Stock Market

Rule 144 Stock – What is it and What Conditions Does it Have

The Securities and Exchange Commission (SEC) allows for the public resale of both restricted and control securities under rule 144.

Restricted Securities

A restricted security any security obtained in a manner other than via a public offering. This could be through a Regulation D offering, other private offering, or employee stock plan. Restricted securities are marked as restricted with prevents one from trading them on the open market, without first registering them with the SEC or if they are exempt from registration.

Control Securities

A control security is one that is held by someone (an affiliate) of the issuing organization, that excerpts some type of control over the organization issuing the security. While control securities are not marked the same as restricted securities, the holder must still abide by the rule 144 conditions if they wish to sell their shares on a public exchange.

Rule 144 Conditions

There are five conditions that must be met to allow one to sell restricted or control securities under SEC rule 144. While there are other ways to sell restricted or control securities rule 144 provides what the SEC calls a “safe harbor” exception for the seller.

Holding Period

For a reporting company you must hold your restricted or control securities for a minimum of six months. For a non-reporting company you must hold your restricted or control securities for a minimum of one year.

Current Public Information

The SEC requires that “adequate current information about the issuing company” must be publically available. For a reporting company this is almost always the case, but for a non-reporting company this may pose a problem for the shareholder.

Trading Volume Formula

If you are an affiliate you are not allowed to trade in a volume greater than 1% of the total outstanding shares of the same class being offered within a three month period.

Ordinary Brokerage Transactions

The sale of the restricted or control stock must be handled by a broker who did not solicit order to buy said security.