auditor, who is interested. You've got a lot of constituents," involved with seeing the data, said Kovacs in an interview last Friday. "The problem in the past was providing a gold set of data for everybody to look at, at the same time, and using technology to provide that to these constituents," said Kovacs.

While there are other equity administration and valuation products on the market— and nearly every brokerage firm provides a way for companies to trade their stock options on the front end and view their vesting date in their account and when they expire and can exercise them —but there is a need for accounting rules on the back end, says Kovacs. One of the biggest providers is E*Trade, which bought the company Share Data in 1998 whose product is EquityEdge. Kovacs says some companies are moving off the E*Trade EquityEdge platform. E*Trade bolted on new functionality after the accounting rules changed in 2006, but some companies did custom work in EquityEdge and Kovacs claims the patch didn't work for architectural reasons. "This information comes to the CFO or the accounting team, and they have trouble complying with the regulations, the way it's represented," says Kovacs. In general, Kovacs says most of the accounting is being done in Excel spreadsheets because some of the giants in the industry haven't provided the back-end functionality they've promised. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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