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The Ownership Society and Employee Ownership

2008-09-03T00:44:00.000-07:00

The Ownership Society and Employee Ownership

By Corey Rosen, NCEO Executive DirectorThere's lots of disagreement about President Bush's vision and plan for an "Ownership Society," but it's hard to find anyone who disagrees with the notion that ownership itself is a powerful idea. The debate is over exactly how people can become owners. Should people, for instance, be encouraged to save for themselves in order to become owners? Or, should Social Security taxes be invested by government in private ownership accounts?To me, it's quite remarkable that there is all this rhetoric about "ownership" yet barely a whisper about the one proven approach that has created more owners of productive capital in our nation's history than any other: employee ownership.

The Statistics

2008-09-03T00:19:00.000-07:00

The Statistics

Back in 1970, only a handful of American workers owned stock in their companies, but by 2002, a General Social Survey study reported that 39% of Americans working for companies that have (or share equity with anyone) equity actually owned stock in their employers and/or held options. This translates into roughly 25 million people, or just under 10% of the U.S. population. Conservatives, however, continue to speak glowingly about the rise in stock ownership by American workers without giving the concept of employee ownership, largely responsible for this shift, any due credit. True, some of these workers don't own very much stock, and some who owned a large amount, such as employees at Enron or United Airlines, wish they hadn't.Overall, though, employee ownership has been and continues to be a great boon for employees. A Washington state study found that the principal form of employee ownership-ESOPs (employee stock ownership plans)-provide the typical participant with a nest egg of company stock worth nearly three times more than a comparable employee in a non-ESOP company, in terms of retirement plan assets. The employee at the ESOP company also earns 5-12% higher pay, to boot.Are ESOPs too risky to rely on solely for retirement? You bet. Rutgers University professors Joseph Blasi and Douglas Kruse, however, found in a national study that companies with ESOPs are greatly more likely to have additional diversified retirement plans than comparable non-ESOP companies are to have any kind of retirement plan.The estimated 10 million employees who hold stock options are faring well too, conventional wisdom to the contrary. Here, Blasi and Kruse found that companies that give options to most or all employees pay about 7% higher than comparable companies. Options are just gravy. A National Center for Employee Ownership survey found that a typical options recipient would realize an average of a few thousand dollars in value per year over a 10-year period, although there is significant variation.Employee-owned companies can afford this generosity for a simple reason: they tend to perform better. While a few of these studies produce mildly negative (and some neutral) results, dozens of studies demonstrate that employee ownership companies enjoy significant gains. Blasi and Kruse conclude that broadly-based employee ownership increases overall productivity 4%, and that ESOPs have an even greater positive effect, stimulating companies to grow about 2.5% per year faster with their ESOP than would have been expected without an ESOP.Employees, unsurprisingly, seem to enjoy being owners, too. Over half the companies that issue stock that made the list of "100 Best Companies To Work For" have broad ownership plans..

Tax Friendly

2008-09-01T19:15:00.000-07:00

Tax Friendly

And here's the real kicker: perhaps the most unsung benefit of employee ownership is that it has successfully transferred ownership to tens of millions of American workers without being burdensome to taxpayers. Tax costs for ESOPs range from $1-2 billion, and options don't enjoy much special tax treatment either (stock option exercises are treated as if they were employee income). Companies are able to pay back the tax investments because these employee-owned companies grow faster. The concept of employee ownership is growing not just because of taxes or worker approval, but also because it works.Most advocates for employee ownership, like myself, are not asking for that much, really. A few laws could be tweaked but, by and large, the existing rules work well. But I tend to think that employee ownership deserves some more publicly voiced respect.

A Society of Owners

2008-09-01T19:14:00.000-07:00

A Society of Owners

In his reelection campaign, President Bush visited Missouri-based Springfield ReManufacturing Company (SRC), an employee-owned company, and delivered a widely covered talk on the economy but said not a word about employee ownership. Our President stood in front of hundreds of SRC employees-hard workers who took their once-fading company, increased employment 900%, stimulated stock growth from 10 cents to over $80 per share, and built a company that is now widely recognized for their effective management style-and didn't utter a word of acknowledgement. (Democrats, it should be noted, weren't any better; John Kerry didn't say much about employee ownership, either.)The debate will go and on, and I'm happy to let others deal with all of this. I just wish our political leaders and opinion leaders would at least talk about employee ownership within this debate, especially since employee ownership could conceivably help create a true ownership society. Employee ownership, a sound idea, is still largely unknown to or misunderstood by most Americans, even our highly-educated business leaders. Making employee ownership a part of the national discussion on an Ownership Society would help move the idea forward in powerful, productive ways.And it wouldn't increase the deficit by a penny.

The Ownership Society and Employee Ownership

2008-09-01T19:12:00.000-07:00

The Ownership Society and Employee Ownership

The Statistics

2008-08-31T21:15:00.000-07:00

The Statistics

Tax Friendly

2008-08-31T21:14:00.001-07:00

Tax Friendly

A Society of Owners

2008-08-31T21:12:00.000-07:00

A Society of Owners
In his reelection campaign, President Bush visited Missouri-based Springfield ReManufacturing Company (SRC), an employee-owned company, and delivered a widely covered talk on the economy but said not a word about employee ownership. Our President stood in front of hundreds of SRC employees-hard workers who took their once-fading company, increased employment 900%, stimulated stock growth from 10 cents to over $80 per share, and built a company that is now widely recognized for their effective management style-and didn't utter a word of acknowledgement. (Democrats, it should be noted, weren't any better; John Kerry didn't say much about employee ownership, either.)
The debate will go and on, and I'm happy to let others deal with all of this. I just wish our political leaders and opinion leaders would at least talk about employee ownership within this debate, especially since employee ownership could conceivably help create a true ownership society. Employee ownership, a sound idea, is still largely unknown to or misunderstood by most Americans, even our highly-educated business leaders. Making employee ownership a part of the national discussion on an Ownership Society would help move the idea forward in powerful, productive ways.
And it wouldn't increase the deficit by a penny.

Stock Options: Who Gets What?

2008-08-31T20:45:00.000-07:00

Stock Options: Who Gets What?

By Corey Rosen, NCEO Executive DirectorThere seems to be a lot of confusion right now about just how many people are getting stock options and how much they are getting. The truth is, no one can be exactly sure. There is no reporting system for these grants that could provide a reliable data source. So the NCEO has constructed estimates based on a study by the Bureau of Labor Statistics and surveys by a number of large consulting firms, including Mercer Consulting; Hewitt Associates; academics Edward Lawler, Susan Mohrman, and Gerald Ledford; and Segal Sibson, all of which came to compatible conclusions. How Many People Are Getting Options?From these surveys, we estimated in 2000 that approximately 7 to 10 million employees now hold stock options. But because options are often not granted annually, especially in some very large companies with broad-based grants, that does not mean that 7 to 10 million people get options granted to them every year. That number is probably in the range of three million per year. (For a longer discussion of how we arrived at these numbers, see pp. 467-69 of Current Practices in Stock Option Plan Design, the study mentioned below.)Has the Number of People Getting Options Grown?We estimate that the number of people getting options grew dramatically in the 1990s; growth since 1999 probably has leveled off as the tech sector's growth has slowed. In 1992, only about one million people had options. The table below shows estimated growth over time (remember, these numbers represent the number of employees holding options, not the number of employees receiving options in a particular year): Who Gets How Much?In terms of the distribution of options, that can best be measured by first looking at the number of options granted. Looking only at companies with broad-based plans (which we define as plans in which over 50% of employees receive option grants), our study Current Practices in Stock Option Plan Design found that 34.1% go to senior executives (defined in the study as senior vice presidents and above). This includes grants under all plans; for example a company might have a broad-based plan covering most of the employees plus a plan just for senior executives. About 30% goes to nonmanagement employees, and the rest goes to management other than senior executives. Senior executive grants are a lot larger, of course. Looking at the most recent grants from the survey, the average grant value (calculated as the number of shares times price of the stock at grant) was $511,000, compared to $7,982 for hourly employees and $35,481 for technical employees.Please note that the above numbers are for companies that grant options broadly. Most companies do not do this. If you examined all U.S. companies that grant options, you might find that most options went to senior executives, because the companies that didn't grant options broadly would skew the average produced by combining these companies with other companies. What Companies Provide Broad Options?It is important to look at who provides broad options. Most technology companies do; according to a Segal Sibson study in 2000, about 30% of companies in the finance and general manufacturing sectors make most employees eligible for options (although only about half of these companies will actually grant options broadly). The numbers drop off sharply from there. Based on the several studies mentioned above, it seems clear that about 20% to 25% of public companies provide options to most or all full-time (and sometimes part-time) employees.Performance ImpactFinally, there is the issue of performance. A study by Douglas Kruse, Joseph Blasi, Jim Sesil, and Maya Krumova found that productivity rates did improve with the institution of a broad-based plan. The difference between productivity scores for the sample of broad-based options plan companies from their pre-plan period to a three-year post-plan period was 16% when the comparison group was all non-option companies and 19.4% when looking just at comparisons in their industry. Neither result is likely to have occurred at random. Return on assets (ROA) showed a similar pattern. Here the stock option companies showed an improvement of 2.5% per year on ROA relative to the full sample in the post-plan period compared to the pre-plan period. When just paired comparisons are used, the improvement was 2.05%. Again, these results were very unlikely to have occurred randomly. Total shareholder return, however, showed no statistically significant difference, up or down, in the relative performance during the two periods (meaning the researchers cannot be sure that the results they found were not just random). But looking at the shareholder results in a different way--just looking at how options companies did relative to non-options companies without holding their pre-plan performance constant--options companies did much better. Details on the study are at http://www.nceo.org/library/option_corpperf.html.What Happens If Expensing Is Required?What would happen if options expensing were required? It really is impossible to say. Outside of the group of companies that grant options broadly, most option value goes to top executives. So if companies want to reduce the apparent costs of options, they need to reduce top executive grants, not broad-based grants. Moreover, if they want options to improve performance, they need to focus on making and keeping broad-based grants an important part of their culture.

Plan for Acquisition

2008-08-29T20:57:00.000-07:00

Plan for Acquisition

Many companies write their plans with the assumption that they will not be acquired. In fact, many of them will, whether they are publicly traded or not. One of the most common, and costly, areas of options lawsuits is what happens when there is an acquisition. Will options immediately vest and become fully exercisable (employees will like that but these provisions can make your company less attractive to a suitor)? If options do not vest on acquisition, what happens to the unvested options? Can they be translated into options in the acquiring company's stock? For options that are vested, are they immediately exercisable or will the employee receive options or shares in the acquirer instead? If options are exchanged, how will the exchange value be set?Some plans will outline specifically what will happen on each of these issues. That, of course, limits the company's flexibility in the face of a negotiation. If more discretion is desired, then the plan needs to lay out the procedures about who will make the decisions and on what basis. One approach to help build more employee confidence in this discretionary plan is to require that someone other than senior management make the decision, such as a committee of outside directors or an independent fiduciary appointed by the company. The fairness of any option exchange could be reviewed by an independent source, such as a qualified valuation or CPA firm. However these issues are handled, the more ambiguous or silent the plan is on what happens, the more likely employees are to sue.

Clarify Termination

2008-08-29T20:17:00.000-07:00

Clarify Termination Rules

Another common area for suits is termination, whether for cause or not. Most plans state that unvested shares are forfeited when an employee terminates employment, but this is not universally the case nor universally spelled out. Employees still might argue that their termination was inappropriate and perhaps even that they were terminated so that the company would not have to deal with all their options. Making sure the plan and the contract with employee specifies the employee's rights for unvested options if terminated can help avoid lawsuits, although sufficiently aggrieved employees might sue anyway. Some plans also state that unexercised but vested options are canceled if an employee is terminated for cause. This creates much stickier issues. Employees with substantial option value may well contend that their termination was to reduce costs to the employer. If your plan has such a provision, you need to review it very carefully with an attorney specializing in the employment laws of your state.Finally, some plans state that options will be canceled if an employee goes to work for a competitor. Obviously, companies are not enthused about employees taking a large option award and starting a competing enterprise or going to work for one. The problem with the non-compete agreements is that they are often very difficult to enforce, and are illegal in some states. Employment law is a complex area that is almost entirely based on state, not federal, rules, so before creating a non-compete clause, get a careful legal review.

Transferring Options

2008-08-29T20:16:00.000-07:00

Transferring Options

Rules for the transferability of options are less quarrelsome, but options that have been transferred to a spouse who then gets divorced before the options vest can be another source for lawsuits (each spouse will claim the unvested options as theirs, for instance). Spelling out in advance who has a right to unvested and/or unexercised options can help make these lawsuits less likely.

Restricted Stock

2008-08-29T20:11:00.000-07:00

Restricted Stock

Restricted stock refers to shares whose sale or acquisition is subject to restrictions. In employee ownership plans, this typically would mean that an employee would be given shares or the right to buy shares (perhaps at a discount), but could not take possession of them until some time later when certain requirements have been met (or, to put it differently, restrictions have been lifted), such as working for a certain number of years or until specified corporate or individual performance goals have been met. If the employee does not meet the requirements for restrictions to lapse, the shares are forfeited. Some plans allow the restrictions to lapse gradually (for instance, an employee could buy 30% of the stock when the shares are 30% vested); others provide the restrictions lapse all at once. Employees can choose whether to be taxed when the restrictions lapse, in which case they will then pay ordinary income tax on the difference between the current price and anything they may have paid for the shares, or they can pay when the right is first granted by filing an 83(b) election. In that case, they pay tax on the difference (if any) between the current price and the purchase price at ordinary income tax rates, then pay capital gains tax when they actually sell the shares. While the employees holds the restricted stock, it may or may not provide dividends or voting rights, at the option of the company. One of the great advantages of these plans is their flexibility. But that flexibility is also their greatest challenge. Because they can be designed in so many ways, many decisions need to be made about such issues as who gets how much, vesting rules, liquidity concerns, restrictions on selling shares, eligibility, rights to interim distributions of earnings, and rights to participate in corporate governance (if any).

Restricted Stock Advantages

2008-08-29T20:09:00.000-07:00

Restricted Stock Advantages

• Awards provide service or performance targets for employees to achieve before actually receiving shares or having the right to acquire shares.

• Shares can carry dividend or voting rights, if the company chooses.

• Unlike stock options or stock appreciation rights, restricted stock retains some value for employees even if the price goes down.

• Capital gains treatment is available on all or part of the gain on the shares, provided a "Section 83(b) election" is made.

• Unlike stock options or stock appreciation rights, restricted stock provides some value even if the share price declines.

Exemption from Securities Registration Under Rule 701

2008-08-28T21:07:00.001-07:00

Exemption from Securities Registration Under Rule 701

Under Rule 701 of the Securities Act of 1933, companies have been able to offer their own securities as part of written compensation agreements to employees, directors, general partners, trustees, officers, or certain consultants without having to comply with federal securities registration requirements. The original rule, created in 1988, limited outstanding offers in reliance on Rule 701 (plus the amount of securities offered or sold under Rule 701 in the past 12 months) to an aggregate amount not to exceed the greater of (1) $500,000 or (2) 15% of either the issuer’s total assets or 15% of the outstanding securities of the class of securities being offered. In no case, however, could the total amount offered or sold exceed $5 million during the preceding 12-month period.Many private companies complained that the old rules were too limiting, and in 1996, Congress, as part of the National Securities Market Improvement Act, directed the SEC to amend the rule. Effective April 7, 1999, the SEC issued new regulations that accomplish this purpose. The new rule is especially attractive to closely held companies that offer broad-based stock option plans or who want to allow employees to purchase shares through 401(k) plans or employee stock purchase plans. While the new rule makes securities law compliance easier for these companies, it still requires some potentially costly disclosures. Moreover, the rule applies to federal law; most states will track these rules, but some will not.Under the new rule, if total sales (not offerings) of stock during a twelve-month period do not exceed the greater of:1. $1 million, 2. 15% of the issuer’s total assets, or 3. 15% of all the outstanding securities of that class, then the offerings are exempt from registration requirements, even if the total amount exceeds the old limit of $5 million. The offerings must be discrete (not included in any other offer). As under the old rule, all optionees and shareholders must be provided with a copy of the benefit plan or contract under which the options or securities are granted. For total sales over $5 million during a twelve-month period to the specified class of people above, companies must disclose additional information, including risk factors, copies of the plans under which the offerings are made, and certain financial statements.While these are the general outlines of the new rules, there are a number of specific wrinkles, as outlined below.

Measuring Sales

2008-08-28T21:05:00.000-07:00

Measuring Sales

One of the most important changes the new rule makes is that the limit is now based on actual sales, not just offers. In measuring sales, all options granted during the period are considered part of the aggregate sales, with the option price defined as of the date of grant. This is a change from the prior rule, which looked at whether the options were vested. Repriced options are treated as new grants. For restricted stock or compensatory stock purchases, calculations will be made as of the date of sale. For deferred compensation equity plans, measurements will be based on the date on an irrevocable election to defer compensation. In calculating outstanding securities for the 15% rules, all currently exercisable or convertible options, warrants, rights, and other securities are treated as outstanding.The rule also requires that if stock is provided in exchange for employee or consultant services, the value for the purposes of the exemption calculations is the price of the stock provided, not the amount of compensation foregone.

Treatment of Subsidiaries

2008-08-28T21:04:00.000-07:00

Treatment of Subsidiaries

The new rule allows companies to include employees of majority-owned subsidiaries, something they could not do before. Private wholly-owned subsidiaries of public companies can use their parents' assets in making the 15% of assets calculations if the parent fully guarantees the obligations of the subsidiary under the new rule (such as for deferred compensation).

