Stock Swap Law and Legal Definition

A stock swap describes the situation where an executive uses already-owned stock, instead of paying cash, to exercise a stock option.It is a method of exercising stock options where shares that the holder already owns are used to buy new shares at the exercise price.

The term also refers to a business acquisition in which the acquiring company uses its own stock to pay for the acquired company. Each shareholder of the newly acquired company receives a certain number of shares of the acquiring company's stock for each share of stock they previously held in the acquired company. Sometimes some shareholders are required to wait for a defined period of time before they are allowed to sell their new shares of stock.