71546 Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Rules and Regulations 

1 17 CFR 230.144. 

2 17 CFR 230.145. 

3 17 CFR 230.190. 

4 17 CFR 230.701. 

5 17 CFR 230.903. 

6 17 CFR 239.144. 

7 15 U.S.C. 77a et seq. 

8See 15 U.S.C. 77e. 

9 15 U.S.C. 77d(1). 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230 and 239 

[Release No. 33–8869; File No. S7–11–07] 

RIN 3235–AH13 

Revisions to Rules 144 and 145 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: Rule 144 under the Securities 

Act of 1933 creates a safe harbor for the 

sale of securities under the exemption 

set forth in Section 4(1) of the Securities 

Act. We are shortening the holding 

period requirement under Rule 144 for 

‘‘restricted securities’’ of issuers that are 

subject to the reporting requirements of 

the Securities Exchange Act of 1934 to 

six months. Restricted securities of 

issuers that are not subject to the 

Exchange Act reporting requirements 

will continue to be subject to a one-year 

holding period prior to any public 

resale. The amendments also 

substantially reduce the restrictions 

applicable to the resale of securities by 

non-affiliates. In addition, the 

amendments simplify the Preliminary 

Note to Rule 144, amend the manner of 

sale requirements and eliminate them 

with respect to debt securities, amend 

the volume limitations for debt 

securities, increase the Form 144 filing 

thresholds, and codify several staff 

interpretive positions that relate to Rule 

144. Finally, we are eliminating the 

presumptive underwriter provision in 

Securities Act Rule 145, except for 

transactions involving a shell company, 

and revising the resale requirements in 

Rule 145(d). We believe that the 

amendments will increase the liquidity 

of privately sold securities and decrease 

the cost of capital for all issuers without 

compromising investor protection. 

DATES: Effective Date: February 15, 

2008. The revised holding periods and 

other amendments that we are adopting 

are applicable to securities acquired 

before or after February 15, 2008. 

Comment Date: Comments regarding the 

collection of information requirements 

within the meaning of the Paperwork 

Reduction Act of 1995 should be 

received on or before January 16, 2008. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/final.shtml); 

• Send an e-mail to rulecomments@sec.gov. Please include File 

No. S7–11–07 on the subject line; or 

• Use the Federal Rulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–11–07. This file number 

should be included on the subject line 

if e-mail is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/final.shtml). 

Comments are also available for public 

inspection and copying in the 

Commission’s Public Reference Room, 

100 F Street, NE., Washington, DC 

20549. All comments received will be 

posted without change; we do not edit 

personal identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Katherine Hsu or Raymond A. Be, 

Special Counsels in the Office of 

Rulemaking, Division of Corporation 

Finance, at (202) 551–3430, 100 F 

Street, NE., Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

Commission is adopting amendments to 

Rule 144,1 Rule 145,2 Rule 190,3 Rule 

701,4 Rule 903,5 and Form 144 6 under 

the Securities Act of 1933.7

Table of Contents 

I. Background 

II. Discussion of Final Amendments 

A. Simplification of the Preliminary Note 

and Text of Rule 144 

B. Amendments to Holding Periods for 

Restricted Securities 

1. Six-Month Rule 144(d) Holding Period 

Requirement for Exchange Act Reporting 

Companies 

2. Significant Reduction of Conditions 

Applicable to Non-Affiliates 

3. Tolling Provision 

C. Amendments to the Manner of Sale 

Requirements Applicable to Resales by 

Affiliates 

D. Changes to Rule 144 Conditions Related 

to Resales of Debt Securities by Affiliates 

1. Comments Received on Proposed 

Amendments Relating to Debt Securities 

2. No Manner of Sale Requirements 

Regarding Resales of Debt Securities 

3. Raising Volume Limitations for Debt 

Securities 

E. Increase of the Thresholds that Trigger 

the Form 144 Filing Requirement for 

Affiliates 

F. Codification of Several Staff Positions 

1. Securities Acquired Under Section 4(6) 

of the Securities Act Are Considered 

‘‘Restricted Securities’ 

2. Tacking of Holding Periods When a 

Company Reorganizes Into a Holding 

Company Structure 

3. Tacking of Holding Periods for 

Conversions and Exchanges of Securities 

4. Cashless Exercise of Options and 

Warrants 

5. Aggregation of Pledged Securities 

6. Treatment of Securities Issued by 

‘‘Reporting and Non-Reporting Shell 

Companies’’ 

7. Representations Required From Security 

Holders Relying on Exchange Act Rule 

10b5–1(c) 

G. Amendments to Rule 145 

H. Conforming and Other Amendments 

1. Regulation S Distribution Compliance 

Period for Category Three Issuers 

2. Underlying Securities in Asset-Backed 

Securities Transactions 

3. Securities Act Rule 701(g)(3) 

III. Paperwork Reduction Act 

A. Background 

B. Summary of Amendments 

C. Revised Burden Estimates 

D. Solicitation of Comments 

IV. Cost-Benefit Analysis 

A. Background 

B. Description of Amendments 

C. Benefits 

D. Costs 

V. Promotion of Efficiency, Competition and 

Capital Formation 

VI. Final Regulatory Flexibility Analysis 

A. Reasons for, and Objectives of, the 

Amendments 

B. Significant Issues Raised by Comments 

C. Small Entities Subject to the Rule 

D. Reporting, Recordkeeping and Other 

Compliance Requirements 

E. Agency Action To Minimize Effect on 

Small Entities 

VII. Statutory Basis and Text of Amendments 

I. Background 

The Securities Act of 1933 

(‘‘Securities Act’’) requires registration 

of all offers and sales of securities in 

interstate commerce or by use of the 

U.S. mails, unless an exemption from 

the registration requirement is 

available.8 Section 4(1) of the Securities 

Act provides such an exemption for 

transactions by any person other than an 

issuer, underwriter or dealer.9

The definition of the term 

‘‘underwriter’’ is key to the operation of 

the Section 4(1) exemption. Section 

2(a)(11) of the Securities Act defines an 


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Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Rules and Regulations 71547 

10 15 U.S.C. 77b(a)(11). Section 2(a)(11) states that 

the term ‘‘issuer’’ shall include, in addition to an 

issuer, any person directly or indirectly controlling 

or controlled by the issuer, or any person under 

direct or indirect common control with the issuer. 

Therefore, any person who purchased securities 

from an affiliate of an issuer is an underwriter 

under Section 2(a)(11) if that person purchased 

with a view to the distribution of the securities. 

11Release No. 33–5223 (Jan. 11, 1972) [37 FR 

591]. 

12 17 CFR 230.144(a)(3). 

13An affiliate of the issuer is a person that 

directly, or indirectly through one or more 

intermediaries, controls, or is controlled by, or is 

under common control with, such issuer. See 17 

CFR 230.144(a)(1). 

14See, e.g., Release No. 33–7391 (Feb. 20, 1997) 

[62 FR 9246]. 

15See Release No. 33–7390 (Feb. 20, 1997) [62 FR 

9242] (‘‘the 1997 Adopting Release’’). 

16We shortened the holding period requirements 

in paragraphs (d) and (k) of Rule 144. 

17See the 1997 Proposing Release. In the 1997 

Proposing Release, we proposed to (1) revise the 

Preliminary Note to Rule 144 to restate the intent 

and effect of the rule, (2) add a bright-line test to 

the Rule 144 definition of ‘‘affiliate,’’ (3) eliminate 

the Rule 144 manner of sale requirements, (4) 

increase the Form 144 filing thresholds, (5) include 

in the definition of ‘‘restricted securities’’ securities 

issued pursuant to the Securities Act Section 4(6) 

exemption, (6) clarify the holding period 

determination for securities acquired in certain 

exchanges with the issuer and in holding company 

formations, (7) streamline and simplify several Rule 

144 provisions, and (8) eliminate the presumptive 

underwriter provisions of Rule 145. We also 

solicited comment on (1) further revisions to the 

Rule 144 holding periods, (2) elimination of the 

trading volume tests to determine the amount of 

securities that can be resold under Rule 144, and 

(3) several possible regulatory approaches with 

respect to certain hedging activities. 

