10.10.1. Rule 144
Rule 144 requires purchasers of restricted securities to hold them for a certain amount of time before they sell them. This is called the holding limit. If the issuer is a company that files reports to the SEC, the holding period is six months. If the issuer is a non-reporting company, the holding period is 12 months. Before selling restricted securities, the investor will need to get the restricted legend removed from the securities. This can only be done by a transfer agent, and it requires permission from the issuer.
Note: If restricted shares are subject to a stock split, or a stock dividend is issued, the new shares have the same holding period as the original shares. So if restricted shares with one month left in their holding period are split, the new shares are also restricted with one month left in their holding period.
Rule 144 also covers the sale of control securities. Control securities are securities held by an affiliate of the issuer (also called insiders or control persons). If a person purchases shares from an affiliate, the shares are considered restricted, even if they were not restricted in the affiliate’s hands, and therefore are subject to holding limits.
When an affiliate wants to sell control securities that were purchased on the open market and therefore are not restricted securities, they are subject to trading volume limits. Over a 90-day period, the affiliate may sell no more than the greater of:
• 1% of the issuer’s outstanding shares
or
• The company’s average weekly trading volume of the securities during the four weeks preceding the sale
If the sale is more than 5,000 shares or $50,000 within 90 days, the affiliate must file a notice of proposed sale with the SEC on Form 144. This will become public information.
If an affiliate is selling control securities that are also restricted securities, the affiliate is subject to both holding period restrictions and volume tradin