NEW YORK -- Cisco Systems Inc., the leading maker of computer networking gear, is seeking regulatory approval for letting the market determine the value of its employee stock options.
The effort could lessen the effect of stock-option expensing on Cisco's bottom line and have a broad impact across the technology sector, if successful.
''To get an accurate valuation for stock option expensing, Cisco is working on a market instrument that would match the same attributes of an employee stock option," said John Earnhardt, a Cisco spokesman.
Securities and Exchange Commission chairman William Donaldson left open the possibility that the agency would approve Cisco's plans. ''It's a very interesting approach," he said yesterday.
A person familiar with the matter, who spoke to Dow Jones Newswires on condition of anonymity, said Cisco wants to enlist an investment bank that would turn to hedge funds, perhaps as many as 15, which would bid on and buy a small portion of the options, thus putting a value on them.
The investors would be bidding on the options as if they were employee stock options -- taking into account that they are not tradable or hedgeable and that they require time to vest.
The method would give an alternative to pricing based on a theoretical model such as the Black-Scholes formula, which factors in volatility and time to expiration.
Cisco's effort comes after the Financial Accounting Standards Board introduced a rule in December requiring companies to treat employee stock options as an expense. This means many technology firms, which often offer employees stock options, will see earnings reduced when the rule comes into effect this year.