18 17 CFR 230.144(c). 

19 17 CFR 230.144(d). 

20 17 CFR 230.144(e). 

21 17 CFR 230.144(f) and (g). 

22 17 CFR 230.144(h). 

23This provision was previously located in Rule 

144(k). 

24Release No. 33–8813 (June 22, 2007) [72 FR 

36822] (Jul. 5, 2007). 

25 15 U.S.C. 78a et seq. 

26 17 CFR 249.104. 

27 15 U.S.C. 78p. 

underwriter as ‘‘any person who has 

purchased from an issuer with a view 

to, or offers or sells for an issuer in 

connection with, the distribution of any 

security, or participates or has a direct 

or indirect participation in any such 

undertaking.’’ 10 The Securities Act does 

not, however, provide specific criteria 

for determining when a person 

purchases securities ‘‘with a view to 

* * * the distribution’’ of those 

securities. In 1972, the Commission 

adopted Rule 144 to provide a safe 

harbor from this definition of 

‘‘underwriter’’ to assist security holders 

in determining whether the Section 4(1) 

exemption is available for their resale of 

securities.11

Rule 144 regulates the resale of two 

categories of securities—restricted 

securities and control securities. 

Restricted securities are securities 

acquired pursuant to one of the 

transactions listed in Rule 144(a)(3).12

Although it is not a term defined in Rule 

144, ‘‘control securities’’ is used 

commonly to refer to securities held by 

an affiliate of the issuer,13 regardless of 

how the affiliate acquired the 

securities.14 Therefore, if an affiliate 

acquires securities in a transaction that 

is listed in Rule 144(a)(3), those 

securities are both restricted securities 

and control securities. A person selling 

restricted securities, or a person selling 

restricted or other securities on behalf of 

the account of an affiliate, who satisfies 

all of Rule 144’s applicable conditions 

in connection with the transaction, is 

deemed not to be an ‘‘underwriter,’’ as 

defined in Section 2(a)(11) of the 

Securities Act, and therefore may rely 

on the Section 4(1) exemption for the 

resale of the securities. 

Since its adoption, we have reviewed 

and revised Rule 144 several times. We 

last made major changes in 1997 (‘‘1997 

amendments’’).15 At that time, we 

shortened the required holding periods 

for restricted securities.16 Before the 

1997 amendments, security holders 

could resell restricted securities under 

Rule 144, subject to limitation, after two 

years, and persons who were not 

affiliates and had not been affiliates 

during the prior three months, could 

resell restricted securities without 

limitation after three years. The 1997 

amendments changed these two-year 

and three-year periods to one-year and 

two-year periods, respectively. 

On the same day that we adopted 

those changes, we also proposed and 

solicited comment on several possible 

additional changes to Rule 144, Rule 

145 and Form 144, including reducing 

the holding period further (‘‘1997 

Proposing Release’’ and ‘‘1997 

proposals’’).17 We received 38 comment 

letters on those proposed changes. 

While some commenters supported 

further shortening the holding periods, 

others suggested that we monitor the 

results of the 1997 amendments before 

making further changes. We did not take 

further action to adopt the 1997 

proposals. 

Rule 144 states that a selling security 

holder shall be deemed not to be 

engaged in a distribution of securities, 

and therefore not an underwriter, with 

respect to such securities, thus making 

available the Section 4(1) exemption 

from registration, if the resale satisfies 

specified conditions. The conditions 

include the following: 

• There must be adequate current 

public information available about the 

issuer;18

• If the securities being sold are 

restricted securities, the security holder 

must have held the security for a 

specified holding period;19

• The resale must be within specified 

sales volume limitations;20

• The resale must comply with the 

manner of sale requirements;21 and 

• The selling security holder must file 

Form 144 if the amount of securities 

being sold exceeds specified 

thresholds.22

Rule 144, as it existed before today’s 

amendments, permitted a non-affiliate 

to publicly resell restricted securities 

without being subject to the above 

limitations if the securities had been 

held for two years or more, provided 

that the security holder was not, and, for 

the three months prior to the sale, had 

not been, an affiliate of the issuer.23

On July 5, 2007, we again proposed to 

amend several aspects of Rule 144 and 

Rule 145, including by further 

shortening the holding periods (the 

‘‘2007 Proposing Release’’).24 We 

proposed to shorten the holding period 

requirement in Rule 144(d) for restricted 

securities of issuers that are subject to 

the reporting requirements of Section 13 

or 15(d) of the Securities Exchange Act 

of 1934 (the ‘‘Exchange Act’’)25 to six 

months. Restricted securities of issuers 

that are not subject to Exchange Act 

reporting requirements would continue 

to be subject to a one-year holding 

period under Rule 144(d). We also 

proposed to relieve non-affiliates of 

reporting issuers from having to comply 

with all conditions in Rule 144, except 

the current public information 

requirement, after a six-month holding 

period. Non-affiliates of non-reporting 

issuers would be allowed to resell their 

securities freely after a one-year holding 

period. In addition, we proposed to: 

• Simplify the Preliminary Note to 

Rule 144 and text of Rule 144; 

• Toll the holding period during the 

time that security holders engage in 

certain hedging transactions; 

• Eliminate the ‘‘manner of sale’’

requirements with respect to the resale 

of debt securities; 

• Increase the thresholds triggering 

the requirement to file Form 144; and 

• Codify several staff positions 

relating to Rule 144. 

We also solicited comment on 

amending the Form 144 filing deadline 

to coincide with the deadline for filing 

a Form 4 26 under Section 16 27 of the 

Exchange Act and permitting persons 

who are subject to Section 16 to meet 

their Form 144 filing requirement by 


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71548 Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Rules and Regulations 

28Section 16 applies to every person who is the 

beneficial owner of more than 10% of any class of 

equity securities registered under Section 12 of the 

Exchange Act, and each officer and director 

(collectively, ‘‘reporting persons’’ or ‘‘insiders’’) of 

the issuer of such security. Section 16(a) of the 

Exchange Act generally requires reporting persons 

to report changes in their beneficial ownership of 

all equity securities of the issuer on Form 4 before 

the end of the second business day following the 

day on which the transaction that caused the 

change in beneficial ownership was executed. 

29The comment letters on the 2007 Proposing 

Release are available on the Commission’s public 

Web site at http://www.sec.gov/comments/s7–11– 

07/s71107.shtml. 

30See, e.g., comment letters on the 2007 

Proposing Release from Jesse Brill (dated Aug. 1, 

2007) (‘‘Brill 1’’); Cleary Gottlieb Steen & Hamilton 

LLP (‘‘Cleary Gottlieb’’); Feldman Weinstein and 

Smith LLP (‘‘Feldman’’); Fried, Frank, Harris, 

Shriver, and Jacobsen LLP (‘‘Fried Frank’’); Barry 

Gleicher (‘‘Gleicher’’); Krieger & Prager, LLP 

(‘‘Krieger’’); U.S. Securities Lawyers in London 

(‘‘London Forum’’); Parsons/Burnett LLP 

(‘‘Parsons’’); Pink Sheets, LLC (‘‘Pink Sheets’’); 

Richardson Patel LLP (‘‘Richardson Patel’’); Roth 

Capital Partners (‘‘Roth’’); Society of Corporate 

Secretaries & Governance Professionals (‘‘SCSGP’’); 

Sichenzia Ross Friedman Ference LLP 

(‘‘Sichenzia’’); Sullivan & Cromwell LLP 

(‘‘Sullivan’’); Peter J. Weisman (‘‘Weisman’’); and 

Williams Securities Law (‘‘Williams’’); and a joint 

letter from the Securities Industry and Financial 

Markets Association, International Swaps and 

Derivatives Association, Inc. and Management 

Funds Association (‘‘Financial Associations’’). 

31See comment letters on the 2007 Proposing 

Release from the Committee on Federal Regulation 

of Securities of the American Bar Association 

(‘‘ABA’’); Feldman; Financial Associations; Fried 

Frank; London Forum; Richardson Patel; Roth; 

Sichenzia; SCSGP; Weisman; and Williams. 