Disclosure Rules

2008-08-28T21:03:00.000-07:00

Disclosure Rules

Except for providing a copy of the benefit plan or contract under which the options or securities are awarded, there are no specific disclosure requirements under Rule 701 for sales up to $5 million in a 12-month period. When sales exceed $5 million in a 12-month period, however, then companies must make disclosures to all shareholders prior to the sale, and must include at least:

• a summary plan description if the plan is an ERISA plan or a summary of the material terms if it is not,

• risk factors associated with the investment, and

• financial statements required under Regulation A, Form 1-A (this is essentially a simplified registration form, similar to a prospectus, but less detailed and allowing for unaudited but GAAP-prepared financial statements) Issuers who have audited financial statements must provide them. Financial statements must be not more than 180 days old. The disclosure for stock options must be delivered within a reasonable period before the date of exercise. If the $5 million threshold is exceeded and disclosures to optionees or shareholders receiving grants or awards earlier in the 12-month period is not deemed timely, then the Rule 701 exemption is lost for the entire amount of the options or stock granted, not just the amount exceeding $5 million.Non-reporting (private) foreign companies must also comply with the disclosure requirements, using generally accepted accounting principles (GAAP) or a reconciliation to such principles for their financial statements, even if the foreign company is otherwise exempt from U.S. registration requirements because it is registered in its home market. The amendments expand coverage under Rule 701 to cover options transferable to certain family members and estate planning agencies through a gift or domestic relations order.

Who Is a Consultant?

2008-08-28T02:02:00.001-07:00

Who Is a Consultant?

The circumstances under which securities can be issued to consultants have been limited under Rule 701 consistent with the SEC’s efforts for public companies under Form S-8 to curb the abusive practices of disguising capital raising sales as compensatory awards. The new rule allows exemptions on a facts and circumstance basis for offers to consultants who have significant "employment characteristics," such as a bookkeeper, programmer, or former employee hired as a consultant, but does not allow exemptions for offers to securities promoters, franchisees, independent agents and similar individuals.

Caveats

2008-08-28T02:00:00.000-07:00

Caveats

The changes to Rule 701 are not retroactive. Offers and sales made in reliance on Rule 701 before its effective date will continue to be valid if they meet the requirements of the previous rule. Once an issuer exceeds 500 shareholders and $10 million in assets, it is generally required to register under the Securities and Exchange Act and provide full disclosure as a public company. The issuer may, however, continue to rely on Rule 701 to sell any securities previously offered. Securities issued under Rule 701 are restricted securities ands can only be resold through registration or compliance with an applicable exemption. Transactions exempt from registration under Rule 701 are not exempt from antifraud, civil liability, or other provisions of federal securities laws. Antifraud rules in particular may require substantial disclosure of information to securities purchasers.This article can only summarize the detailed considerations that are involved in this issue. For a full discussion of the rule, go to www.sec.gov/rules/final/33-7645.htm, and, of course, consult securities laws experts before making any decisions.

Performance Stock Options in Broad-Based Plans

2008-08-28T01:56:00.000-07:00

Performance Stock Options in Broad-Based Plans

Based on the chapter "Performance-Based Stock Options" in our book Incentive Compensation and Employee Ownership
Almost all stock options issued under broad-based stock options plans are either nonqualified stock options (NSOs) or incentive stock options (ISOs). These plans qualify for fixed price accounting, so they do not show up on the company's income statement at the time they are granted. Some executive plans, however, use performance-based options. These plans provide that the option holder will not realize any value from the option unless specified conditions are met, such as the share price exceeding a certain value above the grant price or the company outperforming the industry. Performance-based plans can require variable plan accounting, which requires companies to show on their income statement a value determined by calculating the difference between the grant price of the options and the stock's current fair market value, multiplied by the percentage of options vested, adjusted for the cumulative prior expense recorded. Any performance-based plan in which the measurement date (the first date on which the number of shares and the exercise price are known) occurs after the date of the grant triggers variable plan accounting.This "hit to earnings" discourages most companies from using at least some kinds of performance options in a broad-based plan, even though an argument can be made that shareholders should be much happier with this approach. As long as shareholders remain in blissful accounting ignorance, however, the fixed approach appears better. Companies may also be concerned, however, that attaching a performance criterion to options may be inappropriate for non-executives because they have too little control over helping companies meet the targets. Of course, they have no more control over whether the company's stock price increases above the grant price, but the layering on of conditions may make the options seem too uncertain.Advocates for performance-based plans counter that providing specific targets can help focus employee interest on company-specific goals, whereas employees can often benefit from options simply because the industry or broad market does well. The plans may also be easier to sell to at least some shareholders, especially if they qualify for fixed plan accounting. If these or other arguments are persuasive, several types of performance options might be considered. The plans described here are not the only choices; companies can impose all sorts of performance criteria and option terms. Whatever choice is made, however, care should be taken that it can be readily understood by employees, that it has a real chance of delivering meaningful value, that it fits with the company's culture, and that it will not cause recruitment or retention problems.Plans That Allow Fixed Plan AccountingPerformance GrantsIn the simplest of plans, the company grants options only on the achievement of certain specified targets, such as stock price or profits. Boeing announced such a plan a few years ago.Performance-Accelerated Vesting:These plans grant options as usual, and have a normal vesting schedule. However, if specified targets are met, vesting accelerates. For instance, a 25% per year vesting schedule would result in 75% vesting after three years, but vesting could be accelerated to 100% if revenue targets are met. These plans normally get fixed plan accounting as long as the base vesting schedule does not exceed the company's normal option vesting schedule or, if it is the only kind of plan, what would be arguably normal in the industry.Premium-Priced Options:These options are granted at a strike price (the price at which the shares can be exercised) that exceeds the current price, so for them to have a value, the stock must increase to at least this higher target price. Companies must, however, give option holders to right to exercise their vested options even if the price is below the target price. For instance, the current price at grant might be $10, and the strike price might be $15. If the shares go to $14 when fully vested, the option holder would have to be able to exercise the option to buy the $14 shares for $15. Plans That Require Variable Plan AccountingPrice-Vested Options:With these plans, options are granted at the current price, but the holder only vests when the shares reach a designated higher price. A plan might provide that some of the options will vest at one price, while others will vest at a higher price. Performance-Vested Options:These options are tied to specific individual, group, or corporate goals. Like price-vested options, they vest upon the attainment of an objective, except that some other measurement than stock price provides the trigger, such as revenues, profits, or return on investment.Indexed Options:Because options can have value even in a company that underpreforms its industry, indexed options provide that the target price at which shares can be exercised is indexed by the performance of peers or the market in general. For instance, for options granted at $30, if the index of peer stock prices rises 50%, the shares could be exercised at $45. So only company performance of above $45 would provide value. Alternatively, however, if the share price goes down by less than the index, holders could get value even though the stock price has declined.

Stock Options and the Alternative Minimum Tax (AMT)

2008-08-26T20:05:00.000-07:00

Stock Options and the Alternative Minimum Tax (AMT)

There has been a lot in the news lately about employees with stock options getting hammered by the Alternative Minimum Tax (AMT). Some employees who exercised stock options last year have found that they have to pay the AMT this year even though the stock price for the shares they bought has fallen sharply. While the large majority of option holders have not fallen into the AMT trap, some who have may find that they owe tens or hundreds of thousands of dollars in tax on stock now worth less than the taxes they owe. How could this happen?First, it's necessary to understand that there are two kinds of stock options, nonqualified options (NSOs) and incentive stock options (ISOs). With either kind of option, the employee gets the right to buy stock at a price fixed today for a defined number of years into the future, usually 10. When employees choose to buy the shares, they are said to "exercise" the option. So an employee might have the right to buy 100 shares of stock at $10 per share for 10 years. After seven years, for instance, the stock might be at $30, and the employee could buy $30 stock for $10. If the option is an NSO, the employee will immediately pay tax on the $20 difference (called the "spread") at ordinary income tax rates. The company gets a corresponding tax deduction. This holds whether the employee keeps the shares or sells them. With an ISO, the employee pays no tax on exercise, and the company gets no deduction. Instead, if the employee holds the shares for two years after grant and one year after exercise, the employee only pays capital gains tax on the ultimate difference between the exercise and sale price. If these conditions are not met, then the options are taxed like a non-qualified option. For higher income employees, the tax difference between an ISO and an NSO can be as much 19.6% at the federal level alone, plus the employee has the advantage of deferring tax until the shares are sold.But ISOs have a major disadvantage to the employee. The spread between the purchase and grant price is subject to the AMT. The AMT was enacted to prevent higher-income taxpayers from paying too little tax because they were able to take a variety of tax deductions or exclusions (such as the spread on the exercise of an ISO). It requires that taxpayers who may be subject to the tax calculate what they owe in two ways. First, they figure out how much tax they would owe using the normal tax rules. Then, they add back in to their taxable income certain deductions and exclusions they took when figuring their regular tax and, using this now higher number, calculate the AMT. These "add-backs" are called "preference items" and the spread on an incentive stock option (but not an NSO) is one of these items. For taxable income up to $175,000 or less, the AMT tax rate is 26%; for amounts over this, the rate is 28%. If the AMT is higher, the taxpayer pays that tax instead.One point most articles on this issue do not make clear is that if the amount paid under the AMT exceeds what would have been paid under normal tax rules that year, this AMT excess becomes a "minimum tax credit" (MTC) that can be applied in future years when normal taxes exceed the AMT amount.

Figuring the Alternative Minimum Tax

2008-08-26T20:04:00.000-07:00

Figuring the Alternative Minimum Tax

The table below, derived from material provided by Janet Birgenheier, Director of Client Education at Charles Schwab, shows a basic AMT calculation:Add: Regular taxable income +Medical/dental deductions +Specified miscellaneous itemized deductions subject to AMT +State/local/real estate tax deductions +Personal exemptions +Spread on ISO exercise = Preliminary AMT taxable income
Subtract: $45,000 AMT standard exemption = Actual AMT taxable income
Multiply: Actual AMT taxable income times 26% for amounts up to $175,000, plus 28% of amounts over that = Tentative minimum tax
Subtract: Tentative minimum tax - Regular tax = AMT If the result of this calculation is that the AMT is higher than the regular tax, then you pay the AMT amount plus the regular tax.The AMT amount, however, becomes a potential tax credit that you can subtract from a future tax bill. If in a subsequent year your regular tax exceeds your AMT, then you can apply the credit against the difference. For instance, say your regular tax the next year is $25,000. Your AMT would only be $18,000. You have a minimum tax credit from the prior year of $12,000. You can apply $7,000 (the difference between the regular tax and AMT) as a credit against the $25,000 you owe and only pay $18,000 in taxes. Plus, you would have another $5,000 in minimum tax credit to use in a similar fashion in a future year.This explanation is, of course, the simplified version of a potentially complex matter. Anyone potentially subject to the AMT should use a tax advisor to make sure everything is done appropriately. Generally, people with incomes over $75,000 per year are AMT candidates, but there is no bright dividing line. There has been a great deal of discussion about the AMT in Congress, and some changes are very possible.One way to deal with the AMT trap would be for the employee to sell some of the shares right away to generate enough cash to buy the options in the first place. So an employee would buy and sell enough shares to cover the purchase price, plus any taxes that would be due, then keeps the remaining shares as ISOs. For instance, an employee might buy 5,000 shares on which he or she has options and keep 5,000. In our example of the shares being worth $30, with an exercise price of $10, this would generate a net before taxes of 5,000 x the $20 spread, or $100,000. After taxes, this would leave about $50,000, counting payroll, state, and federal taxes all at the highest levels. In the following year, the employee has to pay AMT on the remaining $100,000 spread for shares that were not sold, which could be as much as $28,000. But the employee will have more than enough cash left over to deal with this.Another good strategy is to exercise incentive options early in the year. That's because the employee can avoid the AMT if shares are sold prior to the end of the calendar year in which the options are exercised. For instance, assume John exercises his ISOs in January at $10 per share at a time when the shares are worth $30. There is no immediate tax, but the $20 spread is subject to the AMT, to be calculated in the next tax year. John holds on to the shares, but watches the price closely. By December, they are only worth $17. John is a higher-income taxpayer. His accountant advises him that all of the $20 spread will subject to a 26% AMT tax, meaning John will owe tax of about $5.20 per share. This is getting uncomfortably close to the $7 profit John now has on the shares. In the worst-case scenario, they fall to under $10 next year, meaning John has to pay $5.20 per share tax on shares where he has actually lost money! If, however, John sells before December 31, he can protect his gains. In exchange, he'll pay ordinary income tax on the $7 spread. The rule here is that is the sale price is less than the fair market value at exercise but more than the grant price, then ordinary income tax is due on the spread. If it is higher than the fair market value (over $30 in this example), ordinary income tax is due on the amount of the spread at exercise, and short-term capital gain tax is due on the additional difference (the amount over $30 in this example).On the other hand, if in December the stock price still looks strong, John can hold on for another month and qualify for capital gains treatment. By exercising early in the year, he has minimized the period after December 31 he must hold the shares before making a decision to sell. The later in the year he exercises, the greater the risk that in the following tax year the price of the stock will fall precipitously. If John waits until after December 31 to sell his shares, but sells them before a one-year holding period is up, then things are really bleak. He is still subject to the AMT and has to pay ordinary income tax on the spread as well. Fortunately, almost in every case, this will push his ordinary income tax above the AMT calculation and he won't have to pay taxes twice.Finally, if John has a lot of non-qualified options available, he could exercise a lot of those in a year in which he is also exercising his ISOs. This will raise the amount of ordinary income tax he pays and could push his total ordinary tax bill high enough so that it exceeds his AMT calculation. That would mean he would have no AMT next year to pay.It is worth remembering that ISOs provide a tax benefit to employees who willingly take the risk of holding on to their shares. Sometimes this risk does not pan out for employees. Moreover, the real cost of the AMT is not the total amount paid on this tax but the amount by which it exceeds ordinary taxes. The real tragedy is not those who take a risk knowingly and lose, but those employees who hold onto their shares without really knowing the consequences, as the AMT is still something many employees know little or nothing about and are surprised (too late) to learn they have to pay.

Employee Stock Options and Related Equity Incentives

2008-08-26T20:01:00.000-07:00

Employee Stock Options and Related Equity Incentives

By David Johanson, Johanson Berenson LLPBroad-based employee stock ownership, when combined with an effective communications program that is designed to create an employee ownership culture, can be a very dynamic tool for improving employee productivity and thereby increasing profitability and value. Although the focus here is not solely on "broad-based" employee stock options and related equity incentives, employers should keep this basic concept in mind when designing equity incentives for any employees.Glossary

• Exercise: To elect to purchase stock pursuant to an option.

• Exercise date: The date that an individual or an entity purchases stock pursuant to an option. • Exercise price: The price at which stock can be purchased pursuant to a stock option. Synonymous with "strike price."

• Grant date: The date on which an option is first offered to an individual or entity.

• Incentive stock option: An option, qualifying for favorable tax treatment under section 422 of the Internal Revenue Code (the "Code"), granted to an employee of a corporation to purchase company stock at a specified price for a specified period of time. Generally, there are no tax consequences until the stock is sold.

• Nonqualified (nonstatutory) stock option: A stock option that does not qualify for favorable tax treatment under Code sections 422 or 423.

• Qualified stock option: An option to purchase shares provided to an employee of the corporation under terms that qualify the option for special tax treatment under sections 422 or 423 of the Code. Synonymous with "statutory stock option."

• Restricted stock option or restricted stock: An incentive or nonqualified stock option or stock that is subject to certain restrictions imposed by the employer; for example, employees may be required to sell their stock back to the employer upon termination of employment at the price they paid for the stock.

• Section 423 stock purchase plan (sometimes called an "employee stock purchase plan" or ESPP): A plan under which a company allows employees to purchase stock at up to a 15% discount; purchasers receive favorable tax treatment if the plan meets certain rules.

• Statutory stock option: A stock option (incentive stock option or section 423 stock purchase plan option) that qualifies for favorable tax treatment under sections 422 or 423 of the Code. Synonymous with "qualified stock option."

• Stock option: A right issued by a corporation to an individual or an entity to buy a given amount of shares of company stock at a stated price within a specified period of time.

• Strike or striking price: Price at which an option (e.g., to purchase stock) is exercised. The price at which named stock can be put or called is ordinarily the fair market value when the option is written and is termed the "striking price." Synonymous with "exercise price."

Statutory Stock Options: Overview

2008-08-25T20:12:00.000-07:00

Statutory Stock Options:

OverviewTwo types of employee stock options receive special treatment under the Code: incentive stock options (ISOs) and options under an employee stock purchase plan (ESPP) that is qualified under Code section 423. There is no recognition of income on the option grant or on the exercise of the option under either of these programs for employee ownership, provided that certain conditions under sections 422 and 423 of the Code are satisfied, as discussed below. Additionally, if the stock is disposed of after completion of the statutory holding period, any appreciation will be taxed as capital gain.Stock options are the most popular form of long-term compensation incentives for executives in major U.S. companies and are now being offered to most or all employees in many companies. They are very easy to administer, primarily because they do not require that the company establish any financial targets. Over 90% of the Fortune 1000 use stock options, according to a survey conducted by TPF&C, a Towers Perrin Company.

