Tax rule that requires stock options to be granted with an exercise price that is equal to the fair market value
of the underlying stock at the time of grant. Adherence to this requirement avoids the problems of discounted stock options
under IRC Section 409A
and complies with separate regulations specific to incentive stock options. For publicly traded companies, the FMV requirement is satisfied by using the stock's trading price on the date of grant. For privately held companies, the FMV rule requires a valuation of the company and its stock.