32See comment letters on the 2007 Proposing 

Release from the North American Securities 

Administrators Association, Inc. (‘‘NASAA’’) and 

Marc I. Steinberg (‘‘Steinberg’’). 

33See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; Feldman; 

Financial Associations; Richardson Patel; 

Sichenzia; and Weisman. 

34See comment letter on the 2007 Proposing 

Release from ABA. 

35See comment letters on the 2007 Proposing 

Release from ABA; Bulldog Investors; and 

Sutherland Asbill & Brennan LLP (‘‘Sutherland’’). 

36We are moving the statements indicating that 

Rule 144 is a non-exclusive safe harbor from 

paragraph (j) of the rule, as it existed prior to the 

amendments, to the Preliminary Note. 

37Release No. 33–5223. In the original release 

adopting Rule 144, we stated: 

In view of the objectives and policies underlying 

the Act, the rule shall not be available to any 

individual or entity with respect to any transaction 

which, although in technical compliance with the 

provisions of the rule, is part of a plan by such 

individual or entity to distribute or redistribute 

securities to the public. In such case, registration is 

required. 

38Similar language can also be found in other 

rules such as in the Preliminary Note to Securities 

Act Rule 144A [17 CFR 230.144A]. 

39See the 1997 Adopting Release. 

40These other conditions included the 

availability of current public information, the 

volume of sale limitations, the manner of sale 

requirements, and the filing of Form 144. See 17 

CFR 230.144(c), (e), (f) and (h). 

filing a Form 4.28 Finally, we proposed 

to eliminate the presumptive 

underwriter provision in Securities Act 

Rule 145, except for transactions 

involving a shell company, and to 

harmonize the resale provisions in Rule 

145 with the Rule 144 provisions 

applicable to resales of securities of 

shell companies. 

We received 32 comment letters from 

30 commenters on the proposals in the 

2007 Proposing Release.29 A majority of 

the commenters expressed support for 

the proposals in general.30 Several of 

these commenters expressed support for 

the proposed amendments to shorten 

the holding period requirement in Rule 

144 for both affiliates and non-affiliates 

of Exchange Act reporting issuers.31

Two commenters opposed shortening 

the holding period, as proposed.32

Some commenters expressed 

opposition to the proposed 

reintroduction of a provision that would 

toll, or suspend, for up to six months, 

the holding period during any period 

that a security holder engages in 

hedging activities with respect to any 

equity securities of the same class as the 

restricted securities or any securities 

convertible into that class (or, in the 

case of nonconvertible debt, with 

respect to any nonconvertible debt 

securities).33 The commenters thought 

that the tolling provision could have a 

negative effect on capital raising 

transactions. These commenters 

provided several recommendations on 

how we should modify the tolling 

provision, if we decide to adopt it. We 

received general support for the other 

aspects of the proposed amendments, 

including the proposals relating to Form 

144, the elimination of the manner of 

sale requirements for debt securities and 

the codification of several staff 

interpretations. 

II. Discussion of Final Amendments 

A. Simplification of the Preliminary 

Note and Text of Rule 144 

In the 2007 Proposing Release, we 

noted that the current Preliminary Note 

is complex and may be confusing to 

some security holders. We proposed 

amendments to simplify and clarify the 

Preliminary Note to Rule 144 and to 

incorporate plain English principles. 

The proposed amendments to the 

Preliminary Note were not intended to 

alter the substantive operation of the 

rule. In addition, we proposed changes 

throughout the rule to make the rule less 

complex and easier to read. 

We received a few comments on the 

proposed changes to simplify Rule 144 

and the Preliminary Note. One 

commenter believed that the 

Preliminary Note to Rule 144 is no 

longer necessary, because the purpose 

and meaning of the rule are wellunderstood.34 Some commenters 

recommended that we further explain 

how Rule 144 can be used for the resale 

of control securities.35

We are adopting the amendments to 

the Preliminary Note with some 

modification from the proposed version. 

The revised Preliminary Note retains an 

explanation of the relationship among 

the exemption in Section 4(1) of the 

Securities Act, the Section 2(a)(11) 

definition of ‘‘underwriter’’ and the 

Rule 144 safe harbor. Consistent with 

the proposal, the revised Preliminary 

Note also clarifies that any person who 

sells restricted securities, and any 

person who sells restricted securities or 

other securities on behalf of an affiliate, 

shall be deemed not to be engaged in a 

distribution of such securities and 

therefore shall be deemed not to be an 

underwriter with respect to such 

securities if the sale in question is made 

in accordance with all the applicable 

provisions of the rule. The revised 

Preliminary Note further states that, 

although Rule 144 provides a safe 

harbor for establishing the availability of 

the Section 4(1) exemption, it is not the 

exclusive means for reselling restricted 

and control securities. Therefore, Rule 

144 does not eliminate or otherwise 

affect the availability of any other 

exemption for resales.36 Consistent with 

a statement that was included in the 

original Rule 144 adopting release,37 we 

are adding a statement to the 

Preliminary Note that the Rule 144 safe 

harbor is not available with respect to 

any transaction or series of transactions 

that, although in technical compliance 

with the rule, is part of a plan or scheme 

to evade the registration requirements of 

the Securities Act.38 We also are 

adopting plain English changes 

throughout the rule text substantially as 

proposed. 

B. Amendments to Holding Periods for 

Restricted Securities 

1. Six-Month Rule 144(d) Holding 

Period Requirement for Exchange Act 

Reporting Companies 

As stated above, in 1997, we reduced 

the Rule 144 holding periods for 

restricted securities for both affiliates 

and non-affiliates.39 Before the 1997 

amendments, security holders could sell 

limited amounts of restricted securities 

after holding those securities for two 

years if they satisfied all other 

conditions imposed by Rule 144.40

Under Rule 144(k), non-affiliates could 

sell restricted securities without being 

subject to any of the conditions in Rule 

144 after holding their securities for 

three years. The 1997 amendments to 


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Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Rules and Regulations 71549 

41See comment letters on the 1997 Proposing 

Release from American Society of Corporate 

Secretaries (‘‘ASCS’’); Association for Investment 

Management & Research (‘‘AIMR’’); Association of 

the City Bar of New York (‘‘NY City Bar’’); 

Baltimore Gas & Electric (‘‘BG&E’’); Investment 

Company Institute (‘‘ICI’’); Charles Lilienthal 

(‘‘Lilienthal’’); Loeb &Loeb LLP; New York State Bar 

Association (‘‘NY Bar’’); Schwartz Investments, LLC 

(‘‘Schwartz Investments’’); Sullivan; Testa, Hurwitz 

& Thibeault, LLP (‘‘Testa Hurwitz’’); and Willkie, 

Farr & Gallagher LLP (‘‘Willkie Farr’’). The 

comment letters on the 1997 Proposing Release are 

available on the Commission’s Web site at http:// 

www.sec.gov/rules/proposed/s7797.shtml or in the 

Commission’s Public Reference Room, 100 F Street, 

NE., Washington, DC 20549. Interested persons 

should refer to File No. S7–07–97. 

42See comment letters on the 1997 Proposing 

Release from Argent Securities, Inc. (‘‘Argent’’) and 

The Corporate Counsel (‘‘Corporate Counsel’’). 

43See comment letters on the 1997 Proposing 

Release from ABA; joint letter from Goldman Sachs 

& Co., JP Morgan Securities, Inc., Morgan Stanley 

& Co., Inc., and Salomon Brothers Inc. (‘‘Four 

Brokers’’); Lehman Brothers Inc. (‘‘Lehman 

Brothers’’); Merrill Lynch & Co., Inc. (‘‘Merrill 

Lynch’’); Morgan Stanley & Co., Inc. (‘‘Morgan 

Stanley’’); Regional Investment Bankers Association 

(‘‘Regional Bankers’’); Securities Industry 

Association (‘‘SIA’’); and Smith Barney Inc. (‘‘Smith 

Barney’’). 

44See the 2007 Proposing Release at Section 

II.B.2.a. 

