February 27, 2007

Google’s Option Auction

A few months ago, Google announced a “Transferable Stock Option Program” that would allow employees to auction off vested options, as managed by Morgan Stanley. Last week, Google filed a Form S-3ASR that fleshs out what they intend to do. Now, Google is test driving the auction process using 20 pre-selected employees, with a full roll-out to other employees expected in April.

Testing Phase – This prospectus supplement explains how Google’s “test launch” works. The test-driving employees receive 5 transferable options with different exercise prices, each with a strike price higher than Google’s stock price on the date on which the option is issued. During the testing phase, only one institution is able to bid on the options (in comparison, when the auction is “live,” there will has to be at least two competing bids before an auction is deemed complete).

Full Roll-Out – Here’s an excerpt from the prospectus explaining how the auction likely will work:

“Options will be sold under the TSO program through an auction process in which a designated broker dealer will serve as auction manager. Currently, we have selected Morgan Stanley & Co. Incorporated to act as the auction manager. The auction will be operated through a secure internal online tool (the “TSO system”), which is accessible by participating employees. All participating financial institutions must be able to provide automated bids for all options in the TSO program on a continuous basis, updated approximately every 30 seconds while the TSO market is open.

Employees will use the TSO system to see the current highest bid price offered by the participating financial institutions for their vested options. During regular TSO market hours, the TSO system will continuously update to display the highest current bid price for each eligible option. All participating financial institutions will be required to bid on all of the options eligible for sale as a condition of participation in the TSO program, although the participating financial institutions may place zero dollar bids. A bid will be valid, at the time submitted by the participating financial institution, for at least 1,000 shares underlying options. A bid will remain in force until either the total available size of the bid is purchased at the bid price or a revised bid is submitted by the auction manager or a participating financial institution. Employees will receive the highest bid price at the time their market order is received, which may not be the same as the latest quote provided through the TSO system. No order may exceed 1,000 shares.”

President’s Working Group: Hedge Fund Regulatory Approach of Market Discipline

Last week, the President’s Working Group on Financial Markets issued guidelines on hedge funds that are intended to guide regulators as they address issues associated with private pools of capital, including hedge funds. The President’s Working Group is chaired by the Treasury Secretary and composed of the Chairs of the Federal Reserve, SEC and CFTC. As noted in this press release, the guidelines reflect an agreement between the Working Group and the regulators to use an approach of market discipline to protect investors rather than an approach of regulator’s doing more inspections or requiring more disclosure.

Wanna Buy a Hedge Fund – Cheap?

Search for “hedge fund” on Ebay. Bidding ends tomorrow and minimum bid is $70,000 (no bids made yet). This hedge fund – located in Switzerland – didn’t receive any bids the first time it was offered a couple of weeks ago. If you don’t want to buy a hedge fund, but would rather grow your own – you can find plenty of “How To” books on how to form a hedge fund. You too can have your own hedgie!