What is the Rule 144 for convertible securities?
One situation where Rule 144 permits tacking of the holding period involves convertible securities. Rule 144(d)(3)(ii) allows securities acquired solely in exchange for other securities of the same issuer to be deemed to have been acquired at the same time as the securities surrendered for conversion or exchange.
To satisfy the requirements of Rule 144, holders must, among other things, hold the securities for a specified period of time before resale — namely, six months for securities of reporting issuers and 12 months for other issuers.
The proposed amendment to Rule 144 would: Clarify that the holding period for securities acquired from the conversion of market-adjustable securities does not begin until the conversion occurs. Limit this holding period requirement to market-adjustable securities of unlisted issuers.
Rule 144 provides an exemption from registration requirements for the sale of securities through the public markets if a number of specific conditions are met. The regulation applies to all types of sellers, in addition to issuers of securities, underwriters, and dealers.
Notice of proposed sale requirement
All affiliates are required to file a Form 144, notifying the SEC if the sale of securities within any three-month period exceeds either 5,000 shares or a total dollar amount of $50,000.
As originally adopted, Rule 144 required a two-year holding period before a security holder could make Start Printed Page 5066 limited sales of restricted securities. Later changes to the rule established a separate three-year holding period for unlimited sales of restricted securities by non-affiliates of the issuer.
Rule 144 applies if you are: a non-affiliate shareholder who wants to sell their restricted securities. an affiliate of the issuing company who wants to sell their securities (whether they are restricted or "free trading") into the public market.
Basically, if you are an executive for the issuer or own a bunch of their stock, you're considered an insider (affiliate). Rule 144 regulates this type of stock and prevents insiders from selling significant amounts of their shares quickly. This part of Rule 144 is referred to as the “dribble” rule.
Rule 144 is one such exemption that allows for the sale of restricted and control securities without registration under specific conditions. The Rule 144 exemption isn't the only means by which you can sell these types of securities, but it's usually preferable to registering the securities with the SEC.
The seller must file a Form 144 with the SEC at the time the sell order is placed with the broker if the seller is an affiliate and intends to sell during any three-month period more than 5,000 shares or securities with a value in excess of $50,000.
Does Rule 144 apply to stock options?
The implications of SEC Rule 144 on Employee Stock Options
SEC Rule 144 governs the sale of restricted and control securities. If you work for a venture-backed startup company that has not yet gone public, you will be purchasing restricted stock when you exercise your stock options.
Rule 144 allows selling restricted and controlled securities to accredited and non-accredited investors. Rule 144A is more restrictive, as it permits sales solely to Qualified Institutional Buyers (QIBs) with at least $100 million in assets under management.
1 Rule 144 provides a safe harbor from registration for resales of “restricted” securities and resales of securities by an issuer's affiliates, frequently referred to as “control” securities. 2 Rule 145 establishes limitations on the resale of securities acquired by certain persons in business combination transactions.
How long is the Form 144 good for? For an affiliate of an issuing company, each Form 144 is good for three months from the filing date.
The deadline for a Form 144 is by 10 p.m. on the day the affiliate places their order to sell stock.
Form 144 includes a timeline. This form must be filed by the time the shares are put up for sale, and the sale must take place within 90 days of the filing of this form. If the shares are not sold within this time frame, a new Form 144 must be filed.
A key difference in the treatment of restricted and control securities under Rule 144 is the requirement of a holding period, which is applicable only to restricted securities under Rule 144(d).
A Form 144, which is filed when a director, executive or affiliate sells the relevant security, specifically requires disclosure that a transaction is pursuant to a Rule 10b5-1 plan. Investors may react less negatively to the disclosure of particular transactions if the establishment of a plan was initially disclosed.
Rule 701 is an exemption for the offer and sale of unregistered securities by the issuer company. The exemption that applies to sales of unregistered stock by the shareholder is Rule 144.
Rule 144 (effective April 15, 1972) is one of the most in- teresting and potentially far-reaching of the rules recently promulgated by the Securities and Exchange Commission.
Is Rule 144 a safe harbor?
An SEC rule that provides a safe harbor for resales of restricted securities and control securities. Rule 144 under the Securities Act establishes criteria for determining whether a person is engaged in a distribution of securities.
When does the holding period begin under Rule 144 or a cashless exercise of options or warrants? A. If the options or warrants were acquired from the issuer and have a cashless exercise, the underlying security shall be deemed to have been acquired at the same time as the options or warrants.
In general, restricted securities are acquired in a nonpublic transaction (private placement). Such securities are unregistered, can only be resold under certain conditions and usually bear a legend to that effect.
Before securities—like stocks, bonds, and notes—can be offered for sale to the public, they first must be registered with the Securities and Exchange Commission (SEC). Any stock that does not have an effective registration statement on file with the SEC is considered "unregistered."
A broker's representation letter and Form 144 are required only if you are an affiliate of the issuing company. If the shares are not owned by you as an individual (including joint tenants – JTWROS, both stockholders must sign), please write your title or capacity in which you are signing after your signature.