45Under the 2007 proposals, the six-month 

holding period would apply to securities of an 

issuer that is, and has been for at least 90 days 

before the sale, subject to the reporting 

requirements of Section 13 or 15(d) of the Exchange 

Act. 

46See comment letters on the 2007 Proposing 

Release from ABA; Feldman; Financial 

Associations; Fried Frank; London Forum; 

Richardson Patel; Roth; Sichenzia; SCSGP; 

Weisman; and Williams. 

47See comment letters on the 2007 Proposing 

Release from Financial Associations; Pink Sheets; 

Richardson Patel; and Roth. 

48See comment letter on the 2007 Proposing 

Release from ABA. See also letter to John W. White, 

Director, SEC Division of Corporation Finance, from 

Keith F. Higgins, Chair, Committee on Federal 

Regulation of Securities, ABA Section of Business 

Law (Mar. 22, 2007) (‘‘the March 2007 ABA 

Letter’’), available at http://www.sec.gov/comments/ 

s7–11–07/s71107.shtml. 

49See comment letters on the 2007 Proposing 

Release from Feldman and Weisman. 

50See comment letters on the 2007 Proposing 

Release from NASAA and Steinberg. 

51See amendments to Rule 144(d). The 

amendments do not change the Rule 144(d) 

requirement that, if the acquiror takes the securities 

by purchase, the holding period will not commence 

until the full purchase price is paid. 

52See Section VI. of this release. 

53See comment letters on the 2007 Proposing 

Release from ABA; Brill 1; Financial Associations; 

Gleicher; Weisman; and Williams. 

54See new Rule 144(d)(1)(i). We also are making 

conforming amendments to paragraphs (e)(3)(ii), 

(e)(3)(iii) and (e)(3)(iv) of Rule 144. 

55However, non-affiliates of non-reporting 

companies will no longer be subject to any other 

resale restrictions after meeting the one-year 

holding period. See Section II.B.3 below. 

56See new Rule 144(d)(1)(ii). 

Rule 144 reduced the two-year Rule 

144(d) holding period to one year and 

amended the three-year Rule 144(k) 

holding period to two years. 

In the 1997 Proposing Release, we 

solicited comment on whether the Rule 

144(d) holding period should be further 

reduced for both affiliates and nonaffiliates, and whether restrictions 

applicable to sales by non-affiliates also 

should be reduced. We received 

numerous comments on this issue. 

Twelve commenters recommended that 

we further reduce the holding period to 

six months.41 Two other commenters 

thought that we should maintain the 

holding periods that we had just 

recently adopted.42 Eight commenters 

recommended that we gain more 

experience with the new holding 

periods before proposing further 

amendments to those holding periods.43

In the 2007 Proposing Release, we 

again proposed to shorten the Rule 

144(d) holding period for restricted 

securities held by affiliates and nonaffiliates.44 The proposal would have 

permitted both affiliates and nonaffiliates to publicly sell restricted 

securities of Exchange Act reporting 

issuers 45 after holding the securities for 

six months, subject to any other 

applicable condition of Rule 144, if they 

had not engaged in hedging transactions 

with respect to the securities. Because of 

our concern that the market does not 

have sufficient information and 

safeguards with respect to non-reporting 

issuers, we proposed to retain the oneyear holding period for restricted 

securities of issuers that are not subject 

to Exchange Act Section 13(a) or Section 

15(d) reporting obligations for both 

affiliates and non-affiliates. 

Several commenters supported the 

proposal to shorten the holding period 

to six months for securities of reporting 

issuers.46 These commenters noted that 

the shortened holding period would 

increase liquidity for issuers, make 

capital investment more attractive, and 

decrease costs of capital for smaller 

companies without sacrificing investor 

protection.47 In this regard, one 

commenter noted that today’s markets 

now function at an accelerated pace, 

and technology, particularly the 

Internet, has caused the markets to 

become more efficient.48 Two 

commenters advocated an even shorter 

holding period requirement than the 

proposed six-month period, with one 

commenter advocating a four-month 

holding period and the other a threemonth holding period.49 Two 

commenters opposed shortening the 

holding period requirement under Rule 

144, as proposed.50

The purpose of Rule 144 is to provide 

objective criteria for determining that 

the person selling securities to the 

public has not acquired the securities 

from the issuer for distribution. A 

holding period is one criterion 

established to demonstrate that the 

selling security holder did not acquire 

the securities to be sold under Rule 144 

with distributive intent. We do not want 

the holding period to be longer than 

necessary or impose any unnecessary 

costs or restrictions on capital 

formation. After observing the operation 

of Rule 144 since the 1997 amendments, 

we believe that a six-month holding 

period for securities of reporting issuers 

provides a reasonable indication that an 

investor has assumed the economic risk 

of investment in the securities to be 

resold under Rule 144. Therefore, we 

are adopting a six-month holding period 

for reporting companies, as proposed.51

Most commenters agreed that shortening 

the holding period to six months for 

restricted securities of reporting issuers 

will increase the liquidity of privately 

sold securities and decrease the cost of 

capital for reporting issuers, while still 

being consistent with investor 

protection.52 By reducing the holding 

period for restricted securities, these 

amendments are intended to help 

companies to raise capital more easily 

and less expensively. For example, by 

making private offerings more attractive, 

the amendments may allow some 

companies to avoid certain types of 

costly financing structures involving the 

issuance of extremely dilutive 

convertible securities. Many 

commenters supported the proposal to 

maintain the existing one-year holding 

period for restricted securities of nonreporting issuers.53

Under the amendments that we are 

adopting, the six-month holding period 

requirement will apply to the securities 

of an issuer that has been subject to the 

reporting requirements of Section 13 or 

15(d) of the Exchange Act for a period 

of at least 90 days before the Rule 144 

sale.54 Restricted securities of a ‘‘nonreporting issuer’’ will continue to be 

subject to a one-year holding period 

requirement.55 A non-reporting issuer is 

one that is not, or has not been for a 

period of at least 90 days before the Rule 

144 sale, subject to the reporting 

requirements of Section 13 or 15(d) of 

the Exchange Act.56

We believe that different holding 

periods for reporting and non-reporting 

issuers are appropriate given that 

reporting issuers have an obligation to 

file periodic reports with updated 

financial information (including audited 

financial information in annual filings) 

that are publicly available on EDGAR, 

the Commission’s electronic filing 

system. Although non-reporting issuers 


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57See 17 CFR 240.15c2–11. 

58See, e.g., comment letters on the 2007 

Proposing Release from Brill 1; Cleary Gottlieb; 

Pink Sheets; and Weisman. 

59See comment letters on the 2007 Proposing 

Release from ABA and Weisman. 60See, e.g., comment letters on the 2007 

Proposing Release from ABA; BAIS; Cleary Gottlieb; 

Fried Frank; and SCSGP. 61See comment letters on the 2007 Proposing 

Release from Argus Vickers Stock Research Corp. 

(‘‘Argus’’); Brill 1; and The Washington Service on 

the Form 144 requirement (‘‘WS 2’’). 62See comment letters on the 2007 Proposing 

Release from Brill 1 and WS 2. 

63See comment letters on the 2007 Proposing 

Release from NASAA and Steinberg. 

64Under the amendments, paragraph (k) of Rule 

144 has been removed. The conditions that nonaffiliates are required to meet for the sale of their 

securities under Rule 144 are now contained in 

paragraph (b)(1) of the rule. 

65Some commenters requested us to state that the 

Commission would not object if the restricted 

securities legend were removed from securities held 

by a non-affiliate, after all the applicable Rule 144 

conditions to resale have been met. See comment 

letters on the 2007 Proposing Release from Cleary 

Gottlieb; Financial Associations; and Weisman. In 

the past, the staff in the Division of Corporation 

Finance has expressed the view that ‘‘it is not 

inappropriate for issuers to remove restrictive 

legends from securities that may be resold in 

reliance on Rule 144(k).’’ See, e.g., Toth Aluminum 

Corporation (Oct. 31, 1988). Under the amendments 

that we are adopting, we do not object if issuers 

remove restrictive legends from securities held by 

non-affiliates after all of the applicable conditions 

in Rule 144 are satisfied. However, the removal of 

a legend is a matter solely in the discretion of the 

issuer of the securities. Disputes about the removal 

of legends are governed by state law or contractual 

agreements, rather than federal law. 

