CEP Regulatory Compliance & Standards 2

Question 1

Under SEC Rule 10b-5, which of the following best describes a violation related to equity compensation?

Accepted Answer

Backdating option grants to a date with a lower stock price without disclosure

Answer

Backdating options to a lower price date without proper disclosure violates Rule 10b-5's prohibition on securities fraud and material misrepresentation.

Question 2

Which SEC form must Section 16 insiders file to report a change in beneficial ownership within two business days?

Accepted Answer

Form 4

Answer

Form 4 must be filed within two business days of any change in beneficial ownership by a Section 16 insider.

Question 3

ASC 718 requires that share-based compensation expense be recognized over the:

Accepted Answer

Vesting period

Answer

ASC 718 requires stock-based compensation expense to be recognized ratably over the requisite service period, which is generally the vesting period.

Question 4

A company's equity plan requires shareholder approval when it is first adopted. Under NYSE rules, shareholder re-approval is generally required when:

Accepted Answer

The exercise price of outstanding options is reduced

Answer

NYSE listing rules require shareholder approval for any repricing or reduction of outstanding option exercise prices unless the plan explicitly permits it with prior shareholder approval.

Question 5

For US federal income tax purposes, when does a non-qualified stock option (NQSO) create a taxable event for the employee?

Accepted Answer

At exercise

Answer

NQSOs create ordinary income at exercise, measured by the spread between the fair market value on the exercise date and the exercise price.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Regulatory Compliance & Standards 2