SEC Rule 144: Restricted and Control Stock Explained
SEC Rule 144 is a safe harbor that lets holders resell restricted and control securities without registration. Restricted stock generally needs a six-month holding period for reporting issuers or one year otherwise, while control-stock sales by affiliates are limited by volume and filed on Form 144.
Restricted versus control securities
Restricted securities are acquired in unregistered private transactions. Control securities are held by affiliates such as officers, directors, and 10% owners, even if the shares were bought on the open market.
Holding period
Restricted stock must be held for six months if the issuer is an SEC reporting company current in its filings, or one year if not. Control stock has no holding period requirement unless it is also restricted.
Volume limit and filing for affiliates
In any three-month period an affiliate may sell the greater of 1% of the shares outstanding or the average weekly trading volume over the four weeks before filing. Form 144 is required when the sale exceeds 5,000 shares or $50,000 in a three-month period.
Frequently asked questions
What is SEC Rule 144?
SEC Rule 144 is a safe harbor that lets holders resell restricted and control securities without registration. Restricted stock generally needs a six-month holding period for reporting issuers or one year otherwise, while control-stock sales by affiliates are limited by volume and filed on Form 144.
How does SEC Rule 144 show up on the exam?
Affiliate status is what triggers volume limits and Form 144, not the holding period. Non-affiliates are free of these after the holding period ends.
Practice this concept
Sources
- Securities Act of 1933, Rule 144 (17 CFR 230.144)
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