Incentive Stock Options

2008-08-25T20:08:00.000-07:00

Incentive Stock Options

With an incentive stock option (ISO), a company grants the employee an option to purchase stock at some time in the future at a specified price. With an ISO, there are restrictions on how the option is to be structured and when the option stock can be transferred. The employee will exercise the option at some time when the value of the option stock is greater than the exercise price of the option. As the value of the stock increases relative to the option exercise price, the employee has the potential to benefit from the increase in the option stock's value over the option exercise price. The employee does not recognize ordinary income at option grant or exercise (although the spread between the option price and the option stock's fair market value constitutes an item of adjustment for alternative minimum tax purposes), and the company cannot deduct the related compensation expense. The employee is taxed only upon the disposition of the option stock. The gain is all capital gain for a qualifying disposition. For a disqualifying disposition (i.e., one not meeting the rules specified below for a qualifying disposition), the employee will recognize ordinary income as well as capital gain.A disposition of ISO stock is generally defined as any sale, exchange, gift or transfer of legal title of the stock. Section 424(c) of the Code, however, provides exceptions to this general definition. The exceptions include a transfer from a decedent who held ISO stock to an estate, a transfer of ISO stock by bequest or inheritance, an exchange of ISO stock in a nonrecognition transaction such as a reorganization, a transfer of stock between spouses incident to a divorce, a transfer of ISO stock into joint ownership and a transfer of ISO stock by an insolvent individual to a trustee in bankruptcy.Requirements for ISOsFor a stock option to qualify as an ISO (and thus receive special tax treatment under Code section 421(a)), it must meet the requirements of section 422 of the Code when granted and at all times beginning from the grant until its exercise. The requirements include:• The option may be granted only to an employee (grants to non-employee directors or independent contractors are not permitted) who must exercise the option while an employee or no later than three months after termination of employment (unless the optionee is disabled, in which case this three-month period is extended to one year). The stock option must be an option to purchase stock of the employer corporation or the stock of a parent or subsidiary corporation. The stock may be capital stock of any class of the corporation, including voting and nonvoting common or preferred stock. In addition, using special classes of stock that are authorized to be exclusively issued and held by employees is permissible.

• The option must be granted under a written plan document specifying the total number of shares that may be issued and the employees who are eligible to receive the options. The plan must be approved by the stockholders within 12 months before or after plan adoption. The stockholders' approval must comply with the charter, bylaws and state laws that regulate the stockholder approval required for the issuance of corporate stock. If there is no applicable authority, the plan must be approved by a majority of all outstanding voting stock (whether such votes are in person or by proxy) at a duly held stockholders' meeting with a quorum present or by a method that would meet the applicable state law requirements for approval of actions requiring shareholder voting.

• Each option must be granted under an ISO agreement, which must be written and must list the restrictions placed on exercising the ISO. Each option must set forth an offer to sell the stock at the option price and the period of time during which the option will remain open.

• The option must be granted within 10 years of the earlier of adoption or shareholder approval, and the option must be exercisable only within 10 years of grant.

• The option exercise price must equal or exceed the fair market value of the underlying stock at the time of grant.

• The employee must not, at the time of the grant, own stock representing more than 10% of the voting power of all stock outstanding (including stock constructively owned through attribution pursuant to Code section 424(d)), unless the option exercise price is at least 110% of the fair market value and the option is not exercisable more than five years from the time of the grant. • The ISO agreement must specifically state that the ISO cannot be transferred by the option holder other than by will or by the laws of descent and that the option cannot be exercised by anyone other than the option holder.

• The aggregate fair market value (determined as of the grant date) of stock bought by exercising ISOs that are exercisable for the first time cannot exceed $100,000 in a calendar year. To the extent it does, Code section 422(d) provides that such options are treated as nonqualified options. An ISO plan may include other provisions that are not required as long as such provisions are not inconsistent with these requirements. Employers often include provisions enabling the employee to finance the exercise price. For example, the ISO plan can provide that the employee may pay for the exercise of his or her options with stock of the company. The ISO plan also may provide for tandem stock appreciation rights which will assist an employee in exercising options without cash.The initial ISO plan document should be drafted to include any desired provisions to be used presently and also in the future so that the ISO plan does not need to be modified to include any newly desired provisions. The ISO plan also should provide for amendments.Advantages of ISOsISOs enable employees to share in the appreciation and the value of the stock and provide the employer with more flexible arrangements than allowed in a qualified retirement plan. They may be designed so that employees may put their capital at risk or so that employees are given assistance in financing the exercise price through the use of stock and option exercise programs and employee loan programs. Employees can realize the compensatory gains on the options while employed rather than having to wait until termination of employment. Options also provide executives with the opportunity to realize almost unlimited gains. In addition, the employer can tailor ISOs to benefit particular employees, which would not be possible in a qualified retirement plan.From the employer's standpoint, the most important advantage of ISOs is that they enable a company to attract and keep talent without draining cash flow by paying higher salaries. ISOs should be especially helpful for cash-poor companies with good growth prospects. This is not as true anymore, however, as high-tech employees begin to expect high current compensation and substantial growth potential from options.From the employee's standpoint, an employee receiving an ISO recognizes no taxable income upon the ISO's receipt or exercise. If the ISO is exercised more than three months after the employee has left the employ of the company granting the option, however, this favorable tax treatment is not available.Upon a qualifying disposition, the employee recognizes capital gain, measured by the difference between the option exercise price and the sale proceeds. After the Tax Reform Act of 1986, which substantially reduced the progressive nature of the individual taxpayer's rate structure and repealed favorable tax rates for capital gains, the tax advantage realized upon disposition of the stock was reduced. As of this writing, there is a substantial differential between the top marginal rate for ordinary income and the capital gains tax rate for most taxpayers. However, ISOs generally are not useful for broad-based stock option plans because most nonmanagerial employees will have ordinary income and capital gains rates that are very close. In any event, most employees in broad-based stock option plans do not hold onto their stock after exercise long enough to qualify for capital gains treatment.Tax Implications of ISOs for EmployeesAn employee receiving an ISO realizes no income upon its receipt or exercise. Instead, the employee is taxed upon disposition of the stock acquired pursuant to the ISO. A disposition of ISO stock generally refers to any sale, exchange, gift or transfer of legal title of stock. The tax treatment of the disposition of option exercise stock depends upon whether the stock was disposed of in a qualifying disposition within the statutory holding period for ISO stock. The ISO statutory holding period is the later of two years from the date of the granting of the ISO to the employee or one year from the date that the shares were transferred to the employee upon exercise.
Disqualifying Disposition If disposition occurs within two years of the employee's receipt of the option or within one year of receipt of the stock, the employee recognizes at the time of the disposition (1) ordinary income measured by the difference between the option exercise price and the fair market value of the stock at the time of option exercise (the "bargain purchase element"), and (2) capital gain measured by the difference between the fair market value of the stock on the date of exercise and the disposition proceeds.EXAMPLE: On January 1, 1992, X, an employee of ABC Corp., is granted 100 ISOs to purchase shares of ABC Corp. stock at $10 per share, the fair market value of ABC stock at the time of the grant. On March 20, 1993, X exercises all of her ISOs when the price of ABC Corp. stock is $15 per share. On December 31, 1993, X disposes of (sells) 50 shares of ABC Corp. stock acquired pursuant to the ISO before the end of the ISO statutory holding period for $17 per share. X must recognize, in 1993, $250 in ordinary income (50 shares multiplied by the bargain purchase element at exercise of $5). In addition, the capital gains portion of the disqualifying disposition is $100 (50 shares multiplied by the difference between the $17 per share sales price and the basis of the ISO stock of $15, which is the sum of the exercise price for each share, $10, plus the additional compensation amount recognized in this year, $5).Qualifying Disposition When an employee disposes of ISO stock after completion of the holding period (the later of two years after the employee's receipt of the option or one year after the employee's receipt of the stock), then all of the gain is capital gain, measured by the difference between the option exercise price and the sale proceeds.
Alternative Minimum Tax Considerations Although the exercise of an ISO does not result in an immediate taxable event, there are implications for calculating the Alternative Minimum Tax (AMT). The spread between the option exercise price and the fair market value of the option stock at exercise is treated as an "item of adjustment" for AMT purposes. If a disqualifying disposition occurs in the year in which the option is exercised, however, the maximum amount that will be included as AMT income is the gain on the disposition of the ISO stock. For a disqualifying disposition in the year other than the year of exercise, the income on the disqualifying disposition will not be considered income for AMT purposes. If an employee's items of adjustment for ISOs and for other AMT purposes is substantial (when reviewed alone or together with other items of adjustment), such employee should consult with a tax advisor prior to exercising an ISO and/or selling option stock. Tax Implications for EmployersAn employer granting an ISO is not entitled to a deduction with respect to the issuance of the option or its exercise. The amount received by the employer as the exercise price will be considered the amount received by the employer for the transfer of the ISO stock. If the employee causes the option to be disqualified (by disposing of his or her stock prematurely prior to the end of the requisite holding period), however, the employer usually may take a deduction for that amount recognized by the employee as ordinary income in the same year as the employee recognizes the income.In addition, the employer that granted the ISO does not have any withholding obligation with regard to the ordinary income an employee recognizes upon a disqualifying disposition (the Internal Revenue Service [IRS] may change this position). The ordinary income resulting from the disqualifying disposition also is not considered wages for FICA or FUTA purposes.An ISO generally is not subject to ERISA. Therefore, it is not subject to ERISA's reporting requirements. The employer must furnish a statement to the employee who exercises an ISO, however, on or before January 31 of the year following the year of the ISO exercise stating details about the options granted.

Section 423 Employee Stock Purchase Plans

2008-08-25T20:06:00.000-07:00

Section 423 Employee Stock Purchase Plans

The second type of employee stock options that receive special treatment under the Code are options granted under an ESPP ("purchase plan option"), also referred to as "section 423 plans." Section 423 of the Code provides a basis for employee stock purchase plans to receive favorable tax treatment under section 421(a) (i.e., no tax consequences on grant and capital gains treatment upon a qualifying disposition). Like ISOs, the purchase plan option gives employees an opportunity to share in the growth potential of the company's stock. Purchase plan options are used by employers as a method for employees to purchase stock, usually using payroll deductions to pay for the shares. What the option exercise price is and when the option is granted are variables. Purchase plan options are primarily intended for rank-and-file employees (unlike ISOs, which are primarily intended for key employees).Requirements for Employee Stock Purchase PlansEmployees receive Code section 421(a)'s favorable tax treatment only if the employee stock purchase plan meets these requirements:

• Only employees of the employer sponsoring the ESPP and employees of parent or subsidiary companies may participate in the ESSP.

• To receive favorable tax treatment, an employee can own no more than 5% of the voting power of the employer or 5% of the value of all shares of stock of the employer.

• The ESPP must be approved by the shareholders of the granting company within 12 months before or after the ESPP is adopted.

• The stock for which the ESPP offers options must be the capital stock of the employer. This capital stock can be of any class, including voting or nonvoting common or preferred stock. It may be treasury stock or stock of original issue. A special class of stock authorized and issued solely to employees also would qualify as stock for this purpose.

• All employees of the sponsoring employer must be included in the ESPP. Employees who have been employed for less than two years, employees whose customary employment is 20 hours or less per week, employees whose customary employment is for not more than five months in any calendar year, and highly compensated employees as defined in Code section 414(q), however, can be excluded from participation in the ESPP. These eligibility rules are similar (but not the same) as those for qualified retirement plans.

• The determination of the option exercise price, the option payment provisions, and all other provisions must be uniform for all employees, with the following exceptions: o The ESPP may limit the maximum amount of options that can be exercised under the ESPP. o The ESPP may limit the amount of options that all employees may be granted to a specified relationship to total compensation or the base or regular rate of compensation.

• The ESPP must provide that no employee can accrue the right at any time to purchase stock of his or her employer at a rate that exceeds $25,000 of the fair market value of such stock (determined when the option is granted) for each calendar year for which the option was outstanding. The regulations allow an employee to buy more than $25,000 of stock in a calendar year, so long as the total amount of stock which he or she buys does not exceed $25,000 in fair market value (determined at date of grant) for each calendar year in which the option was outstanding.

• The exercise price of the options granted under an ESPP must be no less than 85% of the stock's fair market value at the time the option is granted, or an amount which under the option's terms cannot be less than 85% of the stock's fair market value at the time the option is exercised.For example, if an employee is granted an option at $85 for stock worth $105 at that time, the option does not qualify even if the stock falls to $100 or less when exercised. • The maximum allowable option exercise period is five years from the date of the option grant for an option that contains an exercise price at least 85% of the fair market value of the company's stock. If the option exercise price is determined in any other manner, such as a fixed dollar amount that will not be less than 85% of the fair market value of such stock at the time of the exercise of the option, the option must be exercised within 27 months from the date of the grant of the option.

• The options granted in the ESPP must not be transferable other than by will or by the laws of descent and distribution. Only the employee may exercise the option during his or her lifetime. If the terms of an offering under a purchase plan option do not meet the above requirements, all options granted under that offering will be treated as not having been granted under a section 423 plan. A purchase plan option, like an ISO plan, can contain additional terms as long as such terms do not contravene any of the requirements for a purchase plan option. Additional terms could include when an option will be granted, the method of payment of the option exercise price and limitations on when options can be exercised. Restrictions also can be placed on the underlying option stock. AdvantagesMany of the benefits derived from section 423 purchase plan options are similar to benefits derived from ISOs. Under both types of plans, there is no tax on either the grant or the exercise of an option. The employee is not taxed until he or she sells the underlying stock. The income recognized at that time generally is recognized as a capital gain. In addition, the employer is able to implement work incentives for its employees without draining valuable liquid assets.The requirements under the Code for ESPPs are, generally, more liberal than those governing ISOs. A key feature of a purchase plan option (that differs from an ISO) is that it can offer options with an option price of between 85% and 100% of the fair market value of the stock, either at grant or exercise. ISOs must be offered at an option price of the fair market value of the stock. Employees will not recognize ordinary income when an option is exercised but will recognize such income at a later disposition of the stock if the ESPP meets the requirements of a purchase plan option.Tax Implications for EmployeesNeither the grant of an option under a purchase plan option nor the exercise of an option granted under an ESPP has any tax consequences to employees, provided the option is granted pursuant to a Code section 423 purchase plan. Employees are not taxed until they sell the stock acquired through exercise of the option. Employees generally treat any proceeds received from such a sale as capital gain. There are two situations, however, where employees may be subjected to ordinary income tax. The first situation occurs if the option exercise price is below the full fair market value of stock at the time the option is granted. The second is a "disqualifying" disposition of the stock.
Below Fair Market Value The first situation occurs if the option exercise price is below the full fair market value of the stock when the option is granted. In this situation, the employee must include as ordinary income at the time of sale of the option stock or upon the employee's death while still holding the option stock (the transfer of option stock to the estate or beneficiary of a deceased employee is treated as a disposition of the stock for purposes of this rule) the lesser of: (1) the amount, if any, by which the fair market value of the stock when the option was granted exceeds the option exercise price; or (2) the amount, if any, by which the stock's fair market value at the time of such disposition or death exceeds the exercise price paid. This applies regardless of whether the employee has held the stock for the statutory holding period.EXAMPLE: On January 1, 1992, all employees at X Corp. are granted options to purchase X Corp. stock at 85% of the stock's fair market value (currently $100). A holds 10 options for five years. In 1997, A dies when the fair market value of X Corp. stock is $95 per share. A's estate will recognize $100 of ordinary income in the year of A's death. This amount is the lesser of $150 (the difference between the $100 fair market value on the date of grant and the $85 exercise price on the date of grant, multiplied by 10 options) or $100 (the difference between the option exercise price of $85 and the fair market value of the option stock at the time of disposition, $95, multiplied by 10).Disqualifying Disposition As with an ISO, any disposition of stock before the expiration of the statutory holding period, the later of two years after the granting of an option or one year from the date of transfer of stock pursuant to the option, is a disqualifying disposition. For any disqualifying disposition, the employee recognizes at the time of disposition first, ordinary income measured by the difference between the option's exercise price and the fair market value of the stock at the time of option exercise (the "bargain purchase element"), and second, capital gain measured by the difference between the fair market value of the stock on the date of exercise and the disposition proceeds.
Qualifying Disposition If the disposition of stock occurs after the statutory holding period has expired, the employee will have capital gain measured by the sale proceeds less the employee's basis in the option stock. The basis in the stock would equal the option exercise price plus any ordinary income recognized due to a below-fair market value option. EXAMPLE: On January 1, 1990, all employees of X Corp. are granted options to purchase X Corp. stock at 85% of the stock's fair market value. A exercises 10 options at date of grant when X Corp. stock has a fair market value of $100 per share. A holds the X Corp. stock for five years and sells all her shares for $200 per share. In 1995, A will recognize $150 in compensation income (the difference between the $100 fair market value on the date of exercise and the $85 exercise price on the date of grant multiplied by 10 options). The amount of capital gains on the disposition (sale) of stock is $1,000 (the $200 purchase price minus the adjusted basis of the stock-i.e., the original basis of $85 plus the $15 in ordinary income-multiplied by 10 shares).Tax Implications for EmployersGenerally, the granting employer may not take a tax deduction. The employer may take a deduction for any disqualifying disposition. The compensation deduction will be equal to the amount that the employee includes as ordinary income, and the employer will take the deduction in the year of the disposition. The employer may not deduct the difference between the fair market value of the option stock and the option exercise price.The employer may be required to withhold income tax on a disqualifying disposition from a purchase plan option. In addition, FICA and FUTA tax also is imposed upon a disqualifying disposition. These rules also differ from those for ISOs.A purchase plan option generally is not subject to ERISA. Therefore, it is not subject to ERISA's reporting requirements.

