The Securities and Exchange Commission threw cold water yesterday on a plan being pushed by Cisco Systems to value employee stock options by selling similar securities to institutional investors. But the agency said other market-based approaches might work.

Christopher Cox, the new chairman of the commission, announced the conclusions of the staff but sought to encourage further private- sector efforts to value options. The effort has taken on new urgency since an accounting rule on the issue went into effect this year requiring companies to report the value of options granted to employees as an expense.

The commission's economists suggested two ways of using markets to value the options, but Donald Nicolaisen, the commission's chief accountant, said he doubted that those methods would be embraced quickly by any companies. Cisco said it would keep looking for such a plan, but a spokeswoman said the company would not comment on the plans suggested by the S.E.C.

One such plan would involve finding buyers who would, in effect, agree to accept the same returns that options holders as a group receive. Such investors would not have the ability to time when the options were exercised, and would suffer by having options forfeited, as some of the employees with options quit before they could exercise the options.

The other plan backed by the economists would essentially involve a company paying a third party to take on its risk of having to issue shares to employees who exercise options. That is unlikely to be embraced because it could be highly costly.

In a statement, Mr. Cox called the staff's conclusions "tentative and subject to ongoing assessment," and said the commission encouraged efforts to find the best ways to value options.

"Over time," he added, "as issuers and accountants gain more experience in valuing employee stock options for financial reporting purposes, particular approaches may begin to emerge as best practices, and the range of potential methodologies will likely narrow. For now, however, it is not our intention to narrow the field and to limit experimentation, but rather to welcome it."

At Cisco, Dennis Powell, the company's chief financial officer, said: "We are pleased that the S.E.C. is encouraging continued dialogue around potential ways of using a market instrument to value stock options. It is clear that a market-based approach would determine a real value as opposed to models that estimate theoretical value. We will continue an open dialogue and pursue an approach that will lead to an objective, market-based valuation."

The commission's Bureau of Economic Analysis rejected the idea of selling restricted options to institutional investors, as Cisco had proposed, and using their value to estimate the value of the options issued by the company.

It said that many of the restrictions, like barring an employee from transferring the option or hedging its value though trades in other securities, could affect their value to the employee but not the cost to the company issuing the options. And, it said, it is the company's cost that is supposed to be measured.

Applying such restrictions, the economists said, "to the design of a market instrument will not yield a transaction price that measures the cost of the option grant to the issuer and, this, will not meet the fair-value- measurement objective of the standard."

After more than a decade of fighting over whether to treat the value of stock options granted to employees as an expense, American companies are finally being forced to do so, with the new rule taking effect for fiscal years that began after June 15, 2005. Cisco, whose fiscal year ended July 31, will be among the first to face the rule.

Under the rule approved by the Financial Accounting Standards Board, companies have considerable discretion in using valuation formulas to estimate the value of the options when they are granted. But some companies have argued those formulas overstate the actual value of the options, and have looked for ways to reduce the value. The lower the value that is calculated, the higher reported earnings will be.

Cisco said in May that it was in talks with the S.E.C. over creating options that would come as close as possible to recreating employee options, including restrictions. It also proposed to offer the securities only to selected institutional investors, saying that would assure that those investors took the trouble to understand them.

Its approach drew criticism from some who suggested its aim was to minimize the reported value. "The Cisco proposal was an attempt to get around the F.A.S.B.'s rule, which requires the real fair value of these options be shown as an expense on the financial statements," said Lynn Turner, a former chief accountant of the S.E.C.

One idea the S.E.C. economists supported would work as follows:

If a company planned to issue 100 million options to employees, it could sell, perhaps, 10 million options to investors. Those options would be fully transferable, and presumably a market would develop. But they would pay off based on the actual performance of the options granted to employees. To the extent that employees forfeited options by changing jobs, they would be forfeited by the holders of the other securities as well. If employees exercised options, the other securities would be exercised as well.

The S.E.C. said that for such a plan to work, there would have to be full disclosure of the historic behavior of employees who received options in that company, and there would have to be a continuing market in the securities.

Whether any company would be willing to do that is not clear, Mr. Nicolaisen, the agency accountant, said in an interview.

But Mr. Nicolaisen, who this week announced plans to leave the commission in October, said he was optimistic that with or without such securities, the means to value options would improve in coming years, as analysts critique the assumptions used by companies.

"We're going to learn a lot as the stuff shows up," he said. "I am somewhat optimistic that the science around this will get tighter as well. The academic community is really interested."