66Although the Rule 144(e) volume limitations 

will no longer apply to resales of restricted 

securities by non-affiliates as a result of the 

amendments, an affiliate pledgor, donor, or trust 

settlor will be required to aggregate the amount of 

securities sold for the account of a pledgee, donee 

or trust, as applicable, even when there is no 

concerted action, in accordance with Rule 

144(e)(3)(ii), (iii), and (iv) in order to determine the 

amount of securities that is permitted to be sold 

under Rule 144. 

67Pink Sheets also noted in its letter that most of 

the abuses in transactions involving unregistered 

securities involve sales and purchases by affiliates 

of the issuers. 

68See Section II.E.6 of this release. 

must make some information publicly 

available before resales can be made 

under Rule 144, this information 

typically is much more limited in scope 

than information included in Exchange 

Act reports, is not required to include 

audited financial information, and is not 

publicly available via EDGAR.57 For 

these reasons, we believe that 

continuing to require security holders of 

non-reporting issuers to hold their 

securities for one year is not unduly 

burdensome and is consistent with 

investor protection. 

2. Significant Reduction of Conditions 

Applicable to Non-Affiliates 

Before adoption of these amendments, 

both non-affiliates and affiliates were 

subject to all other applicable 

conditions of Rule 144, in addition to 

the Rule 144(d) holding period 

requirement, including the condition 

that current information about the issuer 

of the securities be publicly available, 

the limitations on the amount of 

securities that may be sold in any threemonth period, the manner of sale 

requirements and the Form 144 notice 

requirement. However, pursuant to 

paragraph (k) of Rule 144 as it existed 

prior to the amendments that we are 

adopting, a non-affiliate of the issuer at 

the time of the Rule 144 sale who had 

not been an affiliate during the three 

months prior to the sale, could sell the 

securities after holding them for two 

years without complying with these 

other conditions. 

In the 2007 Proposing Release, we 

proposed to permit non-affiliates to 

resell their restricted securities freely 

after meeting the applicable holding 

period requirement (i.e., six months 

with respect to a reporting issuer and 

one year with respect to a non-reporting 

issuer), except that non-affiliates of 

reporting issuers still would be subject 

to the current public information 

requirement in Rule 144(c) for an 

additional six months after the end of 

the initial six-month holding period. 

In general, commenters supported the 

proposal to reduce substantially the 

requirements for the resale of restricted 

securities by non-affiliates under Rule 

144.58 Noting the importance of the 

current public information condition, 

two commenters expressed support for 

the proposed retention of that 

requirement for the resales of restricted 

securities by non-affiliates occurring 

between six months and one year after 

acquisition of the securities.59 Some 

commenters expressed support for 

removal of the manner of sale 

requirements and the Form 144 notice 

requirement,60 while a few objected to 

removal of those requirements.61 The 

commenters objecting to the removal of 

those requirements expressed concern 

about the transparency of Rule 144 

transactions and the potential increase 

in violations of the holding period 

requirement if the manner of sale 

requirements and the Form 144 notice 

requirement were eliminated.62 The two 

commenters that opposed shortening 

the Rule 144(d) holding period also 

opposed the proposals to permit nonaffiliates to resell without being subject 

to any other condition (except the 

public information requirement, with 

respect to resales of securities of 

reporting companies) after they meet the 

holding period.63

We are adopting the amendments for 

the sale of restricted securities by nonaffiliates after the holding period, as 

proposed.64 Under the amendments, 

after the applicable holding period 

requirement is met, the resale of 

restricted securities by a non-affiliate 

under Rule 144 will no longer be subject 

to any other conditions of Rule 144 

except that, with regard to the resale of 

securities of a reporting issuer, the 

current public information requirement 

in Rule 144(c) will apply for an 

additional six months after the sixmonth holding period requirement is 

met.65 Therefore, a non-affiliate will no 

longer be subject to the Rule 144 

conditions relating to volume 

limitations, manner of sale 

requirements, and filing Form 144.66

We believe that the complexity of 

resale restrictions may inhibit sales by, 

and imposes costs on, non-affiliates. 

Because Rule 144 is relied upon by 

many individuals to resell their 

restricted securities, we believe that it is 

particularly helpful to streamline and 

reduce the complexity of the rule as 

much as possible while retaining its 

integrity. We continue to believe that 

retaining the current public information 

requirement with regard to resales of 

restricted securities of reporting issuers 

for up to one year after the acquisition 

of the securities is important to help 

provide the market with adequate 

information regarding the issuer of the 

securities. In addition, we generally 

believe that most abuses in sales of 

unregistered securities involve affiliates 

of issuers 67 and securities of shell 

companies. As discussed below, we are 

codifying the staff’s current interpretive 

position that Rule 144 cannot be relied 

upon for the resale of the securities of 

reporting and non-reporting shell 

companies.68

The final conditions applicable to the 

resale under Rule 144 of restricted 

securities held by affiliates and nonaffiliates of the issuer can be 

summarized as follows: 


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69See Release No. 33–6862 (Apr. 23, 1990) [55 FR 

17933]. 

70 ‘‘Tacking’’ the holding period is the ability of 

the security holder to include, under certain 

circumstances, the period that securities were held 

by a previous owner as part of his or her own 

holding period for the purposes of meeting the 

holding period requirement in Rule 144(d). Further 

discussion about tacking appears in Section II.E.2 

of this release. 

71For a discussion on hedging arrangements in 

prior releases, see Section IV.B of the 1997 

Proposing Release and Section II.A of Release No. 

33–7187 (June 27, 1995) [60 FR 35645]. 

72See the 1997 Proposing Release. In that release, 

we proposed five different alternatives: (1) make the 

Rule 144 safe harbor unavailable to persons who 

hedge during the restricted period; (2) 

independently of Rule 144, promulgate a rule that 

would define a sale for purposes of Section 5 to 

include specified hedging transactions; (3) adopt a 

shorter holding period during which hedging could 

not occur without losing the safe harbor; (4) 

reintroduce a tolling provision in Rule 144 similar 

to the provision that was included prior to 1990; or 

(5) maintain the status quo with no specific 

prohibition against hedging. 

73See comment letters on the 1997 Proposing 

Release from ABA; AIMR; Argent; ASCS; 

Constantine Katsoris; Corporate Counsel; and 

Schwartz Investments. 

74See comment letters on the 1997 Proposing 

Release from Bear, Stearns & Co., Inc.; BG&E; Intel 

Corporation (‘‘Intel’’); PaineWebber Incorporated; 

Wilkie Farr; and XXI Securities. 

75See comment letters on the 1997 Proposing 

Release from Four Brokers; NY Bar; SIA; Merrill 

Lynch; Citibank; and Lehman Brothers. 

76At that time, Rule 144 provided for a two-year 

holding period before a security holder could sell 

limited amounts of restricted securities, and a threeyear period before a non-affiliate security holder 

could sell an unlimited amount of the securities. 

77See the 2007 Proposing Release at Section 

II.B.2.b. 

78We proposed to exclude from the holding 

period any period in which the security holder had 

a short position or had entered into a ‘‘put 

equivalent position,’’ as defined by Exchange Act 

Rule 16a–1(h) [17 CFR 240.16a–1(h)], with respect 

to the same class of securities (or, in the case of 

nonconvertible debt, with respect to any 

nonconvertible debt securities of the same issuer). 

79We proposed to amend Note (ii) to Rule 

144(g)(3) [17 CFR 230.144(g)(3)] to supplement the 

Continued 

Affiliate or person selling on behalf of an affiliate Non-affiliate (and has not been an affiliate during the 

prior three months) 

Restricted Securities of Reporting Issuers.During six-month holding period—no resales under 

Rule 144 permitted 

During six-month holding period—no resales under 

Rule 144 permitted. 