Nonqualified (Nonstatutory) Stock Options

2008-08-24T20:40:00.000-07:00

Nonqualified (Nonstatutory) Stock Options

The term "nonqualified stock option" or "nonstatutory stock option" refers to a number of types of options to purchase company stock that, for some reason, does not satisfy the legal requirements to qualify as an ISO or a purchase plan option. Many broad-based plans (other than section 423 purchase plans) are nonqualified. A nonqualified option is the simplest of the three types of stock options (incentive stock options, section 423 plans and nonqualified stock options). A nonqualified option plan allows employees to purchase shares at a fixed exercise price for a specified number of years into the future, often subject to vesting rules.A nonqualified stock option is generally taxed to the employee at grant only if it (the option) has a readily ascertainable fair market value at that time, which nonqualified stock options almost never do. If it does not have such a value at grant, it is generally taxed at the time of exercise. The employer has a corresponding compensation deduction at the time of exercise.Most nonqualified stock options are structured such that employees receive the right to purchase a certain number of shares of stock at a predetermined price. That option may be exercisable immediately or after the passage of a certain amount of time or upon the occurrence of a certain event.EXAMPLE: On July 1, 1995, Corporation S grants to A, in consideration for services rendered, options to purchase 1,000 shares of S common stock. The option price is $10 per share, the stock's fair market value at the date of grant. On July 1, 1999, when the stock's value is $40 per share, A exercises the options in full, acquiring 1,000 shares for $10 per share. On July 1, 2000, when the stock's value is $50 per share, A sells the 1,000 shares. Because the option did not have an ascertainable fair market value at the date of grant, there is no taxable event as a result of the grant. In 1999, when A exercises the option, he recognizes $30 per share compensation income. Under Code section 83(a), the difference between the fair market value of the stock received pursuant to the option exercise ($40 per share) and the amount paid for the stock ($10 per share) is compensation income.AdvantagesMost employers using nonqualified stock options are trying to attain the same (or similar) benefits as are provided by a statutory option without the necessity of conforming to the same requirements of the Code. Using nonqualified stock options to compensate and provide an incentive for employees, the employer is able to give them a tangible reward for their efforts without using any liquid cash resources. As a result of the option, employees receive an opportunity to share in the future growth of the company.Tax Implications GenerallyThe tax implications of a nonqualified stock option are governed by section 83 of the Code. Generally, Code section 83 will apply to the grant of the nonqualified option if the option itself, upon grant, has a readily ascertainable fair market value. An option to acquire nonpublicly traded stock does not have a readily ascertainable fair market value. Section 83 of the Code will apply to the exercise of a nonpublicly traded nonqualified option if the property subject to the option does not, at the time of grant, have a readily ascertainable fair market value.As a generalization, unless a nonqualified stock option has a fair market value that can be readily determined, it will not result in a taxable transaction upon the employee's receipt of the option.Readily Ascertainable Fair Market ValueGenerally, Code section 83(a) imposes ordinary income taxes on an employee upon the receipt of compensatory property at its fair market value. When property is received in the form of a nonqualified stock option, however, Code section 83(e)(3) requires that the option must have a readily ascertainable fair market value. If an option granted to an employee is actively traded on an established market, the option value has a readily ascertainable fair market value. Such an option would be taxable at its grant under Code section 83(a). Note that the option itself must be tradable, not the underlying stock. Few employee options are traded on stock exchanges.Options that are not actively traded on an established market do not have a readily ascertainable fair market value unless the fair market value "can otherwise be measured with reasonable accuracy." The regulations create an irrebuttable presumption that an untraded option does not have a readily ascertainable fair market value unless four conditions are met, including the following:

• The option is transferable by the optionee.

• The option is exercisable immediately in full by the optionee.

• Neither the option nor the underlying property is subject to any restrictions that have a significant effect on the option's value.

• The purchase fair market value of the option privilege is readily ascertainable. Therefore, almost all options for stock not actively traded will be deemed not to have a readily ascertainable fair market value. Tax Implications for EmployeesPublicly Traded Options A publicly traded option having a readily ascertainable fair market value will be taxed at grant. The employee will recognize ordinary income in the amount of the fair market value of the option less any amount paid for the option. Once the option's grant is taxed, the transaction's ordinary income consequences to the employee are closed. Thus, once the employee exercises the option, there will be no further ordinary income tax consequences.If the stock is held as a capital asset, the employee will receive long-term capital gain treatment for the gain recognized upon its disposition. The amount of the capital gain will be measured by the difference between the selling price less any amount paid for the exercise of the option and any amount included in income upon the option's grant.
Options Not Publicly Traded If, as is almost always the case, the option is a nonqualified stock option without a readily ascertainable fair market value at date of grant, there is no taxable event as a result of the grant. The compensatory aspects of the option remain open until the option is exercised. Once the employee exercises the option, he or she will recognize ordinary income equal to the amount of the fair market value of the stock when it is exercised minus any amount paid for the option. The effect of not having a taxable event at the time of the grant is to treat the appreciation in the value of the property as ordinary income and not as capital gain. However, if the stock is held after exercise, any additional gain is then generally treated as capital gain.Tax Implications for EmployersThe employer has a corresponding deduction (in the same amount and at the same time) as the ordinary income recognized by the employee. In general, compensation paid in the form of stock options normally triggers the receipt of wages for the purpose of employment tax and withholding provisions in the amount of the income generated under Code section 83(a).

Choosing Between Statutory and Nonstatutory (Nonqualified) Stock Options

2008-08-24T20:37:00.000-07:00

Choosing Between Statutory and Nonstatutory (Nonqualified) Stock Options

An employer has the choice of two types of stock options that can be used to compensate employees: statutory (i.e., incentive or section 423) options or nonstatutory (i.e., nonqualified) options. Any statutory stock option plan also may provide for the granting of nonstatutory options, as long as the plan does not provide for tandem options. (In the case of tandem options, two options are issued together and the exercise of one affects the exercise of the other. This is not permitted because it may evade the section 422A qualification requirements.) The differences between statutory and nonstatutory options are as follows:

• If in the year in which gain is recognized there is little or no difference between ordinary income and capital gain marginal tax rates, one of the principal advantages (taxation at a capital gains rate) of the statutory stock option is removed.

• The company obtains a deduction on exercise of a nonstatutory option equal to the income recognized by the employee. The company generally receives no deduction in the statutory stock option context unless there is a premature disposition by the employee.

• The statutory option is still arguably preferable for the key employee because no income is recognized on the exercise of the option (unlike the situation with the typical nonstatutory option); income recognition of a statutory option is deferred until the employee disposes of the stock. • Nonstatutory options provide the employer with flexibility in plan design (because of lack of qualification rules). As a result, employers can tailor nonstatutory options to meet their particular needs. For example, nonstatutory options may be granted to non-employees, such as valued outside contractors or non-employee directors.

• There is no requirement that the option price of a nonstatutory option be equal to the fair market value of the stock at the time of the option grant. Thus, the grantor of the nonstatutory option has complete freedom in setting the option price and the bargain purchase element. • Unlike statutory options, nonstatutory options can be granted pursuant to a plan that is effective for longer than 10 years, and the options can be outstanding for periods over 10 years from date of grant.

• Nonstatutory options may be fully transferable, and there need not be any restrictions on the amount of options that can be exercised in a single year nor when the employee can dispose of the option stock after exercise.

Five Common Myths About Broad-Based Equity Plans

2008-08-23T20:10:00.000-07:00

Five Common Myths About Broad-Based Equity Plans
By Corey Rosen, NCEO Executive Director

February 2005During the 1990s, according to our research here at the National Center for Employee Ownership, the number of employees getting stock options ballooned from less than one million at the start of the decade to about 10 million by the end. That number has now leveled off in the face of uncertainties over how new accounting rules will affect shareholder reactions to options, and some companies may cut back their plans. But we expect any such trends to be short-term. Stock options provide employees the right to buy shares of company stock at a price fixed today (usually the market price) for a number of years (usually 10) into the future. So if the stock price goes up, you can buy shares at a very cheap price. The press was full of reports of "optionnaires," employees who struck it rich when their company's stock skyrocketed. Then the market collapsed, and instead stories were being written about option tax disasters, precipitous declines in morale of option-ladened employees, and a rapid move away from compensating employees with equity. Accounting rules were changed, causing more doubt about the future of options. While much of the reporting on stock options was accurate and insightful, much of it subscribed to common myths that distorted what was happening, both during the market's rise and after its fall. For a variety of reasons, options granted to most or all employees (or in some companies, other forms of equity) have become an institutionalized part of compensation at many companies. It is important, then, to separate the myth from the reality about how these plans work.

Myth #1: Most People Getting Options Worked for Dot-ComsOne of the most prevalent and misleading misperceptions was (and still is) that most employees getting options work (or now worked) for dot-com companies, most of whom were small, pre-IPO ventures. This was never even close to true. There were a lot of dot-coms, to be sure, and most of them did give most or all their employees options, but most also employed well under 100 people. The total employment at all the pre-IPO dot-com companies never amounted to more than a few percent of the 10 million people getting options. In fact, almost all the employees getting options work (and worked) for publicly traded companies, and most of these work for large employers.

Myth 2: OK, Well at Least They Worked for High-Technology CompaniesThe large majority of high-technology companies do make most of their employees eligible for stock options, but even the highest estimates for the technology sector place employment at about five million. If 60% of these get options (a reasonable guess), then only three million employees getting options are technology workers. In fact, about 15% to 20% of all public companies give employees options, and many of these are outside the technology sector. Many large banks provide broad options, for instance, as do a number of large pharmaceutical companies. Retailers like Whole Foods, Walgreens, and Starbucks give out broad options. So do PepsiCo and Procter & Gamble.

Myth #3: Most People Give Up Pay to Get OptionsEconomists tell us there is no free lunch, so if someone gets options they must be giving up pay or benefits. To be sure, some employees have done just that. There are lots of people who were lured to start-up companies at lower salaries in return for substantial option packages. But these people are the exceptions. For the most part, they are at the managerial level or higher, or people with special skills, such as programmers. Altogether, they comprise only a tiny portion of all the employees getting options. Data from Professors Joseph Blasi and Douglas Kruse at Rutgers University indicate that, overall, employees getting options are paid about seven percent more in wages than comparable employees in comparable companies that do not give out options. The fact is that with a tight labor market -- and we still have a labor market that is tighter than historical standards -- it is very difficult to lure all but a handful of risk-takers to jobs whose base pay and benefits are not comparable to what could be earned elsewhere. Options are gravy to help companies distinguish themselves. In the tech sector, they are not even that -- everyone gives out options widely, so they are just part of the ante to the game.

Myth #4: Options Are Worthwhile Only If Your Company Is Publicly TradedMany stories advised employees that if their company was not on a public stock market, their options were worthless and would be until the company did an IPO -- which very few ever would do. In fact, most closely held companies giving out options are sold (assuming they don't close first), at which time the options are usually exchanged for cash or for stock in the acquiring company at the sale price.Myth #5: Options Are the Last Decade's CompensationSurely, this myth goes, no one wants options any more. Lots of employees have lots of options deeply "underwater," meaning the price at which the employee can buy shares is way above the current price, making the option probably worthless. So who wants more? Moreover, many companies, worried about new accounting rules, will, it is argued, cut back on their plans. Employees do, and employers want them to have them. Data from the National Center for Employee Ownership show that most companies with broad-based stock options plans have no plans to change, much less eliminate them. Surveys show most companies with broad-based equity plans will keep them, although some may change their terms (such as by giving employees fewer years after vesting to exercise) or even switch to some other form of equity compensation, as did Microsoft. The rise in the stock market that followed the steep drop starting in March 2000 has largely overcome the feeling that equity compensation may be less relevant. Concerns about accounting and tougher shareholder approval rules are more serious issues. We expect that companies who made largely symbolic broad-based grants will drop their programs, but companies who incorporated equity into their corporate cultures will not. Meanwhile, the widely expected shortage of skilled workers that is expected to materialize this decade will pressure more companies to grant equity broadly, just as it did in the 1990s

Employee Stock Options Fact Sheet

2008-08-23T20:08:00.000-07:00

Employee Stock Options Fact Sheet

Traditionally, stock option plans have been used as a way for companies to reward top management and "key" employees and link their interests with those of the company and other shareholders. More and more companies, however, now consider all of their employees as "key." Since the late 1980s, the number of people holding stock options has increased about nine-fold. While options are the most prominent form of individual equity compensation, restricted stock, phantom stock, and stock appreciation rights have grown in popularity and are worth considering as well.Broad-based options remain the norm in high-technology companies and have become more widely used in other industries as well. Larger, publicly traded companies such as Pepsico, Starbucks, Southwest Airlines, and Cisco now give stock options to most or all of their employees. Many non-high tech, closely held companies are joining the ranks as well.As of 2008, the NCEO eliminated that nine million employees held stock options, plus probably several hundred thousand employees who have other forms of individual equity. That is down from its peak in 2001, however, when the number was about 30% higher. The decline came largely as a result of changes in accounting rules and increased shareholder pressure to reduce dilution from equity awards in public companies.

What Is a Stock Option?

2008-08-23T20:06:00.001-07:00

What Is a Stock Option?
A stock option gives an employee the right to buy a certain number of shares in the company at a fixed price for a certain number of years. The price at which the option is provided is called the "grant" price and is usually the market price at the time the options are granted. Employees who have been granted stock options hope that the share price will go up and that they will be able to "cash in" by exercising (purchasing) the stock at the lower grant price and then selling the stock at the current market price. There are two principal kinds of stock option programs, each with unique rules and tax consequences: non-qualified stock options and incentive stock options (ISOs).
Stock option plans can be a flexible way for companies to share ownership with employees, reward them for performance, and attract and retain a motivated staff. For growth-oriented smaller companies, options are a great way to preserve cash while giving employees a piece of future growth. They also make sense for public firms whose benefit plans are well established, but who want to include employees in ownership. The dilutive effect of options, even when granted to most employees, is typically very small and can be offset by their potential productivity and employee retention benefits.
Options are not, however, a mechanism for existing owners to sell shares and are usually inappropriate for companies whose future growth is uncertain. They can also be less appealing in small, closely held companies that do not want to go public or be sold because they may find it difficult to create a market for the shares.

Stock Options and Employee Ownership

2008-08-23T20:05:00.000-07:00

Stock Options and Employee Ownership

Are options ownership? The answer depends on whom you ask. Proponents feel that options are true ownership because employees do not receive them for free, but must put up their own money to purchase shares. Others, however, believe that because option plans allow employees to sell their shares a short period after granting, that options do not create long-term ownership vision and attitudes.The ultimate impact of any employee ownership plan, including a stock option plan, depends a great deal on the company and its goals for the plan, its commitment to creating an ownership culture, the amount of training and education it puts into explaining the plan, and the goals of individual employees (whether they want cash sooner rather than later). In companies that demonstrate a true commitment to creating an ownership culture, stock options can be a significant motivator. Companies like Starbucks, Pepsico, Cisco, and many others are paving the way, showing how effective a stock option plan can be when combined with a true commitment to treating employees like owners.

Practical Considerations

2008-08-23T20:04:00.000-07:00

Practical Considerations

Generally, in designing an option program, companies need to consider carefully how much stock they are willing to make available, who will receive options, and how much employment will grow so that the right number of shares is granted each year. A common error is to grant too many options too soon, leaving no room for additional options to future employees.One of the most important considerations for the plan design is its purpose: is the plan intended to give all employees stock in the company or to just provide a benefit for some "key" employees? Does the company wish to promote long-term ownership or is it a one-time benefit? Is the plan intended as a way to create employee ownership or simply a way to create an additional employee benefit? The answers to these questions will be crucial in defining specific plan characteristics such as eligibility, allocation, vesting, valuation, holding periods, and stock price.

How do stock options work, and why are they better than cash compensation?

2008-08-23T19:48:00.000-07:00

How do stock options work, and why are they better than cash compensation?
Job ads in the classifieds mention stock options more and more frequently. Companies are offering this benefit not just to top-paid executives but also to rank-and-file employees. What are stock options? Why are companies offering them? Are employees guaranteed a profit just because they have stock options? The answers to these questions will give you a much better idea about this increasingly popular movement. Let's start with a simple definition of stock options: Stock options from your employer give you the right to buy a specific number of shares of your company's stock during a time and at a price that your employer specifies.Both privately and publicly held companies make options available for several reasons:

• They want to attract and keep good workers.

• They want their employees to feel like owners or partners in the business.

• They want to hire skilled workers by offering compensation that goes beyond a salary. This is especially true in start-up companies that want to hold on to as much cash as possible. The price the company sets on the stock (called the grant or strike price) is discounted and is usually the market price of the stock at the time the employee is given the options. Since those options cannot be exercised for some time, the hope is that the price of the shares will go up so that selling them later at a higher market price will yield a profit. You can see, then, that unless the company goes out of business or doesn't perform well, offering stock options is a good way to motivate workers to accept jobs and stay on. Those stock options promise potential cash or stock in addition to salary. Let's look at a real world example to help you understand how this might work. Say Company X gives or grants its employees options to buy 100 shares of stock at $5 a share. The employees can exercise the options starting Aug. 1, 2001. On Aug. 1, 2001, the stock is at $10. Here are the choices for the employee:

• The first thing an employee can do is convert the options to stock, buy it at $5 a share, then turn around and sell all the stock after a waiting period specified in the options' contract. If an employee sells those 100 shares, that's a gain of $5 a share, or $500 in profit.

• Another thing an employee can do is sell some of the stock after the waiting period and keep some to sell later. Again, the employee has to buy the stock at $5 a share first.

• The last choice is to change all the options to stock, buy it at the discounted price and keep it with the idea of selling it later, maybe when each share is worth $15. (Of course, there's no way to tell if that will ever happen.) Whatever choice an employee makes, though, the options have to be converted to stock, which brings us to another aspect of stock options: the vesting period. In the example with Company X, employees could exercise their options and buy all 100 shares at once if they wanted to. Usually, though, a company will spread out the vesting period, maybe over three or five or 10 years, and let employees buy so many shares according to a schedule. Here's how that might work: • You get options on 100 shares of stock in your company.

