Fidelity Unveils Stock Option Netting Service

Fidelity Investments has launched its automated stock option netting functionality.

Stock option netting is a cashless process through which the issuing company allows a participant in a stock plan to use a portion of shares being exercised to cover the cost of exercising the shares, including applicable tax withholdings and options costs, according to a Fidelity news release.

Unlike the traditional way of exercising stock options, the “netting” process does not require an employee to put down any cash when exercising shares, or to acquire and then sell shares. Employees also save on commission fees due at the time of the exercise, and issuing companies minimize dilution of existing shareholders’ holdings, Fidelity said.

This new method of administering a stock option plan has been growing in popularity among employers since the changes to FAS 123R because it makes it easier to plan and manage for share exposure and dilution.  By allowing participants to use shares to cover exercise costs, the company essentially has fewer shares outstanding, reducing the need for company share repurchases in the future, according to the announcement.

“With this automated netting functionality, Fidelity Stock Plan Services offers a seamless netting process that is head and shoulders above our competitors and eliminates the manual processes used by many other stock plan administrative providers,” said Joan Bloom, senior vice president for Fidelity’s stock plan services business, in the news release.

Fidelity’s stock plan business services 230 employers across the country with $125 billion in grant value.