After six-month holding period—may resell in accordance with all Rule 144 requirements including: 

• Current public information, 

• Volume limitations, 

• Manner of sale requirements for equity securities, 

and 

• Filing of Form 144 

After six-month holding period but before one year—unlimited public resales under Rule 144 except that the 

current public information requirement still applies. 

After one-year holding period—unlimited public resales 

under Rule 144; need not comply with any other Rule 

144 requirements. 

Restricted Securities of NonReporting Issuers.During one-year holding period—no resales under Rule 

144 permitted 

During one-year holding period—no resales under Rule 

144 permitted. 

After one-year holding period—may resell in accordance with all Rule 144 requirements including: 

• Current public information, 

• Volume limitations, 

• Manner of sale requirements for equity securities, 

and 

• Filing of Form 144 

After one-year holding period—unlimited public resales 

under Rule 144; need not comply with any other Rule 

144 requirements. 

3. Tolling Provision 

In 1990, we eliminated a Rule 144 

provision that tolled, or suspended, the 

holding period of a security holder 

maintaining a short position in, or any 

put or other option to dispose of, 

securities equivalent to the restricted 

securities owned by the security 

holder.69 We eliminated this provision 

in conjunction with an amendment to 

broaden a security holder’s ability to 

tack the holding periods of prior owners 

to the security holder’s own holding 

period.70

We previously have expressed 

concern regarding the effect of hedging 

activities designed to shift the economic 

risk of investment away from the 

security holder with respect to restricted 

securities.71 In the 1997 Proposing 

Release, we solicited comment on 

several alternatives designed to address 

these concerns.72 Seven commenters 

recommended that we adopt measures 

to eliminate or restrict hedging activities 

during the holding period.73 Six 

commenters recommended maintaining 

the status quo.74 Six other commenters 

suggested that we adopt a safe harbor for 

certain hedging activities that would be 

deemed permissible under Rule 144.75

In the 2007 Proposing Release, we 

acknowledged a concern about the effect 

of hedging activities in connection with 

the adoption of a six-month holding 

period for securities of reporting issuers. 

We noted that, when we eliminated the 

tolling provision in 1990, the Rule 144 

holding periods were longer.76 We also 

expressed the view that the proposal to 

shorten the holding period to six 

months could make the entry into such 

hedging arrangements significantly 

easier and less costly because these 

arrangements would cover a much 

shorter period.77 We therefore proposed 

to reintroduce a Rule 144 tolling 

provision that would have suspended 

the holding period for restricted 

securities of Exchange Act reporting 

issuers while a security holder engaged 

in certain hedging transactions.78

However, we proposed that any 

suspension due to hedging would not 

have caused, under any circumstances, 

the holding period to extend beyond 

one year. 

Because the proposed tolling 

provision also would have worked in 

conjunction with the Rule 144 

provisions that permit tacking of 

holding periods, a selling security 

holder would have been required to 

determine whether a previous owner of 

the securities had engaged in hedging 

activities with respect to the securities, 

if the selling security holder wished to 

tack the previous owner’s holding 

period to the holding period of the 

selling security holder. The proposed 

provision would have tolled the holding 

period during any period in which the 

previous owner held a short position or 

put equivalent position with respect to 

the securities, however, there would 

have been no tolling of the previous 

owner’s holding period if the security 

holder for whose account the securities 

were to be sold reasonably believed that 

no such short or put equivalent position 

was held by the previous owner. 

In connection with the proposed 

tolling provision, we also proposed 

other related changes to Rule 144. First, 

we proposed to require that information 

be provided in Form 144 regarding any 

short or put equivalent position held 

with respect to the securities prior to the 

resale of the securities. The second 

proposal related to the manner of sale 

requirements in paragraphs (f) and (g) of 

Rule 144.79


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reasonable inquiry requirement by requiring a 

broker to inquire into the existence and character 

of any short position or put equivalent position 

with regard to the securities held by the person for 

whose account the securities are to be sold, if the 

securities have been held for less than one year, 

whether such person has made inquiries into the 

existence and character of any short position or put 

equivalent position held by the previous owner of 

the securities, and the results of such person’s 

inquiries. 

80See, e.g., comment letters on the 2007 

Proposing Release from ABA; Cleary Gottlieb; 

Feldman; Financial Associations; Richardson Patel; 

Sichenzia; and Weisman. 

81See, e.g., comment letters on the 2007 

Proposing Release from Feldman; Financial 

Associations; and Richardson Patel. 

82See comment letter on the 2007 Proposing 

Release from ABA. 

83See, e.g., comment letter on the 2007 Proposing 

Release from Financial Associations. 

84See comment letter on the 2007 Proposing 

Release from ABA. 

85See, e.g., comment letters on the 2007 

Proposing Release from ABA and Financial 

Associations. 

86See Release No. 33–6862. 

87See comment letter on the 2007 Proposing 

Release from Financial Associations. 

88See, e.g., comment letters on the 2007 

Proposing Release from Cleary Gottlieb; Financial 

Associations; and Sichenzia. 

89See Release No. 33–5223 and Section I of this 

release. 

90The Commission’s staff has previously stated 

that, with respect to short sales in reliance on the 

safe harbor of Rule 144 where the borrower closes 

out using the restricted securities, all the conditions 

of Rule 144 must be met at the time of the short 

sale. See Questions 80 through 82 of Release No. 

33–6099 (Aug. 2, 1979) [44 FR 46752, 46765]. In the 

Commission’s view, the term ‘‘sale’’ under the 

Securities Act includes contract of sale. See Release 

No. 33–8591 (July 19, 2005) [70 FR 44722, 44765] 

and Release No. 34–56206 (August 6, 2007) [72 FR 

45094]. The Commission has previously indicated 

that, in a short sale, the sale of securities occurs at 

the time the short position is established, rather 

than when shares are delivered to close out that 

short position, for purposes of Section 5 of the 

Securities Act. See, e.g., Questions 3 and 5 of 

Release No. 33–8107 (June 21, 2002) [67 FR 43234] 

and Release No. 34–56206 n. 46 (Aug. 6, 2007) [72 

FR 45094, 45096]. 

91Rule 144(g) defines the term for purposes of 

Rule 144. 

92 15 U.S.C. 78c(a)(38). 

93See Section III.C of the 1997 Proposing Release. 

94See comment letters on the 1997 Proposing 

Release from Corporate Counsel; Matthew Crain; 

Katsoris; Merrill Lynch; Regional Bankers; SIA; and 

Smith Barney. 

95See comment letter on the 2007 Proposing 

Release from Barron. 

96See comment letter on the 2007 Proposing 

Release from Sullivan. 

Several commenters objected to the 

proposed reintroduction of the tolling 

provision and suggested modifications 

to the proposed provision, if the 

Commission chose to adopt it.80

Commenters objecting to the proposed 

tolling provision provided the following 

reasons, among others, why the 

Commission should not adopt the 

proposed tolling provision: 

• Hedging transactions involve costs 

and risks for the security holder and do 

not entirely transfer risk of the 

economic investment of the securities;81

• Any concern that the Commission 

has about hedging activities 

immediately after the acquisition is 

outweighed by the belief that hedging 

activities can enhance private 

placements as a means of capital 

formation and should be allowed to 

continue because they do not raise 

substantial concerns about unregistered 

distributions;82

• In the current environment, a 

security holder may hold long and short 

positions across multiple trading desks 

and complex financial institutions and 

positions may change daily or even 

intra-day. The task of tracing and 

processing such positions would 

necessitate the development of costly 

custom software and hardware systems. 