• The vesting schedule for your options is spread out over four years, with one-fourth vested the first year, one-fourth vested the second, one-fourth vested the third, and one-fourth vested the fourth year. • This means you can buy 25 shares at the grant or strike price the first year, then 25 shares each year after until you're fully vested in the fourth year. Remember that each year you can buy 25 shares of stock at a discount, then keep it or sell it at the current market value (current stock price). And each year you're going to hope the stock price continues to rise. Another thing to know about options is that they always have an expiration date: You can exercise your options starting on a certain date and ending on a certain date. If you don't exercise the options within that period, you lose them. And if you are leaving a company, you can only exercise your vested options; you will lose any future vesting. One question you might have is: How does a privately held company establish a market and grant (strike) price on each share of its stock? This might be especially interesting to know if you are or might be working for a small, privately held company that offers stock options. What the company does is to fix a price that is related to the internal value of the share, and this is established by the company's board of directors through a vote. Overall, you can see that stock options do have risk, and they are not always better than cash compensation if the company is not successful, but they are becoming a built-in feature in many industries.

Dollar marking time ahead of FOMC meeting

2008-08-18T00:09:00.001-07:00

Dollar marking time ahead of FOMC meeting

SYDNEY (Thomson Financial) - The U.S. dollar was mixed in midmorning trading in Sydney on Tuesday, marking time ahead of the start of the Federal Open Market Committee's two-day meeting starting later today.At 10:50 a.m. (0050 GMT) the dollar was at 107.98 yen from 107.83 yen in late New York tradeon Monday while the euro was at $1.5526 from $1.5514.The dollar gained against the euro overnight on expectations that the FOMC would put inflation higher up its list of worries when it issues a statement after the meeting's conclusion on Wednesday.No change in the Federal Reserve's fund target rate, now set at 2.0 percent, is expected.John Noonan, a senior foreign exchange analyst at Thomson Reuters IFR, said trading is likelyto remain whippy ahead of the release of the Fed statement.'The market is thin and there is a wide divergence of opinion on how the FOMC will shape its statement after they are expected to announce no-change on Wednesday,' said Noonan.He said the talk on Wall Street was that the Fed was likely to 'talk tough' on inflation to temper wage expectations even if it might not follow up with aggressive tightening efforts.'There is some speculation that the Fed might even mention the U.S. dollar in their statement and this has helped to underpin the dollar ahead of the event,' said Noonan.He said until the announcement the euro is expected to trade in a range of $1.5450 to $1.5650.Sydney 10:50 a.m. (0050 GMT)U.S. dollar yen 107.98 Swiss franc 1.0455EuroU.S. dollar 1.5526yen 167.595 Swiss franc 1.6227 pound 0.7902PoundU.S. dollar 1.9650yen 212.091Swiss franc 2.0536Australian dollar U.S. dollar 0.9522pound 0.4845yen 102.815New Zealand dollar U.S. dollar 0.7571

Forex reserves down $5

2008-08-18T00:08:00.000-07:00

Forex reserves down $5

The country’s foreign exchange (forex) reserves dipped by a whopping $4.96 billion in the week ended June 13, the steepest dip in over two-and-a-half years.Reserve Bank of India (RBI) has done in the forex market by selling dollars in a bid to keep the rupee from breaching the 43-mark against the dollar. Last time such a huge fall in reserves recorded was in December 2005, when there were huge redemption pressures on the central bank on account of the India Millennium Deposits (IMD) scheme of State Bank of India.
RBI has been consistently intervening in the forex market over the past couple of weeks, with the rupee under pressure from oil companies which bought dollars to provide for soaring crude prices.
Meanwhile, credit and deposits continue to record modest growth figures for the year. According to data released by RBI in its weekly statistical supplement (WSS) on Friday, bank credit growth stood at 25.9%.
The total stock of money in the system went up Rs 22,655 crore during the fortnight ended June 6, to touch Rs 40,99,957 crore.

US Dollar fall against the euro pound

2008-08-15T06:00:00.000-07:00

US Dollar fall against the euro pound

On Friday dollar fell against the euro as new data showed German producer price inflation accelerating and investors awaited speeches by top European Central Bank officials. Euro bought $1.5547 in morning European trading, up from its level of $1.5499 in late New York trading.Europe's largest economy, showed producer prices a measure of inflation pressures that contribute to rising prices for consumers rising by an annual 6 percent in May as a result of soaring energy costs, under scrutiny for hints on its future interest rate course before a meeting next month at which many expect it to raise rates. European Central Bank said earlier this month that it could raise interest rates by a small amount as early as its next meeting to combat rising inflation in the 15-nation euro zone. Strengthen a currency by giving investors higher returns on investments, while lower interest rates can weigh on a currency. (Now pound- $1.9727)

Here is a look at the upcoming week in Forex!

2008-08-15T05:59:00.000-07:00

Here is a look at the upcoming week in Forex!

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FOREX-Dollar rattled by banking sector

2008-08-15T05:58:00.000-07:00

FOREX-Dollar rattled by banking sector

The dollar fell broadly on Tuesday, rattled by signs that the U.S. financial sector, and thus probably the economy, is still far from out of the woods. The Wall Street Journal reported on Tuesday that U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research) may raise up to $4 billion in new capital, suggesting the firm could post its first quarterly loss since going public.The news added to risk aversion stoked during the previous session after Standard & Poor's cut its credit ratings on Lehman, Merrill Lynch, Given the downgrades by S&P yesterday and the WSJ story with regards to Lehman, it's easy to see why risk aversion is rising," said Simon Derrick, head of currency research at Bank of New York Mellon.In contrast, was benefiting from Eurogroup chairman Jean-Claude Juncker giving his backing to the European Central Bank's hawkish,

Dollar falls as U.S

2008-08-15T05:57:00.000-07:00

Dollar falls as U.S

The dollar was pushed lower by news of dismal U.S. job creation, with the unemployment rate jumping by its largest amount in 22 years.
5.5 percent from the 5.0 percent reported in April, sharply higher than the 5.1 percent rate expected by economists polled by Thomson Reuters IFR Markets, when it also rose 0.5 percentage points. The economy lost 49,000 jobs in May, a smaller loss than 60,000 decline expected from the payroll survey, but markets focused on the unemployment rate by selling off the greenback.
He said markets were looking for a reason to sell the dollar against the euro, which has been buoyed by hawkish inflation talk from the European Central Bank. Some analysts said the underlying payrolls number is somewhat encouraging, as it shows the loss of jobs may be stabilising somewhat, whereas the unemployment rate is a lagging indicator.
The economy remains very weak and enjoys little forward momentum, meaning the dollar will hardly be rallying strongly any time soon.

FOREX-Dollar cheered by Bernanke comments

2008-08-15T05:55:00.000-07:00

FOREX-Dollar cheered by Bernanke comments

The dollar advanced broadly on Tuesday after Federal Reserve Chairman Ben Bernanke warned about the inflationary impact of a weak currency, suggesting the central bank is not likely to cut interest rates further this year. In a speech before the International Monetary Conference Central Bankers' Panel in Barcelona, Bernanke said the Fed is carefully monitoring developments in the currency market.We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate," he said, referring to the Fed's twins goal of ensuring sustainable growth and low inflation.

China forex reserves

2008-08-13T19:46:00.000-07:00

China forex reserves

China’s foreign exchange reserves rose to $1.76 trillion at the end of April, state media reported yesterday, reaching a level higher than the rest of Northeast Asia’s combined. China’s reserves, by far the largest in the world, expanded by another $74.5bn during April, the China Business News reported, equivalent to about $100m every hour.It is possible that one day China’s forex reserves might even top those of all other Asian countries combined, according to Brian Mak, a Hong Kong-based economist with Core Pacific Yamaichi.Much of the money represents investment inflows, and the economic conditions are much better in China than other Asian countries such as India,” he said. “It will continue to expand unless the government does something to curb the inflows,” he said.

Diary of a Novice Forex Trader

2008-08-13T19:45:00.000-07:00

Diary of a Novice Forex Trader

Last week there were signs of a return to Dollar weakness, but the dip in crude oil prices has given a tentative bid to the greenback.Not everyone’s cup of tea, but Thatcher had more balls than any of her successors. And this latest bunch of ‘Britain’s got no talent’ try to make a virtue out of U-turns, saying that they’re always ready to listen. For starters that’s not government it’s appeasement. Secondly, this Country hasn’t got the finances for them to keep on ‘listening’. Better to pander to the Sun and cut taxes on gas-guzzlers. The price of diesel at over 120p a litre is shocking and must be hitting hauliers hard. So I was surprised to read of a load of lorry-drivers wasting a tank full on a trip from the South-west up to London, just to block a road.It was a great display of raw grit and determination; the description of ‘more streetwise’ was a touch harsh, though I reckon Lee Mears couldn’t believe his luck in escaping the sin bin when the touch judge couldn’t identify him.There’s not a lot of trading to speak of in this shortened Bank Holiday week. I lost a scrap, 25 pips, in real trading whilst making a pretend 75 pips trialling one of my external forex systems. My year to date total slipped to 4956 pips. The Chimp lost a net 100 pips, taking his loss to –1600.

FOREX-Dollar edges up but recovery looks fragile

2008-08-13T19:43:00.000-07:00

FOREX-Dollar edges up but recovery looks fragile

Dollar gains as US jobless claims fall.Greenback still fragile as oil prices keep rising.High inflation, low growth raise US stagflation fearsThe dollar rose on Thursday, boosted by better-then-expected jobless claims data, but support remained fragile as record high oil prices stoked worries about the health of the U.S. economy.
The U.S. currency got a modest boost against the euro and yen after data showed Americans filed fewer applications for first-time jobless benefits than expected in the latest week.That helped it reverse some losses suffered after the Federal Reserve on Wednesday downgraded its 2008 growth forecast, and some analysts said it offered a glimmer of optimism for the overall May employment picture."The market may begin to fret less over the May non-farm payrolls report," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. Continued...

Nigerian forex reserves

2008-08-13T19:42:00.000-07:00

Nigerian forex reserves

Nigerian foreign exchange reserves rose to a record high of $61.96 billion in mid-May from $60.81 billion at the end of April as world oil prices also hit record highs, the central bank said on Wednesday.Nigeria, the second biggest economy in sub-Saharan Africa, has seen its foreign exchange reserves grow consistently since 2005 due to rising global oil prices.The latest figure published on the bank's Web site did not state how many months of Nigerian imports the reserves could finance, but the banking regulator has said the March figure of $59.70 billion could support 38 months of import bills.

Forex reserves $2 billion

2008-08-11T22:27:00.000-07:00

Forex reserves $2 billion

Foreign exchange reserves rose $2 billion during the week ended May 23, though the central bank sold dollars during the week to meet importers demand. According to the latest figures released by the Reserve Bank of India in its weekly statistical supplement (WSS), total foreign exchange reserves including gold and special drawing rights (SDR) rose $2,090 million during the week ended May 23.
Almost the entire growth in reserves during the week has been on account of the growth in assets which went up $2,085 million. Reserves with the IMF rose $5 million, though the value of SDRs and gold in reserves remained unchanged during the week.
The central bank reportedly sold dollars during the week to meet oil importers demand. Besides, the dollar also strengthened vis-a-vis major currencies during the week. However, foreign currency assets expressed in dollar terms also includes the effect of appreciation/depreciation of non-dollar currencies (such as euro, sterling, yen) held in reserves.
The $2 billion pile up in reserves has resulted in infusion of rupee funds worth Rs 15,044 crore during the week. Though that helped ease liquidity conditions during the week, it tightened in the subsequent week.
But, the reserve money of which foreign currency assets is a major sources dipped Rs 42,439 crore during the week on account of a Rs 44,176 crore dip in the net RBI credit to the government during the week.
In the other developments, the government did not resort to any ways and means advances (WMA) — temporary overdraft to meet revenue mismatches during the week. States have reduced their reliance on WMA by Rs 215 crore taking the WMA outstanding with the central bank to Rs 303 crore as on May 23.
The government on the other hand has pulled out surplus funds amounting to Rs 6,600 crore from RBI during the week. Its outstanding surplus with RBI is now to the minimum at Rs 101 crore.

Rupee ends

2008-08-11T22:26:00.000-07:00

Rupee ends

The Indian rupee ended slightly cheaper at 42.72/73 against the greenback on Monday on month-end dollar demand by oil companies, amid continued weakness in Asian stocks. Local currency fluctuated in a wide range of 42.7950 and 42.53 during the day after resuming weak at 42.7900/7950 a dollar from its last close of 42.71/72 a dollar. Dealers said the rupee attempted a smart rally and touched the day's high of 42.53 in early trade due to heavy dollar selling by foreign banks. Global crude oil was trading above 133 dollars a barrel in Asian trade on Monday, Asian stocks were under tremendous pressure and stayed weak for the last few days on fears that high inflation rate and weakness in the US economy.Sensex lost 301 points to touch the six-week low of 16,348.50 points Meanwhile, the Reserve Bank fixed the reference rate for US dollar at Rs 42.56 and that for single European unit at Rs 67.08.

Burden on forex exchange

2008-08-11T22:24:00.000-07:00

Burden on forex exchange

The government would have to spend at least one billion dollar on the import of wheat, as the prices in international market have touched $400 per metric tonnes, the industry stakeholders told Daily Times on Tuesday. The government announced on Monday to import 2.5 million tonnes of wheat to build strategic reserves for two years. The price of wheat in international market also increased after the announcement of import by Pakistan. Earlier the price was roaming at $380 but as soon the wheat import was announced the rate in international market swell to $400 per metric tonnes, said a trader, Sharif Hussain.If the tender are floated then there would be a speculation in international market and price would ultimately increase and definitely touch $450. Ukraine and Russian wheat would come into market by July and shipments would be made in August,” he said.FOB price of wheat is around $320 to $340 while CFI (Cost Insurance Freight) price is $400-425, as freight also increased rapidly because of an increase in petroleum prices in the international market.

Dollar softer in afternoon

2008-08-11T22:13:00.001-07:00

Dollar softer in afternoon

The U.S. dollar was trading slightly weaker in narrow ranges versus the euro and the yen in afternoon Asian trade on Wednesday ahead of the release of the minutes from last month's Federal Open Market Committee meeting that may highlight worries about growth and inflation in the United States. 'The general tone of the April FOMC minutes is likely to underscore the still sluggish growth environment, elevated inflation uncertainties and the tentative improvements in financial markets through the end of April.April 29 to 30 FOMC meeting will be released tonight in Washington.Last month, the FOMC slashed its key rate by 25 basis points, the smallest reduction this year, to 2 percent and hinted at plans to maintain it at this level for a while

Forex Dollar Dip

2008-08-11T21:59:00.000-07:00

Forex Dollar Dip

Dollar slips versus euro in response to tame CPIThe dollar erased its earlier gains on Wednesday in a knee-jerk reaction to a report showing U.S. consumer prices rose at an unexpectedly slower pace in April. Analysts said news that consumer prices rose by 0.2 percent in April, less than the 0.3 percent gain Wall Street analysts expected, did not change market perceptions that the Federal Reserve's interest rate cutting-campaign was almost over. The consumer price index rose 0.3 percent in March.Rate implications are dollar negative, and that is the way the market has traded off this number," said Alan Raskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Forex

2008-08-11T01:48:00.001-07:00

Forex
The pound was hurt by a report from Hometrack Ltd which showed that home prices in England and Wales were down 0.2 percent in March, to an average of £174,100, for a sixth consecutive month of declines. The pound dropped by 8.2 percent versus the euro in the first quarter, its largest-ever quarterly decline versus the shared currency, while the dollar fell 8.4 percent versus the euro in the quarter. At just past 11 a.m. in New York, the dollar traded at $1.5842 to the euro and the pound was at 79.69p to the euro after touching a low of 79.73p earlier. Despite the decline, the rand was up on the greenback after it was reported that South Africa’s trade deficit was down to R5.8 billion in February from R10.2 billion in January and after gold and platinum prices gained on the session.The rand traded at R8.1265 to the dollar in late morning trade in New York.

Forex dollor rises

2008-08-11T01:43:00.000-07:00

Forex dollor rises

The dollar rose broadly on Thursday after government data showed better-than-expected readings on weekly jobless claims and last month's durable goods, indicating that the U.S. economy may be stabilizing. The U.S. data is pretty clearly dollar positive and we're coming off some weaker European data today already," said Brian Dolan, head of research at consultancy Forex.com, in Bedminster, New Jersey. In morning trading in New York, the euro was 1.2 percent lower at $1.5701 , nearly 3 cents below Tuesday's record highs

Dollor Range Bound

2008-08-11T01:41:00.000-07:00

Dollor Range Bound

In London: - The dollar was trading in a range against most currencies as investors look to the upcoming payrolls data for more direction and a better sense of how hard the U.S. labour market is being hit by the credit crunchThe market is forecasting a 75,000 loss in jobs in April after March's 80,000 fall, although ADP's forecast for a 10,000 increase will have caused expectations to improve

Dr Akhtar: $3.5bn inflows

2008-08-11T01:36:00.001-07:00

Dr Akhtar: $3.5bn inflows

In Pakistan Foreign exchange inflows to the tune of $3 billion to $3.5 billion are expected to come in the banking system in the short to medium-term, said Dr Shamshad Akhtar, governor State Bank of Pakistan here Friday.During a meeting with heads of commercial banks at the SBP head office, Dr Akhtar assured the participants that there would be ‘no reversal’ of foreign exchange liberalisation measures seen in the past years.However, she expressed her concerns over excessive volatility and weakened Exchange Rate and commented that the recent behavior of the exchange market “is totally out of line.”There is a strong recognition that macro-economic imbalances have to be resurrected and this is the corner stone of Government’s economic policy,Dr Akhtar informed the meeting that the government has taken steps to mobilise foreign funds and added that some of the inflows which are expected to realize soon include $2.1 billion from Multilateral Banks, $500 million from friendly countries, $200 million for earthquake relief, $100 million from DFID, $700 million from MCB Bank’s stake sale, $100 million from Barclays Bank and the rest through private sector GDRs and other regular sources

FXCM Has launched two forex managed account with $1000 Minimum Deposit

2008-08-09T20:05:00.000-07:00

FXCM Has launched two forex managed account with $1000 Minimum Deposit

The Short-Term Opportunity Program and the Short-Term Opportunity Aggressive Program.Both Short-Term Opportunity Programs utilize 4 different trading approaches:1.Short-Term range trading2.Short-Term breakout opportunities3.Long-Term trends4.Long-Term carry tradingThe majority of the trades generated by these programs have short-term time horizons, while longer-term systems are used to stabilize the short-term volatility. But with higher leverage. Performance should move in tandem with the Short-Term Opportunity Program, with higher gains and losses on a percentage basis.Short-Term Opportunity Programs were designed to have low correlation with the Sentiment Programs. Short-Term and Sentiment Programs won't necessarily move against each other, but should be independent. Investors are able to diversify their portfolios by investing in both programs.It is more valuable to have smaller amounts among various accounts than to have a larger amount in only one. As market conditions change, various accounts will come into and out of profitability.

kitty forex

2008-08-09T20:04:00.000-07:00

kitty forex

India’s foreign exchange reserves increased by $4.50 billion to $309.16 billion for the week ended March 28. The forex reserves had dipped by $1.8 billion a week before to $304.65 billion. Foreign currency assets increased by $4.49 billion to $299.14 billion, against $294.64 billion in the week-ago period. India’s reserve position in the international monetary fund increased by $5 million to $437 million. During the period, gold reserves remained static at $9.55 billion while the special drawing rights increased to $19 million.The two countries signed a memorandum of understanding that will also allow Indian companies to work with Turkmenistan firms on several projects that are being planned in the Asian state.

