The SEC Releases Proposed Amendments to Rule 144.

2024-09-27 01:09:38

The U.S. Securities and Exchange Commission (SEC) has recently proposed amendments ("Proposed Amendments") to Rule 144 under the Securities Act of 1933 ("Securities Act"). Among these, the Proposed Amendments modify the commencement of the holding period for certain types of convertible securities ("marketable-adjustable securities"). Rule 144 of the Securities Act provides a safe harbor, allowing the public resale of securities without registration under the Securities Act if certain objective criteria are met. The holding period is one of these objective criteria, requiring the holder to have held the securities for a specified period before resale. To satisfy the holding period requirement of Rule 144, in some cases, the holder is allowed to calculate the holding period from the holding period of a previous owner of the same securities or from the holding period of other securities they own.

According to the Proposed Amendments, the holding period for certain types of convertible securities ("marketable-adjustable securities") of unlisted companies will not begin until after the conversion or exchange of such securities. This means that before reselling under Rule 144, the purchaser must hold such securities for the applicable Rule 144 holding period.

It is noteworthy that the Proposed Amendments do not apply to most convertible or variable rate securities transactions under Rule 144. The proposed rule applies only to transactions involving certain types of convertible securities ("marketable-adjustable securities"), specifically (1) newly acquired securities purchased from the issuer, where the issuer has not issued securities on a national securities exchange at the time of conversion or exchange; and (2) convertible securities containing terms such as conversion rate or price adjustments (excluding stock splits, dividends, other issuer-initiated capital changes, or other anti-dilution adjustment provisions) that may partially or fully offset a decline in the market value of the underlying securities before conversion or exchange.

The Proposed Amendments also stipulate:
• The requirement to file Form 144 electronically for the resale of securities issued by companies subject to the reporting requirements of the Securities Exchange Act;
• The elimination of the filing requirement for Form 144 related to the resale of securities issued by companies not subject to the reporting requirements of the Securities Exchange Act;
• The extension of the filing deadline for all Form 144 submissions to align with the deadline for Form 4 (i.e., within two business days); and
• The modification of Form 4 and Form 5 to add an optional checkbox where filers can indicate that the transaction was conducted under Rule 10b5-1.

The public comment period for the Proposed Amendments lasts for 60 days following their release.