Consequently, security holders might 

ultimately choose to hold the securities 

for the default one-year period rather 

than implement these costly systems, 

thereby frustrating the intent of the 

Commission in adopting the six-month 

holding period;83

• There is a natural ceiling on the 

amount of hedging activity in restricted 

securities because the supply of 

unrestricted securities is limited;84

• The Commission has adequate 

enforcement tools to address abuses in 

hedging with respect to restricted 

securities;85 and 

• The Commission’s reasoning for 

eliminating the tolling provision in 1990 

was that a single holding period running 

from the date of purchase from the 

issuer, or an affiliate of the issuer, is 

sufficient to prevent unregistered 

distributions to the public.86 This 

reasoning still applies, even if the 

holding period is reduced to six months 

for securities of reporting issuers.87

Some commenters reasoned that if the 

Commission detects an increase in 

abuse after implementation of the 

revised holding period, as proposed, the 

Commission could modify its treatment 

of hedging activities.88 This would be 

consistent with the approaches taken by 

the Commission when it first adopted 

Rule 144, and in 1997 when 

commenters recommended that the 

Commission gain more experience with 

the shortened holding periods before 

making additional revisions.89

After considering the comments, we 

are not adopting the proposed tolling 

provision and related amendments. We 

note, in particular, the comments 

asserting that, in the current 

environment, the tolling provision 

would unduly complicate Rule 144 and 

could require security holders or 

brokers to incur significant costs to 

monitor hedging positions for purposes 

of determining whether they have met 

the holding period requirement. This 

would frustrate our primary objectives 

to streamline Rule 144 and reduce the 

costs of capital for issuers. We will 

revisit the issue if we observe abuse 

relating to the hedging activities of 

holders of restricted securities.90

C. Amendments to the Manner of Sale 

Requirements Applicable to Resales by 

Affiliates 

Before today’s amendments, the 

manner of sale requirements in Rule 

144(f) required securities to be sold in 

‘‘brokers’ transactions’’ 91 or in 

transactions directly with a ‘‘market 

maker,’’ as that term is defined in 

Section 3(a)(38) of the Exchange Act.92

Additionally, the rule prohibits a selling 

security holder from: (1) Soliciting or 

arranging for the solicitation of orders to 

buy the securities in anticipation of, or 

in connection with, the Rule 144 

transaction; or (2) making any payment 

in connection with the offer or sale of 

the securities to any person other than 

the broker who executes the order to sell 

the securities. 

In the 1997 Proposing Release, we 

proposed to eliminate the manner of 

sale requirements for the sale of both 

equity and debt securities alike, 

reasoning that the manner of sale 

requirements are not necessary to satisfy 

the purposes of Rule 144 and limit the 

liquidity of the security.93 Some 

commenters opposed this proposal, 

asserting that brokers help ensure that 

selling security holders are complying 

with the applicable Rule 144 conditions 

to resale.94 As discussed below, 

although we proposed to eliminate the 

manner of sale requirements only for 

debt securities and not equity securities 

in the 2007 Proposing Release, we 

requested comment on whether it would 

be appropriate to eliminate the manner 

of sale requirements for the sale of 

equity securities as well. 

The comments were mixed on this 

point. One commenter strongly 

discouraged the elimination of the 

manner of sale requirements for equity 

securities,95 while another supported 

such a change.96 One commenter did 

not object to retaining the manner of 

sale requirements for resales of equity 

securities of affiliates, on the grounds 

that affiliates generally find the 

assistance of a broker useful in 

navigating compliance with Rule 144 

and thus brokers serve a useful function 


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97See comment letter on the 2007 Proposing 

Release from ABA. 

98See, e.g., comment letters on the 2007 

Proposing Release from ABA; Cleary Gottlieb; and 

Sullivan. 

99See comment letters on the 2007 Proposing 

Release from ABA and Sullivan. 

100Only affiliates are required to comply with the 

manner of sale requirements under the amendments 

that we are adopting. 

101See Release No. 33–5979 (Sept. 19, 1978) [43 

FR 43709] (Sept. 27, 1978) (the Commission 

amended Rule 144(f) to permit sales under the rule 

to be made directly to a market maker in lieu of 

selling through a broker). 

102For example, in the second quarter of 2007, 

alternative trading systems handled approximately 

$1.3 trillion in volume of matched orders. (These 

amounts do not include orders that flow through a 

system, but are ultimately executed elsewhere). We 

obtained this data from information provided in 

Form ATS–R Quarterly Reports. 

103See new Rule 144(f)(1)(iii). A ‘‘riskless 

principal transaction’’ is defined as a principal 

transaction where, after having received from a 

customer an order to buy, a broker or dealer 

purchases the security as principal in the market to 

satisfy the order to buy or, after having received 

from a customer an order to sell, sells the security 

as principal to the market to satisfy the order to sell. 

See new Note to Rule 144(f)(1). 

104See also, e.g., SEC Interpretation: Commission 

Guidance on the Scope of Section 28(e) of the 

Exchange Act, Interpretive Release No. 34–45194 

(Dec. 27, 2001) [67 FR 6]. This treatment is also 

consistent with NASD Rules 4632(d)(3)(B), 

4642(d)(3)(B), and 6420(d)(3)(B). 

105See Release No. 34–5452 (Feb. 1, 1974; 

amended Feb. 21, 1974). These subparagraphs, as 

amended, are contained in paragraphs (g)(3)(i), 

(g)(3)(ii), and (g)(3)(iii) of Rule 144. Under the 

amendments, the previous paragraph (g)(2) has been 

redesignated as paragraph (g)(3), and the previous 

paragraph (g)(3) has been redesignated as paragraph 

(g)(4). 

106 17 CFR 242.300. 

107See new Rule 144(g)(3)(iv). 

108As noted in Section II.B.3 above, under the 

amendments that we are adopting in this release, 

the manner of sale requirements do not apply to the 

resale of securities of a non-affiliate under Rule 144. 

The manner of sale requirements also do not apply 

to securities sold for the account of the estate of a 

deceased person or for the account of a beneficiary 

of such estate, provided that the estate or 

beneficiary is not an affiliate of the issuer. 

109See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; Financial 

Associations; and Sullivan. 

110See comment letter on the 2007 Proposing 

Release from ABA stating that the definition of debt 

should exclude any requirement that the preferred 

stock have a liquidation preference in excess of par. 

111See 17 CFR 230.144(f). As discussed above, we 

also are eliminating the manner of sale 

requirements for resales of equity and debt 

securities by non-affiliates. 

112Brokers also must comply with the criteria set 

forth in Rule 144(g) in order to claim the ‘‘brokers’’

transactions’ exemption under Section 4(4) of the 

Securities Act. 

that is not unduly burdensome.97

Instead of completely eliminating the 

manner of sale requirements, some 

commenters requested that we consider 

expanding the methods to sell the 

securities permitted by the manner of 

sale requirements.98 For example, two 

commenters discussed amending the 

requirement to permit sales through 

alternative trading systems such as 

electronic venues where the broker’s 

identity is anonymous prior to trade 

execution.99

In response to comments, we are 

adopting amendments to the manner of 

sale requirements that apply to resales 

of equity securities of affiliates.100 We 

last made substantive amendments to 

the manner of sale requirements in 

1978.101 Since then, the growth of 

technological and other developments 

directed at meeting the investment 

needs of the public and reducing the 

cost of capital for companies have led us 

to refine the rules governing the trading 

of securities.102 We believe that it is 

appropriate now to adopt two 

amendments to the manner of sale 

requirements so that the restrictions 

better reflect current trading practices 

and venues. 

First, we are adopting a change to 

Rule 144(f) to permit the resale of 

securities through riskless principal 

transactions in which trades are 

executed at the same price, exclusive of 

any explicitly disclosed markup or 

markdown, commission equivalent, or 

other fee, and the rules of a selfregulatory organization permit the 

transaction to be reported as riskless.103

We believe that these riskless principal 

transactions are equivalent to agency 

trades.104 As with agency trades, in 

order to qualify as a permissible manner 

of sale under the revised rule, the broker 

or dealer conducting the riskless 

principal transaction must meet all the 

requirements of a brokers’ transaction, 

as defined by Rule 144(g), except the 

requirement that the broker does no 

more than execute the order or orders to 

sell the securities as agent for the person 

for whose account the securities are 

sold. The broker or dealer must neither 

solicit nor arrange for the solicitation of 

customers’ orders to buy the securities 

in anticipation of or, in connection 

with, the transaction, must receive no 

more than the usual and customary 

markup or markdown, commission 

equivalent, or other fee, and must 

conduct a reasonable inquiry regarding 

the underwriter status of the person for 

whose account the securities are to be 

sold. 