Spending Forex on higher education

2008-08-09T20:02:00.000-07:00

Spending Forex on higher education
Our students going abroad for higher studies involve the loss of valuable foreign exchange. How could a poor country like ours afford to lose its vital assets for purposes like educating the children of rich families?” All the students in the audience had been highly taken by this declaration, because at the university, there is normally an anti-foreign degree feeling. What the academic said was, therefore, sweet music to their ears.In fact, what they wanted was my endorsement of this view.When I asked them whether they also hold this view, all of them answered with a single ‘yes’.
“Why do you say so?” I asked them. One student summarized the general opinion on the issue. “The future of our country depends on our having enough foreign exchange resources. We earn them with much hardship. Our exporters work hard. Our expatriate workers work hard. So, what’s been earned in the hard way should be protected. We shouldn’t permit anyone to squander these valuable national assets.”I said, adding: “But, remember whoever who has sold that forex to a bank has already been paid in rupees. It doesn’t matter whether it’s an exporter or a housemaid or a doctor or a professor or a journalist. They’re all properly paid for the forex they’ve parted with. So, that forex does not belong to them. But, to whom does that forex belong?”The bank has bought it to earn an income. So, it should make money out of it,” the same girl answered. The other students also nodded their heads in agreement.“You’re correct. But, how should the bank put that forex to earn money?” I asked them. They did not have an answer to that question. So, I had to explain; “The bank could lend it to somebody in the country. Then, the borrower has all the right to use it in whatever the way he wishes. Or else, the bank can lend it to someone outside the country. Then, it goes out, but the foreigner has the right to use it. Or the bank could sell it to an importer or a pilgrim to India or Mecca at a higher price. Then, that buyer has the right to use it, because he has paid for it. If it’s a private asset, then, how could you say that it’s a national asset?”

Bank Of Amrica Give $20 million dollor to countrywide exec bank

2008-08-09T20:01:00.000-07:00

Bank Of Amrica Give $20 million dollor to countrywide exec bank

Bank of America Corp said it has agreed to pay $28 million to Countrywide Financial Corp Chief Operating Officer David Sambol to induce him to run the merged companies' consumer mortgage operations.Sambol, who is also Countrywide's president, was named in January to run the mortgage business after Charlotte, North Carolina-based Bank of America completes its purchase of the largest U.S. mortgage lender. That transaction was valued Thursday at about $4.1 billion.According to the filing, Sambol would be entitled to a $20 million retention bonus payable in equal installments on the first and second anniversaries of the merger, which is expected to close in the third quarter.would also receive $8 million of restricted stock, vesting in three installments on the first, second and third anniversaries of the merger, the filing shows.Awards replace cash severance payments to which Sambol would be entitled at Calabasas, California-based Countrywide, according to the filing.Sambol would also be entitled at Bank of America to a $500,000 annual base salary, an annual incentive award targeted at $4 million, and an annual equity award targeted at 150,000 Bank of America options.Bank of America was not immediately available for comment.The U.S. Federal Reserve plans to hold public hearings on April 22 in Chicago and on April 28 and 29 in Los Angeles on the Countrywide takeover. The combined company would make about one in four U.S. home loans.Some consumer groups have criticized Bank of America for not doing more to help troubled borrowers. Consumer groups, borrowers, lawyers and politicians have faulted Countrywide for lending excesses they say fueled the nation's housing crisis.Bank of America agreed to issue 0.1822 of a share for each Countrywide share. The merger values Countrywide at about $7.04 per share, based on Bank of America's Thursday closing price of $38.64. Countrywide shares closed Thursday at $5.88

Open higher againet US.Dollor In Forex

2008-08-09T19:58:00.000-07:00

Open higher againet US.Dollor In Forex

March 31 (Bernama) -- The ringgit opened higher against the U.S. dollar today on active buying of the local currency amid weakening of the greenback in the global market, a dealer said.At 9.28 am, the ringgit was traded higher against the U.S. dollar at 3.1920/1855 compared with 3.1950/2000 at Friday's closing.The dealer said trading of the greenback for this week is expected to remain lower on renewed concerns over the health of the U.S. economy following signs of slowing consumption in the U.S.He said this had sent nervous among investors, making them fleeing to other safe haven investments such as in the Asian marekt in order to reap better returns.The ringgit was also traded higher against the Singapore dollar at 2.3093/3133 from 2.3142/3197 but lower against the yen at 3.1937/1973 from 3.1928/1984 previously.The ringgit was firmer against the British pound at 6.3638/3710 from 6.3722/3882 and strengthened against the euro at 5.0311/0368 from 5.0344/0432.

ECB Current account

2008-08-08T18:36:00.000-07:00

ECB Current account

The current account deficit -- the widest measure of eurozone trade andfinancial transactions with countries outside the 15-nation area -- came in higher than the 7.0 billion euros forecast by analysts polled by Thomson Financial News."This reflected deficits in current transfers (10.3 billion euros) and income (4.7 billion euros) which were only partly compensated for by a surplus in services (4.2 billion euros)," the bank said in a statement.Wednesday's press release marked the first that new eurozone members Cyprus and Malta were counted in the balance of payments, although the ECB said the two countries had only a minor impact on the overall euro area results.In the financial account, combined direct and portfolio investment recorded net inflows of 22 billion euros in January, compared to 17.5 billion euros in December.
Net inflows in portfolio investment alone reached 54 billion euros while net outflows in direct investment hit 32 billion euros.

Skyrockets Trichet Intensifies

2008-08-08T18:35:00.000-07:00

Skyrockets Trichet Intensifies
Central Bank President Jean-Claude Trichet gave a speech saying that inflation remains the big problem in the euro zone.In his testimony before the European Parliament, Trichet said euro zone inflation is expected to remain significantly above 2 percent for most of 2008, lowering the likelihood that the central bank will slash interest rates anytime soon. Earlier this month, Trichet said that inflation would stay above 2 percent for the coming months but moderate gradually later this year. He warned of downside risks but said that the ECB's 'current monetary policy stance will contribute to achieving our price stability objective'.The euro skyrocketed more than a penny to $1.5738, moving back towards its record high of $1.59, set earlier this month.

Pound Generally

2008-08-08T18:34:00.000-07:00

Pound Generally
Friday, March 21, 2008 3:05:13 PM - The British pound saw little change on Friday in New York after seeing mixed results earlier in the week. Markets in Europe and North America are closed today in observance of Good Friday. Early next week, pound traders will watch for Rightmove House prices data for the month of March.The pound traded near a weekly high against the euro on Friday. The pair moved at 0.7790 in the afternoon in New York. The pound has seen strength throughout much of the week against its European counterpart. Traders considered data showing French household consumption expenditure on manufactured goods increased 1.2% month-on-month in February, reversing a revised fall of 1.3% in January.The pound was level with the greenback after hitting a two-week low in the middle of the week. The pair moved at 1.9812 in the mid-afternoon. Earlier in the week, the pound traded as high as $2.0272 against the dollar, but fell back after the U.S. Federal Reserve cut its interest rates by 75 basis points.In other trading, the pound moved at 196.93 against the yen and 1.9980 against the Swiss franc.

A JP Morgan Chase flag flies near the headquarters for Bear Stearns in New York, March 14, 2008. REUTERS/Lucas Jackson

2008-08-05T01:58:00.000-07:00

A JP Morgan Chase flag flies near the headquarters for Bear Stearns in New York, March 14, 2008. REUTERS/Lucas Jackson

An emergency rescue of Bear Stearns Co Inc stunned the Wall Street bank's staff and pummeled financial stocks on Monday amid fears that few banks are safe from deepening financial market turmoil.Bear Stearns staff turning up for work found the value of their stock options in tatters and the future of their jobs up in the air.But the grim mood spread further than Wall Street's fifth biggest bank as shares in European banks including UBS in Switzerland, HBOS in Britain and SocGen in France fell over 10 percent as concern swept markets that the value of risky assets needs to be marked down even further.

Dollar under pressure on rate cut

2008-08-05T01:55:00.001-07:00

Dollar under pressure on rate cut

The dollar weakened against the euro Wednesday but drew some support from a decision by US regulators to make an extra 200 billion dollars available to the troubled US housing market.The single European currency in late-day trade was at 1.5629 dollars against 1.5626 late Tuesday in New York.The dollar was meanwhile trading at 99.06 yen, down from 99.72 on Tuesday.The US greenback was on the one hand under pressure from the Federal Reserve's three-quarter point cut in its benchmark interest rate to 2.25 percent on Tuesday, aimed at settling turbulent credit markets and warding of a US recession.But the move widened the gap between rates in the United States and the eurozone, where the European Central Bank has held its principal rate steady at 4.0 percent, making the euro far more attractive to investors.Later in the day however the dollar recovered lost ground after US regulators said they would allow government-sponsored mortgage lenders Fannie Mae and Freddie Mac to pump an extra 200 billion dollars into the housing sector.The Office of Federal Housing Enterprise Oversight (OFHEO) said it would allow the two firms to invest a portion of their 30 percent capital surplus in mortgages and mortgage-backed securities.The new regulations will lower the minimum capital requirement for the two agencies to 20 percent from 30 percent and add badly needed cash to the troubled sector.

Today Forex News

2008-08-05T01:53:00.000-07:00

Today Forex News

This dollar of ours is rapidly falling to depths where no dollar has gone before. In fact, to say that it's unclear when we can expect a recovery would be a gross understatement. I don't know about you, but most Americans still have the bulk of their savings — not to mention their walking around money — in dollar denominated assets. Whether you're on a fixed income and attempting to preserve the value of your dollars, or a FOREX trader looking for an entry point ahead of a dollar-reversal, we need to have a candid, no-holds-barred discussion about our currency. So for now, go ahead and take your hand from over your eyes. The week is mercifully over and the thrashing has stopped. It won't get any uglier for the buck; at least not until Monday.First, let's start by taking a hard look at the factors that sent the dollar plummeting earlier in the week ..

Stop discipline in forex

2008-08-04T08:47:00.002-07:00

Stop discipline in forex

There are significant opportunities and of course risks in the foreign exchange markets. Aggressive traders might experience profit/loss swings of 20-30% daily. This calls for strict self-disciplined stop-loss policies in positions that are moving against you. Luckily, there are no daily limits on foreign exchange trading and no restrictions on trading hours other than the weekends. This means that there will nearly always be a possibility to react to moves in the main currency markets and low risk of getting caught without possibility of getting out. This market can move very fast and a stop-loss order is by no means a guarantee of getting out at the desired level. The main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events such as G10 meetings are normally scheduled for week The main risk is really an event over the weekend, where all markets are closed. This happens from time to time as many important political events such as G-20 meetings are normally scheduled during the weekend.

Forex won't hurt overall eurozone growth-Juncker

2008-08-04T08:47:00.001-07:00

Forex won't hurt overall eurozone growth-Juncker

I don't think that this will harm economic growth in Europe as a whole," he told reporters.Asked whether the European Central Bank should take action to curb the strength of the euro, Juncker said: "I don't think that we should start to become hyperactive. We need to watch closely what is happening.""I don't have any public recommendations for the ECB which is an independent institution," he said.Juncker also said investors were over-reacting to short-term indicators and they should take a longer-term view instead."The American economy will come back to normal growth in a short period," he said.(Reporting by Marja Novak, writing by William Schomberg, editing by David Christian-Edwards)

forex Ailing dlr sinks to new record lows

2008-08-04T08:45:00.000-07:00

forex Ailing dlr sinks to new record lows

While U.S. rates are seen as falling by at least 75 basis points this month FEDWATCH, European Central Bank president Jean-Claude Trichet said there was no discussion of cutting rates from 4 percent at a rate setting meeting on Thursday.He also declined to refer to the euro's rise as "brutal", simply saying that excessive volatility was bad for economic growth and that U.S. had a strong dollar policy."There's broad dollar weakness and Trichet's language was not threatening enough for dollar bears to think that there might be intervention from the ECB, giving the green light to sell the dollar," said Audrey Childe-Freeman, European economist at CIBC World Markets.The euro rose to $1.5429 according to Reuters data, the highest level since its launch in 1999 and bringing its gains since the start of the year to over 5 percent .The dollar fell to an all-time low against a trade-weighted basket of major currencies at 72.666 .DXY and against the Swiss franc hit a low of 1.0185 francs . It has now lost over 10 percent versus the low-yielding, safe haven Swiss currency since the start of the year. It also set a 3-year low at 101.82 yen .

Forex Traders Apprentice to Like Losses

2008-08-02T08:46:00.001-07:00

Forex Traders Apprentice to Like Losses

As a forex banker you accept to apprentice how to booty losses. Period. Don't be a crybaby. Apprentice how to booty losses. Learning how to booty losses is one of the best important acquaint you charge apprentice if you appetite to survive as a trader. Nobody is 100% appropriate all the time. Losses are inevitable. Even Michael Jordan and Tiger Woods lose sometimes and they're advised the best in their field. There will be trading streaks area you'll accept a cardinal of acknowledged after trades, but that will eventually appear to an end you will booty a loss. As that point it’s actual important not to lose your head, you charge abide in ascendancy of yourself. Don't accept a cow man. Take a break. Calm bottomward and relax. Booty a arctic bolus dude. Until you've regained a bright apperception and an adeptness to anticipate logically again, break out of the market. Don’t beef about your accident and never backpack a ageism adjoin a loss. The key to administer losses is to cut them bound afore a baby accident becomes a ample one. I repeat. The key to administer losses is to cut them bound afore a baby accident becomes a ample one. Never anytime anticipate that you will never lose. That's aloof ludicrous. Losses are aloof like profits, it’s all allotment of the trader’s universe. Losses are unavoidable. Get over the accident and move on to the abutting trade.

Way To Batter Forex

2008-08-02T08:45:00.001-07:00

Way To Batter Forex

My purpose for autograph this article is to authenticate to you the advantages of trading on the FOREX market. However, there is one allegory that I appetite to allay afore I go further. The allegory is that there is a aberration amid trading and investing. To allay that allegory I adduce from Al Thomas, President of Williamsburg Advance Company, who wrote “If It Doesn’t Go Up, Don’t Buy It”. He said “Everyone who invests is a trader, abandoned the time aeon is different.” It is a assignment that I took actively afterwards demography a assault in the banal bazaar in 2000. So now, let’s analyze appearance of bill trading to those of banal and article trading. Liquidity - The FOREX bazaar is the best aqueous banking bazaar in the apple about 1.9 abundance dollars traded everyday. The bolt bazaar trades about 440 billion dollars a day, and the US banal bazaar trades about 200 billion dollars a day. This ensures bigger barter beheading and prevents bazaar manipulation. It additionally ensures calmly executable trading.

mini forex trad

2008-08-02T08:43:00.000-07:00

mini forex trad

GCI is widely recognized as one of the premier providers of online foreign exchange dealing services. In addition to its Standard Forex Account, GCI offers a Mini Forex Account which offers a smaller contract size and lower margin requirements. Benefits include:Rapid and fair trade execution. Market orders are confirmed within seconds at prices clicked on or accepted by the client. Furthermore, GCI has a "zero slippage guarantee" for all Forex Stop and Entry Stop orders that are placed at least one minute before the market reaches your specified price.Zero commissions for all accounts. Client trading performance is enhanced by eliminating all commissions.State-of-the-art trading software. The GCI trading software provides real-time prices in 15 major currencies, live charts, and real-time P&L and account equity tracking. We believe that this trading software has set new standards in performance and reliability.USD or Euro Denominated Trading Accounts. GCI clients can now choose to maintain their account balance and P&L in either USD or Euros. Select the Base Currency you want for your account on the account application.Tight 3 - 5 pip spreads. Clients can trade on 3 - 5 pip spreads in major currencies and crosses, 24 hours a day.Broad offering of financial products. In addition to currencies, you can trade mini versions of Dow Jones, Gold, S&P 500, other equity indices from your Mini Forex account. Trading opportunities and profit potential are that much higher. Click here for a full list of products and specifications.$500 minimum account balance. GCI provides access to spot forex trading for individuals as well as institutions. Margin requirements are $50 per lot.Risk is limited to deposited funds. GCI's sophisticated margin and dealing procedures mean that clients can never lose more than their funds on deposit.Hedging Capability. Clients can open positions in the same currency in opposite directions, without the positions offsetting and without using additional margin.Tools for successful trading. GCI clients benefit from a wide array of resources to improve their trading results, including market analysis and research, real-time charts, and free Forex trading signals For More Information

forex marking tips

2008-08-01T06:37:00.000-07:00

forex marking tips

The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$3.2 trillion."Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.For speculators, we believe the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.A true 24-hour market from Sunday 5:00 PM ET to Friday 5:00PM ET, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.The FX market is considered an Over The Counter (OTC) or 'interbank/interdealer' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.

forex can make good earning

2008-08-01T06:32:00.000-07:00

forex can make good earning

The Most Lucrative Part-time Job or Home Based Business EverThe Forex market is relatively new when compared to the traditional stock market. The Forex or Foreign Exchange Currency Market was open to the public in 1998. In a year it will be a decade old. This is one of the major reasons most people do not know about the Forex. The first reason why you should take a closer look at the opportunities in the forex market is because of its liquidity estimated at $2 trillion daily. The other reason is that it is traded 24 hours of the day and 6 days in a week and participation is open to all, from individuals like you and me to very large financial institutions.

