Defining Issues | January 2021

 

Insight

SEC proposes amendments to Rule 144 and Form 144

Proposals would amend the holding period for market-adjustable securities and simplify filing requirements.

To mitigate the risk of unregistered distributions in connection with the sales of market-adjustable securities, the SEC has proposed an amendment to revise the holding period determination for securities acquired upon conversion or exchange of certain market-adjustable securities resulting from a Rule 144 offering. The SEC has also proposed an amendment to update and simplify the Form 144 filing requirements. 

Applicability

SEC Release Nos. 33-10911; 34-90773; File No. S7-24-20

  • Holders of market-adjustable securities of an issuer that does not have a class of securities listed or approved to be listed on a national securities exchange (‘unlisted issuers’).

Relevant dates

  • Comment period –  60 days following publication in the Federal Register

Key impacts

Rule 144 stipulates guidelines for selling restricted, unregistered and control securities, and provides objective criteria for security holders to be assured they are not deemed to be engaged in the distribution of securities and are not considered an underwriter.

Rule 144 holding period

Under Rule 144 a selling security holder must hold the acquired securities for a specified period of time before selling those securities on the open market.

  • Securities acquired from a reporting issuer must be held for six months.
  • Securities acquired from issuers that are not subject to Exchange Act requirements must be held for a minimum of one year.
  • Rule 144 also contains ‘tacking’ provisions, allowing security holders to count other holding periods to satisfy their holding period requirement. These other holding periods may include the holding period of prior owners or the holding periods of different securities owned by the holders.

Proposed amendment to the Rule 144 holding period for market-adjustable securities

Market-adjustable securities transactions subject to this proposed amendment include:

  • Newly acquired securities that, at the time of conversion or exchange, do not have a class of securities listed, or approved for listing, on a national securities exchange pursuant to the Exchange Act; and
  • Securities that contain terms, such as conversion rate or price adjustments, that offset market declines occurring before conversion or exchange (other than terms that adjust for stock splits, dividends or other issuer-initiated changes in its capitalization).

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. 

Existing Rule 144 filing requirements

  • Form 144 must be filed with the SEC when intending to resell restricted or control securities.
  • This form is required for transactions in any three-month period that exceed either 5,000 shares or have an aggregate sales price in excess of $50,000. 

Proposed amendment to the Rule 144 filing requirements

The proposed amendment to Rule 144 would:

  • Mandate the electronic filing of Form 144 and amend the associated filing deadline to align with that of Form 4.
  • Eliminate the requirement to send a Form 144 notice to the principal exchange on which the restricted shares traded.
  • Eliminate certain fields that are required within the form. 

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