Chapter 5 - SEC RULE 144 Flashcards
Eligible 144A debt securities are reported through ?
Eligible 144A debt securities are reported through TRACE.
Block positioners
A firm may purchase as dealer under one additional exception. Block positioners are firms defined under SEC Rule 3b-8 as firms that purchase long or sell short blocks of stock worth $200,000 or more. These firms may be treated as market makers for Rule 144 transactions.
Restricted securities
Restricted securities are those acquired through a Regulation D private placement or any means other than a registered public offering.
Can a firm currently registered as a market maker in the Rule 144 stock, purchase for its inventory ?
If a firm is currently registered as a market maker in the stock, the firm can purchase for its inventory.
This is an exception from the rule that firms may act in an agent capacity only in Rule 144 transactions
Rule 144 stock and call writing
Insiders are permitted, however, to write calls against a long stock position. On the other hand, a corporation cannot write calls against its own stock; for example,
stock held in its treasury. If exercised, the company must deliver shares, thereby increasing the number of shares outstanding. This would require shareholder approval.
In any 90-day period, under Rule 144 an investor in restricted securities may sell :
In any 90-day period, an investor may sell the greater of: ■ 1% of the total outstanding shares of the same class at the time of sale; or
■ the average weekly trading volume in the stock over the past four weeks on all national securities exchanges or as reported through Nasdaq. When computing volume limitations under Rule 144, Canadian exchanges are not to be taken into account. They are not deemed national securities exchanges.
Restricted stock held by an estate
Restricted stock held by an estate is exempt from both the holding period requirements and the volume limitations of Rule 144.
Restricted Stock (unregistered) held by an affiliate (insider)
- six-month hold
- volume limits thereafter
Control Stock (registered) held by an affiliate (insider)
- no hold
- volume limits always apply
Reporting of 144A transactions
Ordinarily, trades in NMS and OTC equity securities must be reported within 10 seconds; but last sale reports in restricted equity securities are made to FINRA’s OTC Reporting Facility (ORF) by participants on the same business day.
Rule 144 trasactions can be principal ?
False, all agency
Holding period for a deceased person - Rule 144
Restricted stock has a six-month holding period unless the holder is the estate of a deceased person.
Customer callbacks may be made to customers who expressed interest in the stock within ?
Customer callbacks may be made to customers who expressed interest in the stock within the past 10 business days.
What does Rule 144 regulate ?
Rule 144 regulate the sale of both control and restricted securities.
Report any trading of insider-owned securities to the SEC within….
Report any trading of insider-owned securities to the SEC within two business days of the transaction.
T/F - The SEC restricts broker-dealers from actively soliciting buyers for control shares ?
True - The SEC restricts broker-dealers from actively soliciting buyers for control shares
When required, Form 144 must be filed ?
When required, Form 144 must be filed no later than concurrently with the sale of the stock, and the filing is good for 90 days.
After the six-month holding period, what are the volume restrictions for affiliates vs non-affiliates ?
After the six-month holding period, affiliated persons remain subject to the volume restrictions for as long as they are affiliates. For unaffiliated investors, the stock may be sold completely unrestricted after the six-month holding period has been satisfied.
If the issuer is subject to the reporting requirements of the Exchange Act (e.g., 10Ks, 10Qs), its restricted securities may not be sold until
They have been held fully paid for a minimum of six months; otherwise the hold is one year. According to Rule 144, after holding restricted stock fully paid for six months, an affiliate may begin selling shares but is subject to the volume restriction rules.
De minimis filing
If the intended sale during any 90-day period for an affiliate is small, the filing requirement is waived. This is known as the de minimis filing threshold for affiliates. Sales in amounts not exceeding 5,000 shares or $50,000 in sale proceeds are permitted without filing Form 144.
Control securities
Control securities are those owned by people who are affiliated with the issuer, such as directors, officers, a spouse of an officer, or persons who own more than 10% of a company’s outstanding securities. Such persons are subject to volume limitations on the sale of these securities for if they are affiliated with the company.
QIBs trading
QIBs can trade unregistered securities with each other without concern for a holding period and volume restrictions. Rule 144A provides a limited exemption for secondary market trading of unregistered securities among QIBs only.
Requirement of non-affiliated seller
As previously mentioned, a nonaffiliated seller may sell privately placed securities to the public in unlimited amounts and without filing Form 144. However, following the six-month holding period and continuing for an additional six months, the seller must comply with the requirement that there be available adequate, current, public information about the issuer. This can be accomplished by verifying that the company is a reporting company that regularly files 10K and 10Q reports with the SEC.
If an insider profits from the sale of securities held for less than
If an insider profits from the sale of securities held for less than six months, these short-swing profits are required to be disgorged (returned) to the company.
Restricted Stock (unregistered) held by a non-affiliate (non-insider)
- six-month hold
- sell freely thereafter
- non-reporting co. then one-year hold
Can insiders enter short sales ? speculative option trades ?
Insiders defined under Rule 144 are not allowed to enter short sales in the securities of companies in which they are insiders. They also are restricted from participating in speculative options transactions.
Holding period on registered control stock
There is no holding period on registered control stock, but volume limits always apply.
QIB
A QIB is an institution (pension fund, investment company, insurance company, and so forth) with a securities portfolio valued at $100 million or more. Member firms are considered QIBs if they have a securities portfolio valued at a less restrictive $10 million or more. QIBs cannot be individuals, no matter how wealthy they may be.
Selling shares under Rule 144 effectively….
Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.
Rule 144A
Rule 144A provides a safe harbor for those investors known as qualified institution buyers (QIBs). Rule 144A allows nonregistered foreign and domestic securities to be traded among QIBs in the United States without holding period requirements.
Broker-dealer callbacks for Rule 144 stock may be made to those firms that expressed interest within the ?
Broker-dealer callbacks may be made to those firms that expressed interest within the past 60 calendar days.