Forex Daliy Overview

2008-08-01T06:29:00.000-07:00

Forex Daliy

Overview On Wednesday, the euro jumped to a three-week high against the yen as a rise in U.S. stock markets fueled investors' appetites for higher-yielding currencies.The US dollar strengthened vs. the major currencies after data showed US inflation rose in January, casting doubt on expectations the Fed will aggressively cut interest rates. As the US economy slows down, inflation may cause implications on the Fed slashing overnight rates by another half percentage point from the current 3 %.Although the euro gained versus the yen Wednesday, it was unable to advance against the dollar as concerns began to mount that the U.S. economic slowdown and tighter credit market conditions might soon be passed on to the euro zone.The Sterling weakened against the dollar after stronger than expected US CPI data. This morning, minutes from the Bank of England's February policy meeting was released, which added further pressure to the pound.The Japanese yen weakened against the dollar after stronger than expected US CPI data. With encouraging CPI data, carry trade advanced to the forefront, strengthening the greenback against the yen.Other higher-yielding currencies such as the Australian and New Zealand dollars also advanced as U.S. equity markets shrugged off persistent worries of a U.S. recession and new concerns about rising inflation. The Australian dollar gained ground Thursday, continuing to draw strength from favorable interest rate spreads and signs of renewed stock market stability

Dollar slips amid persistent US bank worries

2008-07-29T19:44:00.000-07:00

Dollar slips amid persistent US bank worries

1. Dollar falls on continued worries about U.S. financials2. Sentiment toward dollar remains cautious3. Investors watching U.S. earnings, oil pricesJuly 21 - The dollar slipped on Monday, losing some of its recent momentum, after better-than-expected earnings from Bank of America failed to convince investors that the worst for the U.S. financial sector is over.The greenback had earlier gained against the yen and pared losses against the euro after Bank of America's second-quarter earnings beat a Reuters Estimates forecast, boosting U.S. stocks.
But investors remained wary ahead of a flurry of bank earnings due this week, including Wachovia (WB.N: Quote, Profile, Research) on Tuesday. The market also focused on a rescue plan for U.S. mortgage giants Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research).

India's forex reserves at $307.107 bn

2008-07-29T19:38:00.000-07:00

India's forex reserves at $307.107 bn

MUMBAI: India's foreign exchange reserves fell to $307.107 billion as on July 18, from $308.520 billion a week earlier, the central bank said in its weekly statistical supplement on Friday. Reserves rose to a record $316.171 billion in late May and analysts say the decline since then is due to dollars given by the central bank to refiners in exchange for their oil bonds and intervention in the currency market to support a falling rupee.The central bank said foreign currency assets, expressed in dollar terms, included the effect of appreciation or depreciation of other currencies held in its reserves such as the euro, pound sterling and yen.The foreign exchange reserves include India's Reserve Tranche Position in the International Monetary Fund, the central bank said.

Inflation inches up to 11.91%, may force RBI to increase rates

2008-07-27T04:36:00.000-07:00

Inflation inches up to 11.91%, may force RBI to increase rates

I met RBI Governor Y V Reddy. Governor said there is still pressure on prices. I am in broad agreement with him," Chidambaram told reporters after a Cabinet meeting on Thursday. "So, if these monetary measures take effect, Governor expects some moderation (in inflation) over a period of time," he said.During the week ended 5th July, inflation moved up marginally by 0.02 percent to a 13-year high of 11.91 percent.In the comparable period last year, the rate of price rise was 4.61 percent.Food items, including pulses, atta, tea, fruits, as also some petroleum products like jet fuel became more expensive during the week under review, according to the wholesale price index released by the government on Thursday.Describing the increase in inflation "very marginal" the Finance Ministry in a statement said "the annual inflation rate for the group of 30 essential commodities has declined to 5.74 from 5.98 percent reported for the week ending June 28, 2008."It further said the prices of essential commodities like food grains, pulses, edible oils, vegetable, dairy products and some other commodities including kerosene, soap and safety matches have more or less stabilised.The Finance Ministry further said inflation on a week-on-week basis has stabilised.The Ministry said out of 98 primary articles, 13 have shown decline in prices and 57 have shown no increase in prices.In manufactured category, 281 of total 320 commodities have shown no rise in prices, while prices declined in case of 12 commodities.Marginal increase in inflation is mainly because of higher prices of some of the petroleum products like naphtha which went up by eight percent, light diesel oil by seven percent, aviation turbine fuel by five percent.However, prices of cooking gas declined by five percent.The continued rise in prices, though marginal, may prompt RBI to further tighten money supply in its quarterly review slated for 29th July, analysts said."To anchor inflation, the RBI may increase CRR by 50 basis points and repo rate by 25 basis points," Crisil Principal Economist D K Joshi told.RBI has already on 24th June increased repo rate (short term lending rate)and CRR (mandatory deposit kept with the RBI) by 0.5 percent each to check price rise.During the week, prices of tea increased by two percent, while masur and moong became expensive by 1 percent eachIn the manufactured goods category, rice bran oil and maida became expensive by two percent each atta, coconut oil and imported edible oil were dearer by one percent each.Elsewhere, steel ingots became dearer by 21 percent, bright bars by 10 percent, pig iron by 5 percent, bars and rods by 2 percent and steel sheet and plates by 1percent.As per the revised data inflation rate for the week ended 10th May has been updated to 8.57 percent as against 7.82 percent reported earlier.

Falling rupee creates fresh losses on forex derivatives

2008-07-26T01:39:00.000-07:00

Falling rupee creates fresh losses on forex derivatives

India is staring at fresh losses on foreign exchange derivatives, thanks to the sudden, 7-per cent depreciation of the rupee in the quarter ended June 2008, with much of the fall coming in May.After HCL Technologies announced last week that it will suffer forex losses of $65-75 million for the quarter ended June 30, 2008, the last two days saw three companies taking a hit on forex derivatives. Thursday Bangalore-based biotech company Biocon saw its net profits decline by 72 per cent for the quarter ended June 2008, thanks to a forex loss of Rs 6 crore and a mark-to-market provision of Rs 26 crore for its exposures to forex derivatives.Wednesday, IT major Tata Consultancy Services (TCS) reported a forex loss of Rs 75.30 crore for the quarter ended June, which partly resulted in its net profits growing slower at 7 per cent year-on-year to Rs 1291 crore.The sudden depreciation of the rupee resulted in a provision of $12 million (Rs 51.7 crore) on Mindtree's outstanding derivatives instruments,'' the company said in a statement. The losses are a result of the rupee bets going wrong. When the rupee was appreciating, many exporters rushed to cover and sold their dollar receivables forward. With the rupee depreciating 7 per cent, the exporters face losses on these contracts. "The losses are because of hedges taken earlier. An exporter may have sold his dollars at Rs 40, while the rupee is trading at Rs 43.07. IT companies have long-term contracts, and some have sold their receivables forward to prevent potential losses from an appreciating rupee.
So, exporters sold their receivables forward as they wanted to protect themselves. Exporters had suffered when the rupee appreciated 12 per cent from Rs 44 to Rs 39. When the rupee was appreciating, software companies hedged their receivables, though it varies widely across companies. "People wanted certainty, and have traded it off with future upside that they might have made from the depreciation of rupee,'' said the CFO of an IT firm. Analysts say typically, Infosys hedges three months of receivables, TCS has taken cover for $3-4 billion, amounting to 50-70 per cent of its sales and mid-size IT companies such as Mindtree have covered 50 per cent of their receivables.

UPDATE 1-Japan forex reserves $1.002 trln at end-June

2008-07-25T01:48:00.000-07:00

UPDATE 1-Japan forex reserves $1.002 trln at end-June

TOKYO, July 7 (Reuters) - Japan's foreign reserves hit $1.002trillion at the end of June, logging the first rise in threemonths thanks in part to investment returns and the euro's riseversus the dollar that inflated the value of euro-denominatedbonds in the stockpile, the Ministry of Finance said. [JPRES=ECI] Higher gold prices also helped lift Japan's reserves -- theworld's second largest after China's -- back above $1 trillion,but still shy of the record high of $1.016 trillion at the end ofMarch, a ministry official said on Monday. The euro edged up to $1.5754 at the end of June from$1.5559 at the end of May, while the benchmark gold price rose to$930.25 an ounce at the end of June from $885.75 the monthbefore. The ministry, which is in charge of Japan's currency policy,does not disclose the currency breakdown of Japan's reserves, butmost is in U.S. dollars as past intervention has taken the formof dollar buying. Japan's foreign reserves ballooned after massive yen-sellinginterventions in 2003 and early 2004 as Tokyo tried to stem arapid rise in the yen from derailing a fragile economic recovery. Tokyo has kept out of the market since then, but the incomeon the reserves has crept up steadily. The massive reserves have stirred a debate among Japaneselawmakers about whether Japan should follow countries like Chinainto launching a sovereign wealth fund to invest some of the cashpile. But the finance ministry remains cautious about the idea. The ministry started operating a new section within itsforeign exchange markets division on Friday that will focus onmanaging Japan's massive foreign exchange reserves. [ID:nT343958] But ministry officials have said the launch of the newsection does not mean Japan will start investing the stockpilemore actively into risky assets to seek higher returns.

FOREX-Dollar falls amid signs of softening labor market

2008-07-25T01:46:00.000-07:00

FOREX-Dollar falls amid signs of softening labor market

Dollar falls on signs of weakness in labor markets * ADP report shows higher than expected job losses in U.S.
* Markets anticipate ECB rate hike to 4.25 pct
(Recasts, adds comments, changes byline)
By Vivianne Rodrigues
NEW YORK, July 2 (Reuters) - The dollar fell against the euro on Wednesday after a report showed the U.S. private sector shed more jobs than expected in June, which may diminish the likelihood of a rate increase by the Federal Reserve.
In contrast, investors bought the euro ahead of an expected interest rate hike by the European Central Bank on Thursday. The ECB is widely seen raising its key lending rate by 25 basis points to 4.25 percent and President Jean-Claude Trichet's news conference after the meeting may indicate further increases.
Higher benchmark rates in Europe will boost the return of euro-denominated assets and weigh on the greenback.

Dollar marking time ahead of FOMC meeting

2008-07-23T01:00:00.000-07:00

Dollar marking time ahead of FOMC meeting

SYDNEY (Thomson Financial) - The U.S. dollar was mixed in midmorning trading in Sydney on Tuesday, marking time ahead of the start of the Federal Open Market Committee's two-day meeting starting later today.
At 10:50 a.m. (0050 GMT) the dollar was at 107.98 yen from 107.83 yen in late New York trade
on Monday while the euro was at $1.5526 from $1.5514.
The dollar gained against the euro overnight on expectations that the FOMC would put inflation higher up its list of worries when it issues a statement after the meeting's conclusion on Wednesday.
No change in the Federal Reserve's fund target rate, now set at 2.0 percent, is expected.
John Noonan, a senior foreign exchange analyst at Thomson Reuters IFR, said trading is likely
to remain whippy ahead of the release of the Fed statement.
'The market is thin and there is a wide divergence of opinion on how the FOMC will shape its statement after they are expected to announce no-change on Wednesday,' said Noonan.
He said the talk on Wall Street was that the Fed was likely to 'talk tough' on inflation to temper wage expectations even if it might not follow up with aggressive tightening efforts.
'There is some speculation that the Fed might even mention the U.S. dollar in their statement and this has helped to underpin the dollar ahead of the event,' said Noonan.
He said until the announcement the euro is expected to trade in a range of $1.5450 to $1.5650.
Sydney 10:50 a.m. (0050 GMT)
U.S. dollar
yen 107.98
Swiss franc 1.0455
Euro
U.S. dollar 1.5526
yen 167.595
Swiss franc 1.6227
pound 0.7902
Pound
U.S. dollar 1.9650
yen 212.091
Swiss franc 2.0536
Australian dollar
U.S. dollar 0.9522
pound 0.4845
yen 102.815
New Zealand dollar
U.S. dollar 0.7571

Forex reserves down $5

2008-07-23T00:59:00.000-07:00

Forex reserves down $5

The country’s foreign exchange (forex) reserves dipped by a whopping $4.96 billion in the week ended June 13, the steepest dip in over two-and-a-half years.
Reserve Bank of India (RBI) has done in the forex market by selling dollars in a bid to keep the rupee from breaching the 43-mark against the dollar. Last time such a huge fall in reserves recorded was in December 2005, when there were huge redemption pressures on the central bank on account of the India Millennium Deposits (IMD) scheme of State Bank of India.
RBI has been consistently intervening in the forex market over the past couple of weeks, with the rupee under pressure from oil companies which bought dollars to provide for soaring crude prices.
Meanwhile, credit and deposits continue to record modest growth figures for the year. According to data released by RBI in its weekly statistical supplement (WSS) on Friday, bank credit growth stood at 25.9%.
The total stock of money in the system went up Rs 22,655 crore during the fortnight ended June 6, to touch Rs 40,99,957 crore.

Forex -Dollar gets a boost from us oil company

2008-07-16T21:12:00.000-07:00

Forex -Dollar gets a boost from us oil company
The dollar staged a comeback in afternoon trade, finding a boost from easing oil prices and stronger-than-expected U.S. data. The drop in oil prices still leaves the commodity at hugely inflated levels but takes the edge off the market's worst fears.After setting records above $135 last week oil has eased off slightly, dropping under $130 as the chorus of voices complaining about its debilitating effects grew louder. Throughout Europe, demonstrations over the high price of oil are putting governments under pressure, leading French President Nicolas Sarkozy to call for the suspension of Europe's value-added tax on oil.
U.S. durable goods orders fell in April, but core capital goods orders showed unexpected strength with the best performance in a year and a half.Still, he believes the near-term outlook for the dollar remains mixed. 'Falling oil prices may not necessarily lead to a stronger dollar, and any resumption of WTI (the benchmark crude traded in New York) upside would again stoke inflation fears, pressuring the dollar,' he added.

forex can make good earning

2008-07-16T21:06:00.000-07:00

forex can make good earning

forex marking tips

2008-07-16T21:01:00.000-07:00

forex marking tips
The Foreign Exchange market, also referred to as the "Forex" or "FX" market is the largest financial market in the world, with a daily average turnover of US$3.2 trillion."Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products and services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.For speculators, we believe the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called "the Majors." Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.A true 24-hour market from Sunday 5:00 PM ET to Friday 5:00PM ET, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur - day or night.The FX market is considered an Over The Counter (OTC) or 'interbank/interdealer' market, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.More information

mini forex trad

2008-07-16T19:15:00.000-07:00

mini forex trad

BE AWRE FROM Slashmysearch, thay are scamers

2008-06-14T22:51:00.000-07:00

BE AWRE FROM Slashmysearch, thay are scamers

Slashmysearch.............Get Paid To Search { BE AWRE FROM SLACH MY SEARCH} THAY ARE SCAM..!
Many ppl asking that thay pay but thay not...! THAY ARE BLUDDY SCAMERS.!
Slashmysearch is an online program where you get paid to use their search engine. You get paid depending on how often you use their search engine. Apart from this you also get paid for referring other members. There are two referral levels (you get paid for your referral as well as yourreferral's referral) in this program which increases your earning potential. This program isopen to people from any country Payments are made by paypal. Click here to create a paypal account. You get paid when you reach 20$. I have earned 79$ from this program in a month. See the picture above for proof

Payment proof from TitanClicks.com

2008-06-14T22:49:00.000-07:00

Payment proof from TitanClicks.com

I joined the TitanClicks.com paid to click program on September 17, 2007 and last month, my balance reached the minimum payout and I cash it out. Over 8 months to earn a tiny sum of USD12.00.
But I'm not fretting because it a zero investment and half of the amount was contributed from my referrals earning. It also proved that earning residue income from the Internet and power of referrals works. Now, I just need to move on and try to increase that figure.
Before that the cash out amount is USD10.00 but TitanClicks reviewed it to USD12.00 (** note: the new cash out amount is still not updated in their page) and the payment method changed from PayPal to AlertPay.
By March 2008, my total number of referrals is 100 who joined from TitanClicks referral promotion link that I promote throughout various Traffic Exchange sites. I never pay for upgrade or purchased any un-referred members.
Over the past few months, traffic to TitanClicks has been declining due to the emerging paid to click site such as UrOnlineBux. In addition, TitanClicks is in the process of moving their site to a new host so their site would not be fully functioning. Visit them next week after they have sorted their hosting issue.

