Typically when a company adopts a new plan, it will initially plan to satisfy awards either:

1. •

   using newly issued shares, or

2. •

   using existing shares purchased in the market usually through the establishment and use of an employee benefit trust (EBT) which will acquire shares in the market or from individual shareholders in order to satisfy awards granted under the company’s share plans

This Practice Note considers the practice of share hedging for the purposes of an employee share plan and the main issues that must be addressed in order to manage the potential costs and the financial risks of share hedging.

In summary, a company must balance:

1. •

   the need to purchase sufficient (but preferably not surplus) shares in advance of the exercise of options/acquisition of shares by employees, and

2. •

   the need to reduce the costs of doing so by buying them when the share price is low