In Norway, a distinction is made between options and listed options. An alternative is a tool used when an employee in a limited company wants to purchase shares in the same company.
A listed option is when you buy the rights from another person.
The difference between these two options lies mainly in how much information about the value transfer has been communicated to the public.
In the case of listed options, very little information has been shared, while with an option, it’s more common that everyone involved knows what’s going on, given that employees who want to use this instrument already have their knowledge about the company they work for – hence why this instrument isn’t used so often by employees at foreign companies operating in Norway or companies turning over only tiny amounts.
What is an option?
An option is a contract that gives someone the right, but not the obligation, to buy or sell something at a specific price within a particular time frame.
Options are more commonly known as derivatives because their price is derived from what underlies them, which are shares.
Fallo Saxo Bank for more information
Norwegian Securities Trading Act
The Norwegian Securities Trading Act only allows listed options in companies where there is a total silence about what’s going on with their shares.
In case of an option, the company must have published information about share transfers equal to at least 7% of all shares outstanding – whether they are owned by other people or sold to employees using this strategy.
This also holds for foreign companies having limited liability. I.e. A little company that operates through a subsidiary in Norway can’t use quoted employee options without listing its securities on a Nordic stock exchange as long as it has limited liability in Norway and isn’t locally incorporated.
The same, but opposite, go for Norwegian parent companies with subsidiaries outside Scandinavia where employees might want to use this instrument.
In these cases, secondary trading can be conducted on a stock market in the country of incorporation or accounting for at least 5% of turnover without being listed on a Nordic securities exchange.
This comes from the fact that it’s essential to have some transparency when using listed options since you don’t know how or whether a company will pay out dividends and what kind of returns you go for when buying shares with such an option.
Also, if there’s no information about how many shares change hands through such instruments, it is easy to create artificial profits or losses for investors who don’t use such contracts. Thus, companies operating under Norwegian legislation are not allowed to use listed options – unless they own at least 5% of all shares outstanding.
However, this doesn’t apply to companies listed on a Nordic stock exchange where employees can use listed options without owning any scrip or complying with any other rules. What’s more, these instruments can be placed directly on the market – which is how it should be seen as, i.e. an option for transferring shares between two parties in case one party wishes to acquire them from another – without being tied to the market price.
However, please note that there are cases were limited liability companies operating abroad might want to use quoted employee options based on Norwegian legislation – i.e. if they own at least 5% of all shares outstanding since limited liability companies are not allowed to use listed options(see above).
However, when doing so, they must disclose how many shares are transferred in this way with the market – even if it means disclosing information that is usually meant for senior employees.
This is because otherwise, it might be challenging to follow what’s going on, given that you won’t know whether minor changes in the price of one share are false or not since there is no information about the value being traded regularly between different people.
Lastly, remember that if an option contract is transferred to another person before the agreed date, then the staff member who originally had rights to these stocks will have to pay total taxes on them as if he had sold the entire fund – even if all his right entitles him to use these assets until being allowed to use them on the date initially agreed upon with the company.