PPC Ads for Publishers

2008-06-14T22:36:00.002-07:00

PPC Ads for Publishers

A list of the Top 5 In Text PPC Ads for Publishers (Bloggers and Webmasters). By using InText Ads you can even monetize the words in your posts. Another great income source from your blog.
1. LinkWordsLinkWords is another InText PPC that is used by Bloggers and Webmasters. This service is not very popular because a lot of people are confused with the system becasue the site is quite complicated. BUT, LinkWords paya Great money per click, usually USD$0.25 per click. This site is very good to make money. Besides offering InText Ads service, LinkWorth also offers PaidPost service, TextLinkAds service and a lot more. It is an All-in-One site.
2. Kontera ContentLinksKontera is one of the popular InText PPC or ContentLinks site for Publishers. Kontera is used by many Bloggers and Webmasters to make money from their blogs/sites. The implementation is simple and the ads will show up automatically when the keywords on the blog/site suit the ads database of Kontera.Kontera InText Ads are usually irrelevant which makes it hard to get clicks and make money.

5$ for each articels Today.com

2008-06-14T22:36:00.001-07:00

5$ for each articels Today.com

Make Money Online by Blogging for Today.com Today.com has many blogging positions opened now. They are looking for people who can write topics such as horse racing, army life, living on a base, Celebrity blogger, movies, dvds , health, diet, mobile phones, sports, soccer, gossip, cricket, dating, money, video games, nite life, travel deals, music, and any other topics you are passionate about.
The pay is different from month to month. It will depend on both your content contribution and how well your blog is performing. But for the first month, Today.com guarantees that you will earn $5.00 per 100+ word post. You can publish a maximum of one paid blog post daily.
To get more details about Today.com blogging opportunities and sign up for a position, you may go to http://www.today.com/apply

How Philanthropy Works

2008-06-06T23:22:00.000-07:00

How Philanthropy Works
Most of us learned as children that sharing is a good thing. We didn't know we were practicing philanthropy -- we just knew that giving to other people or important causes made us feel good. Decades ago, many people tended to give to the organizations that touched their lives, such as churches, hospitals and schools. (Those three are still among the most popular recipients of charitable giving.) Today, there are more than 600,000 charities and foundations operating in the United States, representing, it seems, every conceivable cause on the planet. Charities are making their presence known through elaborate ad campaigns, Web sites and high-profile fundraisers. But these more organized, more visible efforts are necessary, charities say, because: 1. Their services are more in demand than ever. 2. Government funding is declining and -- in many cases -- disappearing. 3. The cost of everything continues to spiral upward. Americans have responded generously -- charitable giving in 1999 totaled $175 billion, an all-time high, according to Philanthropy News Digest. Who's doing the giving? People like you and me, according to the Council of Better Business Bureaus, which reports that individual gifts represent about 80 percent of the money raised by charities in the United States. Along with increased giving, donors have become more savvy and now require greater accountability from the charities to which they give. In this edition of Stuff.dewsoftoverseas.com, we'll take a close look at how philanthropy works, the various ways in which you can contribute and how you can make sure your donation is going where it should. And we'll also discuss tax-deductible gifts and look at volunteerism, another way of giving.

What Is Philanthropy and How Do Philanthropic Organizations Work?

2008-06-06T23:18:00.000-07:00

What Is Philanthropy and How Do Philanthropic Organizations Work?

At its core, philanthropy is anything that represents a direct effort to help others -- ideally, effort expended without expectations of getting something in return. Many organizations directly benefit people who need help; others, such as conservation nonprofits (see How The Nature Conservancy Works), contribute in ways that indirectly but significantly affect us and our children and our grandchildren. We are free to give our money to charities that assist causes we believe are important. The size of the gift isn't what characterizes a philanthropist -- Nationally, an independent survey found that people in the lowest income brackets tend to donate as much or more than their higher-wage counterparts. According to the National Charities Information Bureau, the average American household donates about 2 percent of its annual income. Most charities say that they still rely on these individual gifts for survival. How Do I Know If a Charity Is Legitimate?Experts assert that a legitimate and efficient charity should be using 50 to 60 cents of each dollar it receives to conduct the actual charitable work and use the remaining funds to pay for administrative, marketing and other operational expenses. To find out how efficient a charity is, you can start by checking out the organization with the local charity registration office (usually a division of the state attorney general's office) and with your local Better Business Bureau. (Licensing does not equal governmental endorsement of the charity!) There are also numerous non-commercial organizations, such as the Council of Better Business Bureaus, The Foundation Center and Guidestar (Philanthropic Research, Inc.'s Web site), as well as professional organizations for nonprofit administrators. It's always helpful to read up on what's going on in the world of philanthropy -- check out some of the philanthropy journals (such as Philanthropy) online and in the library. You can actually check to see the amount of your dollar that goes directly to charitable work on that organization's required annual Form 990. Web sites for both Philanthropic Research, Inc. and the Urban Institute's National Center for Charitable Statistics make available the latest 990 forms for 61,000 private foundations. The two groups also posted Forms 990 for more than 200,000 public charities in October 1999. (Read more about this.) Charities and foundations are required to complete this form once a year, and this information must be made available to potential donors upon request. (Many forthcoming charities actually post their financial information on their Web sites.) The specific information on these forms and in a charity's annual report will give you a good idea of how the charity works, who governs it (most have directors and boards) and where and how it spends money to address its concerns and run its operation. In these reports, you should be able to see the major expense categories, including program services, management/operation and fund raising. The Better Business Bureau's suggests the following guidelines: • Program service costs (research grants made to scientists, food sent to feed hungry families or public information brochures aimed at explaining a disease. • Management/operational costs (expenses associated with the day-to-day operation of the charity, including rent, office supplies and salaries of administrative staff) • Fund-raising costs (printing and mailing of appeals, advertising and fees paid to professional fundraisers) Generally, BBB standards say, at least half of the charity's total income should be spent on programs and at least half of public contributions should be spent on the programs described in advertisements and appeals. No more than 35 percent of the contributions should be spent on fund raising, and no more than half of the charity's total income should go to administrative and fund-raising costs. If it seems that a charity's administrative or fund-raising costs are too high, there could be extenuating circumstances. For example, it's natural for a new charity to have higher fund-raising costs than an established one. SolicitationAll charities solicit support in various ways, using in-person, phone, Internet and direct mail methods. Any information you receive should clearly identify the charity and state its purpose. It has become common practice in modern fund raising for charities to share, swap and sell lists of donors. For example, when you give to a charity, your name and address may be exchanged, borrowed or sold to other nonprofits or even to for-profit companies. Charities who do this say that not only do these activities provide additional income, but they also help them to locate new donors and to reach a broader group with mailings about important issues. According to the Better Business Bureau's Philanthropic Advisory Service, a major charity mailing may involve up to millions of letters -- something that often requires the use of many different mailing lists. If you don't want your name on these mailing lists, there are a couple of steps you can take. Increasingly, because of the way many people react to unsolicited mail, charities are disclosing their mailing list policies and providing an opportunity on their printed donor cards or Internet forms for you to ask that your name not be shared. If you're already getting more mail solicitations than you want, you can write to the organizations and request that your name be removed from their mailing lists. This may or may not work -- keep a copy of the letter and if you feel you're being harassed (by mail, phone or in person), contact the BBB's Philanthropic Advisory Service for suggestions and assistance.

How Can I Make My Contribution?

2008-06-06T23:14:00.000-07:00

How Can I Make My Contribution?

Obviously, there are still charities, such as the Salvation Army, that are happy to take your cash. However, today there are several ways that you can make your charitable contributions:

• Make a donation by check (that way you have a record of your gift for tax purposes). Make the check payable to the charity, not the solicitor. And don't donate anything until you have the charity's exact name, address and phone number. (If you're being solicited in person, insist on seeing identification.) You should also ask the organization's purpose, how it tries to reach its goals (by awarding grants, conducting research, etc.) and how much of your dollar is used for true charitable purposes. And be sure that you know whether your donation is tax-deductible.

• Bequeath funds, land, etc. as part of your will. You'll want to discuss this with your attorney as well as with gift or development officers from the organization to which you want to give. • Donate products, such as computers or used cars, and services. This is a growing area: More than $300 million in computer technology, office supplies, clothing, furniture, building materials, emergency supplies and educational materials is given annually by more than 40 percent of the Fortune 500 companies that manufacture or retail products and by many other corporations. Gifts in Kind International is the world's largest product philanthropy charity, directly donating to the needy as well as creating partnerships between companies and more than 50,000 nonprofits around the world. What About Giving Via the Internet?Like most businesses and organizations, charities have taken their fund raising to the Internet. Experts estimate that there are presently more than 300,000 Web sites for nonprofits. This makes sense -- a Web site is a relatively inexpensive way to promote a cause, recruit volunteers and raise money. As Internet consumers have already found, fraud is always a concern. Earlier this year, a Better Business Bureau in Austin, Texas learned about a person who was using the Internet to solicit $1 donations (on checks made out to "cash" and sent to a private P.O. box) for tornado victims and actually pocketing the money. In another case, a group ran misleading ads that claimed that, for $19.95, they could help anyone obtain "free" cash from private charitable foundations. Chain letters are another cause for concern. Experts suggest that you try to steer clear of these kinds of problems by using these tips:

• Many charities' names are similar, so note carefully the one with which you're concerned.

• If you'd like more detailed information on a charity's finances or programs, e-mail them your request.

• Before you decide to contribute online via credit card, make sure that the charity's Web server has encryption capability to protect your card from fraudulent access. If you have any concerns, mail a check.

What If I Don't Have a Lot of Money to Give to Charity?

2008-06-06T23:13:00.001-07:00

What If I Don't Have a Lot of Money to Give to Charity?

Believe it or not, there are some charities that claim they need volunteers every bit as much as they need money to make their efforts successful. So if you don't have much money, give the gift of your time and caring by volunteering. (By the way, if you, as a volunteer, have out-of-pocket expenses (including transportation costs), these may be tax-deductible.) Two years after The UPS Foundation published a national survey on volunteerism, nonprofits say they have made progress in recruiting and managing volunteers but still consider it one of the most significant challenges they face. The major finding of the survey was that volunteers are more likely to donate time when they believe that their time will be used effectively. Around 40 percent of the people who responded to the survey said they had stopped volunteering because the charity with which they worked made poor use of their time. You don't have to find an organized charity in order to do something important. You can buy a pizza and take it to a family whose father is out of work. Or donate a book to your local library, take your newspapers to the recycling bin or read to an elderly friend who lives alone. After all, they say that charity (or philanthropy) begins at home.

How Lotteries Work

2008-06-06T23:05:00.000-07:00

How Lotteries Work

In the United States, 37 states and the District of Columbia (Washington, D.C.) have lotteries. A lottery is a form of gambling that is run by the state. Most states have several different games, including instant-win scratch-off games, daily games and games where you have to pick three or four numbers. But the game with the biggest jackpot is almost always Lotto. This game usually involves picking the correct six numbers from a set of balls, with each ball numbered from 1 to 50 (some games use more or less than 50). Ever wonder why the lump sum payout amount is about half of the actual jackpot amount, or how to calculate the odds of winning the Lotto?Now, we'll learn the answers to these questions, as well as how the ball-drawing machines work and how much money you could expect to take home if you win.

Calculating The Odds

2008-06-06T23:01:00.000-07:00

Calculating

The OddsLet's take a look at how to calculate the odds of picking the right number for a typical Lotto game. In order to win our example game, you have to pick the correct six numbers from 50 possible balls. The order in which the numbers are picked is not important; you just have to pick the correct six numbers.
The odds of picking a single correct number depend on how many balls have been chosen already. For instance, let's say none of the six numbers had been picked yet and you had to guess just one number correctly. Since there are 50 numbers to chose from, and since six balls are going to be picked, you have six tries at picking the number correctly. The odds of picking one number correctly are 50/6 = 8.33:1.
Using a similar calculation, we can determine the odds of picking another number correctly after one number has already been drawn. We know there are 49 balls left, and that five more balls will be drawn. So the odds of picking a number correctly after one has been drawn are 49/5 = 9.8:1.
Now let's say five numbers have been picked and you have to guess what the last number is going to be. There are only 45 balls left to choose from, but you only get one shot at it, so your odds are only 45:1.
In a similar manner, we can calculate the odds of picking the right number when two, three, four and five balls have been drawn. You know the odds of a coin toss resulting in heads are 1/2 = 2:1. The odds of two consecutive tosses both resulting in heads are 1/2 x 1/2 = 4:1. The odds of three consecutive tosses all resulting in heads are 1/2 x 1/2 x 1/2 = 8:1. The odds of picking all six lottery numbers are calculated the same way -- by multiplying together the odds of each individual event. In this case:
Some states have been increasing or decreasing the number of balls in order to change the odds. If the odds are too easy, then someone will win the jackpot almost every week and the prize will never grow. Large jackpots tend to drive more ticket sales. If the prize is not large enough, ticket sales can decrease. On the other hand, if the odds against winning are too great, ticket sales can also decline. It is important for each lottery to find the right balance between the odds and the number of people playing.
If you add just one number to our hypothetical lottery, so people now have to pick from 51 balls, the odds increase to 18,009,460:1.
PowerballSome states have joined together to run multi-state Powerball lotteries. Since so many people can play, they need a game with really large odds against winning. In multi-state Powerball lottery game, the winner has to pick the correct five numbers from a set of 50 balls, and they have to pick the single correct number from a separate set of 36 balls. So the odds of picking the correct number in this game are:

Your Winnings

2008-06-06T22:58:00.000-07:00

Your Winnings

You just won a $10 million lottery. Somehow, you end up with about $2.5 million. Let's see where all the money goes. In New York State, which has one of the most complicated lotteries in the country because of its payout system, "Where does the money go?" is not a simple question. When you buy a New York Lotto ticket, you have to choose between a lump sum and a series of annual payments, and you can't change your mind later. If you chose a series of annual payments when you bought the ticket, what you are really going to win is a series of 26 yearly payments that add up to $10 million. You would receive the first payment for 2.5 percent of the total, or $250,000 (some taxes would be withheld from each check -- see below), two weeks after you submit the winning ticket. One year later, you would receive a check for 2.7 percent, or $260,000. Each year, the amount of the check goes up by a tenth of a percent -- the last payment is for 5 percent, or $500,000. In order to guarantee that the funds for all of these payments are available, the New York Lottery buys special U.S. Treasury Bonds called STRIPS (Separate Trading of Registered Interest and Principal of Securities). These are also known as zero-coupon bonds (see this page for more details about bonds). A zero-coupon bond pays a certain amount of money when it matures. For instance, in March 2001, you could buy a zero-coupon bond that would be worth $1,000 in 10 years for about $610. The longer the amount time before the bond matures, the less it will cost you today. A bond maturing in 25 years for $1,000 would only cost about $260 today. If you did the math, you'd find out that if you invested the $260 at about 5.7-percent interest, in 25 years it would be worth $1,000. When a winner claims his prize, the New York Lottery asks seven different bond brokers to quote a package of bonds that will pay each of the 25 future yearly payments. They buy the bonds from the broker at the best price for the complete package. An investment bank holds the bonds, and each year when one matures, the funds are automatically placed in the New York Lottery's cash account. The funds are transferred to the prize-payment account, and a check is written for the winner. Typically, the whole package of 25 bonds ends up costing the New York Lottery a little less than half of the jackpot amount. However, most winners don't opt for annual payments. About 80 percent of winners choose the lump sum option, which is usually about half of the jackpot amount. Since the New York Lottery has to pay a lump sum to buy bonds anyway, it is just as happy to give that same amount of money to the winner instead. It still goes through the process of getting quotations for the bonds, but instead of buying the bonds it pays the winner the amount the bonds would have cost. Most people take the lump sum because they figure that they can invest the money and do a little bit better than the approximate 5-percent interest that the bonds would earn. TaxesMost U.S. lotteries take out 28 percent from the winnings to pay federal taxes. But, if your winnings were in the millions of dollars, you would be paying closer to 39.6 percent (the highest tax bracket) in federal taxes when tax time comes. Add state and local taxes, and you might end up with only half of your winnings when you are done paying taxes. If you had opted for the lump sum prize in our $10 million lottery, the prize would be about $5 million. After federal and state taxes, you'd be left with about $2.5 million.

The Lotto Machines

2008-06-02T22:06:00.000-07:00

The Lotto Machines There are two main types of Lotto machines: gravity pick and air mix. The machines have a few things in common:
• They are designed and proven using statistical analysis to produce random combinations of numbers.
The balls are always visible during the mixing and drawing process -- they never disappear inside tubes or chambers. This helps prevent tampering; and since the drawings are televised live, it gives the viewer confidence that the drawing is not being fixed. Gravity PickThe gravity-pick machine is perceived to be more secure than the air-mix machine, perhaps because of a tampering incident that occurred in 1980 in Pennsylvania (see above). One common type of gravity-pick machine uses solid rubber balls. The balls are dropped into a chamber where two paddles, which spin in opposite directions, mix the balls. The operator actuates a sliding door at the bottom of the mixing chamber. One at a time, six balls pass through a clear tube into a clear display area where the numbers can be read. An optical sensor detects the passage of each ball, allowing only the correct number of balls to pass through the doorway. This page has some video clips of gravity-pick machines in action.

Air Mix

2008-06-02T21:51:00.000-07:00

Air Mix

The other type of machine that is commonly used for Lotto is the air-mix machine. This type of machine uses ping-pong balls that are painted with numbers and carefully calibrated for size and weight. These balls are released into the machine and jets of air blow up through the chamber to mix them. To select a set of balls, the operator opens a valve that allows air out of the machine through a tube or a set of tubes near the top of the machine. Once the valve is open, balls are blown into the tube; they are then transferred through another clear tube into a display area for reading. Since 1980, security procedures have improved. Here are some of the ways in which different states ensure the security of their lottery drawings:

• The New York Lottery maintains several duplicate sets of Lotto balls. A set is chosen at random before each drawing.

• The balls are weighed before and after each drawing to make sure no tampering has taken place

• The equipment is all kept in a locked vault until just before the drawing

• The Oregon State Lottery is overseen by the Oregon State Police. A detective attends each drawing to ensure the security.