|Rule 144 generally applies to corporate insiders and buyers of private placement securities that were not sold under SEC registration statement requirements. Corporate insiders are officers, directors, or anyone else owning more than 10% of the outstanding company securities. Shares either acquired through compensation arrangements or open market purchases is considered restricted for as long as the insider is affiliated with the company. For example, if a corporate officer purchases shares in his or her employer on the open market, then the officer must comply with Rule 144 when those shares are sold, even though the shares when purchased were not considered restricted. If, however, the buyer of restricted securities has no management or major ownership interests in the company, the restricted status of the securities expires over a period of time.
Under Rule 144, restricted securities may be sold to the public without full registration (the restriction lapses upon transfer of ownership) if the following conditions are met.
The most recent rule change of Feb 1997 reduced the holding periods by one year. For all the details, visit the SEC's page on this rule:
- The securities have been owned and fully paid for at least one year (there are special exceptions that we'll skip here).
- Current financial information must be made available to the buyer. Companies that file 10K and 10Q reports with the SEC satisfy this requirement.
- The seller must file Form 144, "Notice of Proposed Sale of Securities," with the SEC no later than the first day of the sale. The filing is effective for 90 days. If the seller wishes to extend the selling period or sell additional securities, a new form 144 is required.
- The sale of the securities may not be advertised and no additional commissions can be paid.
- If the securities were owned for between one and two years, the volume of securities sold is limited to the greater of 1% of all outstanding shares, or the average weekly trading volume for the proceeding four weeks. If the shares have been owned for two years or more, no volume restrictions apply to non-insiders. Insiders are always subject to volume restrictions.