SEC Form 144: Comprehensive Guide, Filing Requirements, and Example

August 24, 2024 3 min read Finance Stock Markets SEC Form 144 Securities SEC Regulations Stock Selling Rules Finance Compliance

Detailed examination of SEC Form 144, including its definition, filing rules, real-world example, and special considerations when selling restricted or control securities.

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SEC Form 144 is a crucial document filed with the Securities and Exchange Commission (SEC) when placing an order to sell restricted, unregistered, and control securities. This form provides notice of the proposed sale and is essential for ensuring compliance with SEC Rule 144, which outlines the conditions under which these securities may be sold.

Key Filing Requirements

Conditions for Filing

SEC Form 144 must be filed under the following circumstances:

Sale of Control Securities: When an affiliate of the issuing company (such as an executive, director, or large shareholder) plans to sell shares.
Volume Restrictions: The sale must not exceed a specified volume limit, generally the greater of 1% of the outstanding shares or the average weekly trading volume over the past four weeks.
Holding Period: Restricted securities must generally be held for at least six months if the issuer complies with reporting requirements.

Filing Process

Preparation: Complete SEC Form 144 with details about the proposed sale, including the number of shares, selling price, and broker information.
Submission: File the form electronically through the SEC’s EDGAR system or submit paper forms to the SEC.
Timing: The form must be filed concurrently with placing the order to sell the securities, and it remains effective for 90 days.

Real-World Example

Consider an executive at XYZ Corporation holding 15,000 shares of restricted stock. They decide to sell 5,000 shares. Here’s how they would proceed:

Determine Eligibility: Ensure the shares have been held for the requisite period and that the sale volume is within allowed limits.
Prepare SEC Form 144: Include the executive’s details, information about XYZ Corporation, and specifics about the proposed sale.
Submit Form: File the form electronically via the EDGAR system concurrent with placing the sale order.

Historical Context

Rule 144 was established to regulate the resale of control and restricted securities, ensuring that insider trading laws are not violated and maintaining fair market practices. Introduced in 1972, the rule has undergone numerous amendments to adapt to changing market conditions and technological advancements in trading.

Applicability and Comparisons

Restricted Securities: Typically acquired in unregistered, private sales from the issuing company or affiliates.
Control Securities: Held by an affiliate of the issuing company, subject to volume restrictions regardless of how they were acquired.
SEC Rule 144: Governs the resale of control and restricted securities.

FAQs

What is the purpose of SEC Form 144?

The form notifies the SEC of a proposed sale of restricted or control securities, ensuring compliance with SEC regulations and transparency in the market.

How long must restricted securities be held before they can be sold?

Typically, restricted securities must be held for at least six months if the issuer is subject to reporting requirements. Otherwise, the holding period extends to one year.

Are there exemptions to filing SEC Form 144?

Yes, small sales involving fewer than 5,000 shares or amounts totaling less than $50,000 in any three-month period may be exempt from filing.

References

Securities and Exchange Commission. (n.d.). Rule 144: Selling Restricted and Control Securities. SEC.gov.

Summary

SEC Form 144 is an essential regulatory document for the sale of restricted and control securities, ensuring compliance and transparency in financial markets. Understanding the filing requirements, process, and historical context helps market participants navigate the complexities of selling these types of securities while adhering to SEC regulations.