Rule 144 Holding Periods Shorten

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Rule 144 Holding Periods Shortened


Summary


On November 15, 2007, the SEC (Securities and Exchange Commission) voted unanimously to reduce the holding period for selling restricted and control securities from twelve to six months. This significant change, effective February 15, 2008, aims to make capital more accessible, particularly benefiting smaller companies by lowering costs.

Understanding Restricted and Control Securities


Restricted securities are stock certificates that demonstrate ownership of stocks issued through unregistered or private sales, often to investors or as employee benefits. Control securities are typically held by affiliates who can influence the company. Once control securities are sold, they become restricted for the buyer. These securities usually have a "restricted" legend, which must be removed in compliance with Rule 144 before they can be sold publicly.

What is Rule 144?


Rule 144, established under the Securities Act of 1933, outlines the conditions for selling restricted securities. The key requirements include:

1. Holding Period: The required holding period is now six months.
2. Current Information: The issuing company must provide up-to-date information and fulfill reporting requirements.
3. Trading Volume: No more than 1% of the company’s outstanding shares may be sold in any three-month period, and it must be less than 1% of the company’s average monthly trading volume.
4. Routine Trading Conditions: Common trading conditions must be met.
5. Form 144: This form must be filed with the SEC if selling over 500 shares or shares worth more than $10,000 within three months.

Restricted securities can also be sold freely after two years if the seller is not affiliated with the issuer.

Impact of the Changes


The revised holding period aims to aid smaller companies in accessing capital more efficiently. According to John W. White, Director of the SEC’s Division of Corporate Finance, these revisions will streamline access to private markets for companies of all sizes. Future updates to Rule 144 are also expected to further facilitate capital formation for smaller enterprises.

Overall, these updates help to modernize Rule 144 for today’s market demands.

You can find the original non-AI version of this article here: Rule 144 Holding Periods Shorten.

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