What Is the Rule 144 Date for Selling Securities?

Rule 144, established by the U.S. Securities and Exchange Commission (SEC), provides a structured pathway for investors to resell certain types of securities in the public market without needing to register them. This rule facilitates secondary market transactions and improves liquidity for specific investments. Its primary purpose is to ensure that unregistered distributions of securities do not occur, thereby helping to maintain the integrity and transparency of the securities markets.

Securities Covered by Rule 144

Rule 144 specifically addresses two distinct categories of securities: restricted securities and control securities. Understanding the difference between these types is fundamental to comprehending the rule’s application.

Restricted securities originate from unregistered, private sales made by the issuing company or an affiliate. Investors typically acquire these securities through private placement offerings, Regulation D offerings, or employee stock benefit plans. Their certificates often bear a restrictive legend indicating resale limitations.

Control securities are defined by who owns them rather than how they were acquired. These are any securities held by an “affiliate” of the issuing company. An affiliate is generally a person who directly or indirectly controls, is controlled by, or is under common control with, the issuer. This typically includes directors, executive officers, and significant shareholders who have the power to influence the company’s management.

Holding Period for Resale

A central component of Rule 144 is the holding period requirement, which directly impacts the earliest date securities can be resold. This period is designed to ensure that investors have held the securities long enough to demonstrate they assumed the investment risk. The holding period generally begins when the securities are fully paid for.

The length of the required holding period varies depending on whether the issuing company is subject to the SEC’s reporting requirements. For restricted securities issued by a “reporting company”—one that files periodic reports with the SEC under the Securities Exchange Act of 1934—a minimum six-month holding period is mandated. If the issuer is a “non-reporting company,” restricted securities must be held for at least one year.

The holding period requirements apply primarily to restricted securities. While control securities do not have a specific holding period, affiliates are still subject to other Rule 144 conditions when selling these shares. In certain situations, known as “tacking,” a new holder of restricted securities may be able to add the holding period of a previous non-affiliate owner to their own. This can occur in specific transfers, such as gifts or pledges.

Additional Conditions for Selling

Beyond the holding period, several other conditions under Rule 144 must be satisfied at or around the time of sale. These requirements ensure market transparency and prevent disruptive sales practices.

One such condition is the availability of current public information about the issuer. Adequate current public information must be available at the time of each sale. For reporting companies, this generally means they must be current in their periodic SEC filings. Non-reporting companies must make certain information publicly available, including details about their business, officers, directors, and financial statements.

Affiliates also face volume limitations on the amount of securities they can sell within a specified timeframe. In any three-month period, the amount of equity securities sold cannot exceed the greater of 1% of the outstanding shares of the same class or the average reported weekly trading volume during the four calendar weeks preceding the filing of a notice of sale on Form 144. For over-the-counter stocks, only the 1% measurement applies. These limits prevent large, potentially market-disrupting sales by insiders.

The manner of sale is another condition for affiliates. Sales must generally be made in “brokers’ transactions” or directly with a market maker, without the solicitation of buy orders. This ensures that the sale occurs in an orderly fashion through established market channels.

Finally, a Notice of Proposed Sale of Securities, known as Form 144, may need to be filed with the SEC. This form is required for affiliates if the sale involves more than 5,000 shares or has an aggregate sales price greater than $50,000 within any three-month period. Form 144 must be filed at the time the sell order is placed with a broker-dealer, and the sale must occur within 90 days of the filing. Non-affiliates, after holding restricted securities for a longer period (typically one year for reporting companies, or longer for non-reporting, provided they haven’t been an affiliate for at least three months), can often sell without these volume limits, manner of sale requirements, or the need to file Form 144.