SHARE BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

SHARE BASED COMPENSATION

8. SHARE BASED COMPENSATION

In accordance with ASC 718, Stock Compensation (“ASC 718”), the Company recognizes all share-based payments to employees, including grants of employee stock options, in the Condensed Consolidated Statements of Operations and Comprehensive Income based on their fair values.

ASC 718 requires measurement of share-based payment arrangements at fair value and recognition of compensation cost over the service period, net of estimated forfeitures. The fair values of restricted stock units and restricted stock awards are determined based on the number of units and awards granted and the grant date fair value of GAIN Capital Holdings, Inc.’s Common Stock.

The number of stock options and restricted stock expected to vest is determined by applying the pre-vesting forfeiture rate assumptions to total outstanding stock options and restricted stock.

Total share-based compensation expense for the periods indicated is summarized in the following table (amounts in thousands):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2012		2011		2012		2011
Stock options	$	193	$	221	$	576	$	638
Restricted stock units/restricted stock awards		493		709		1,996		2,635
Employee stock purchase plan		11		14		51		64
	$	697	$	944	$	2,623	$	3,337

During the nine months ended September 30, 2012, grants of 0.6 million shares of restricted stock and approximately 0.3 million options to purchase Common Stock, valued at $3.1 million and $0.7 million, respectively, were made to employees and non-employee members of the Company’s Board of Directors.

We determine the fair value of our stock option awards at the date of grant using a Black-Scholes valuation model. This model requires us to make assumptions and judgments on the expected volatility, dividend yield, the risk-free interest rate and the expected term of the stock options. We utilized the following assumptions for stock options granted:

	For the Nine Months Ended September 30, 2012
Valuation Assumptions
Risk-free rate	0.9%
Expected volatility	48.5%
Expected term (years)	4.75
Dividend yield	—

The following table summarizes the stock option activity under all plans from January 1, 2012 through September 30, 2012:

	Stock Options
Outstanding at January 1, 2012		4,442,694
Granted		333,000
Exercised		(999,292	)
Forfeited		(92,722	)
Outstanding at September 30, 2012		3,683,680

The table below summarizes the activity in the Company’s outstanding restricted stock units and restricted stock awards during the nine months ended September 30, 2012:

	Restricted Stock
	Units (1)			Awards
Outstanding at January 1, 2012		1,671,962			317,092
Granted		590,889			—
Delivered		(114,213	)		(104,912	)
Forfeited		(25,763	)		(12,667	)
Outstanding at September 30, 2012		2,122,875			199,513

⁽¹⁾  The outstanding restricted stock units include approximately $1.5 million restricted stock units which are vested, but the underlying shares of stock have not yet been delivered. Delivery of the underlying shares of stock for these vested units will occur on the earlier of December 31, 2014 or the date on which the employee ceases to be employed by, or provide services to, the Company, unless the employee elected optional early delivery. There is one remaining optional early delivery date in 2013.