Merrill Lynch Sets New Rule on Options

Merrill Lynch & Co. on Wednesday said it would require all equity research analysts to include options and other stock-based compensation in their earnings forecasts.

The changes, which affect more than 1,000 companies, are intended to reflect a controversial new accounting rule that requires public companies to treat stock options as routine business expenses, such as salaries.

“Merrill is anticipating there may be very large changes in earnings per share for many companies,” said April Klein, an associate professor at New York University’s Stern School of Business. “Not only do I expect other Wall Street brokerages to follow, but I expect them at least for a while to be restating some companies’ old financial results.”

Many technology companies, including Cisco Systems Inc., opposed the new rule, fearing that it might increase stated operating costs and reduce profits.

But the Financial Accounting Standards Board and Securities and Exchange Commission backed the change, and some companies such as retailing giant Wal-Mart Stores Inc. began implementing it before the deadline.