Second, we are amending Rule 144(g) 

which defines ‘‘brokers’ transactions’ for 

purposes of the manner of sale 

requirements. Under the definition of 

brokers’ transactions, a broker must 

neither solicit nor arrange for the 

solicitation of customers’ orders to buy 

the securities in anticipation of, or in 

connection with, the transaction. 

However, certain activities specified in 

three subparagraphs of Rule 144(g)(2) 

are deemed not to be a solicitation.105

We are adding another subparagraph 

covering the posting of bid and ask 

quotations in alternative trading systems 

that will also be deemed not to be a 

solicitation. This new provision permits 

a broker to insert bid and ask quotations 

for the security in an alternative trading 

system, as defined in Rule 300 of 

Regulation ATS,106 provided that the 

broker has published bona fide bid and 

ask quotations for the security in the 

alternative trading system on each of the 

last 12 business days.107

D. Changes to Rule 144 Conditions 

Related to Resales of Debt Securities by 

Affiliates 

1. Comments Received on Proposed 

Amendments Relating to Debt Securities 

In the 2007 Proposing Release, we 

proposed to eliminate the manner of 

sale requirements in Rule 144 with 

regard to sales of debt securities by 

affiliates.108 We also requested comment 

on whether there were any other 

conditions in Rule 144, such as the 

volume limitations, to which debt 

securities should not be subject. In the 

2007 Proposing Release, we included 

preferred stock and asset-backed 

securities in the ‘‘debt securities’’

category for purposes of the proposed 

elimination of the manner of sale 

requirements. 

Four commenters expressly supported 

the proposal to eliminate the manner of 

sale requirements for resales of debt 

securities,109 and we did not receive any 

comments objecting to the proposal. We 

also did not receive any comments 

objecting to the proposed inclusion of 

preferred stock and asset-backed 

securities in the definition of debt 

securities. We received a few comments 

that we should expand the definition of 

debt securities for the purposes of 

proposed changes to the manner of sale 

requirements.110

2. No Manner of Sale Requirements 

Regarding Resales of Debt Securities 

We are adopting the amendments to 

eliminate the manner of sale 

requirements for resales of debt 

securities held by affiliates, as 

proposed.111 We agree that, as financial 

intermediaries, brokers serve an 

important function as gatekeepers for 

promoting compliance with Rule 144,112

and we are concerned that eliminating 

the manner of sale requirements for 


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113We distinguish between debt and equity in the 

same way we distinguished debt and equity markets 

when we last amended Regulation S. There, we did 

not believe that the procedures and restrictions 

applicable to offerings of equity securities under 

Regulation S should be applicable to offerings of 

nonconvertible debt securities, reasoning that the 

nature of the trading markets for debt securities 

appears not to have facilitated similar abusive 

practices as the markets for equity securities. See 

Offshore Offers and Sales, Release No. 33–7505 

(Feb. 17, 1998) [63 FR 9631]. 

114The March 2007 ABA Letter noted that debt 

securities generally are traded in dealer transactions 

in which the dealer seeks buyers for securities to 

fill sell orders instead of through the means 

prescribed in Rule 144(f). 

115The definition of debt securities appears in 

amended Rule 144(a). ‘‘Non-participatory preferred 

stock’’ is defined as non-convertible capital stock, 

the holders of which are entitled to a preference in 

payment of dividends and in distribution of assets 

on liquidation, dissolution, or winding up of the 

issuer, but are not entitled to participate in residual 

earnings or assets of the issuer. 

116See Release No. 33–8518 (Dec. 22, 2004) [70 

FR 1506]. 

117See 17 CFR 230.901 through 230.905 and 

Release No. 33–7505. 

118See 17 CFR 230.144(e)(1)(i), (ii), and (iii). 

119See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; and Sullivan. 

120The term ‘‘tranche’’ is also used in the 

definition of ‘‘distribution compliance period’’ in 

Rule 902(f) of Regulation S. 17 CFR 230.902(f). 

121See newly revised Rule 144(e)(2). 

122 Generally, because of the absence of an active 

trading market in debt securities, debt holders do 

not rely on the average daily trading volume test to 

sell their securities under Rule 144. 

123 17 CFR 230.144(h). 

124We note, however, that in 1978, the 

Commission shortened the relevant time period in 

Rule 144(e) for calculating the amount of securities 

to be sold under Rule 144 from six months to three 

months and made conforming changes to the Form 

144 filing requirement. Release No. 33–5995 (Nov. 

8, 1978) [43 FR 54229]. 

125See comment letters on the 1997 Proposing 

Release from ABA; ASCS; AT&T Corp. (‘‘AT&T’’); 

BG&E; Corporate Counsel; Merrill Lynch; Morgan 

Stanley; NY Bar; NY City Bar; Regional Bankers; 

SIA; Smith Barney; and Sullivan. 

126See comment letters on the 1997 Proposing 

Release from ABA; Benesch, Friedlander, Coplan & 

Aronoff, LLP; NY Bar; NY City Bar; and Sullivan. 

127See comment letter on the 1997 Proposing 

Release from ABA. 

128See comment letter on the 1997 Proposing 

Release from NY Bar. 

129Only affiliates of the issuer are required to file 

a notice of proposed sale on Form 144 when relying 

on Rule 144 under the amendments that we are 

adopting. 

130See, e.g., comment letters on the 2007 

Proposing Release from ABA; Financial 

Associations; and SCSGP. 

131See comment letter on the 2007 Proposing 

Release from ABA. ABA supported elimination of 

Form 144 but recommended these filing thresholds, 

if the Commission chose to retain it. 

132The adjustment would be approximately 

$42,000 if based on the Personal Consumption 

Expenditures Chain-Type Price Index, as published 

by the Department of Commerce. In addition, if 

based on the Consumer Price Index, the adjustment 

would be approximately $50,000. To achieve a 

round number, we proposed to raise the filing 

threshold to $50,000. 

equity securities would lead to abuse. 

However, we do not believe that the 

fixed income securities market raises 

the same concerns about abuse,113 and 

are persuaded that the manner of sale 

requirements may place an unnecessary 

burden on the resale of fixed income 

securities.114 Combined with the 

changes that we are making to the Rule 

144(e) volume limitations, these 

amendments will permit holders of debt 

securities to rely on the Rule 144 to 

resell their debt securities in a way and 

amount that was not possible 

previously. 

As proposed, our definition of debt 

securities in Rule 144 includes nonparticipatory preferred stock (which has 

debt-like characteristics) 115 and assetbacked securities (where the 

predominant purchasers are 

institutional investors including 

financial institutions, pension funds, 

insurance companies, mutual funds and 

money managers) 116 in addition to 

other types of nonconvertible debt 

securities. This definition of debt 

securities is consistent with the 

treatment of such securities under 

Regulation S.117

3. Raising Volume Limitations for Debt 

Securities 

We also are adopting amendments to 

raise the Rule 144(e) volume limitations 

for debt securities. Before the 

amendments that we are adopting, 

under Rule 144(e), the amount of 

securities sold in a three-month period 

could not exceed the greater of: (1) One 

percent of the shares or other units of 

the class outstanding as shown by the 

most recent report or statement 

published by the issuer, or (2) the 

average weekly volume of trading in 

such securities, as calculated pursuant 

to provisions in the rule.118 In response 

to our request for comment regarding 

whether we should eliminate or revise 

any other conditions in Rule 144 with 

regard to debt securities, three 

commenters noted that the Rule 144(e) 

volume limitations effectively 

precluded resales of debt securities by 

affiliates.119

Debt securities generally are issued in 

tranches.120 We agree that, prior to our 

amendments, the volume limitations in 

Rule 144 constrained the ability of debt 

holders to rely on Rule 144 for the 

resales of their securities. For the same 

reasons that we are eliminating the 

manner of sale requirements for debt 

securities, we believe that it is 

appropriate to adopt an alternative 

volume limitation that is specifically 

applicable to the resale of debt 

securities. We are amending Rule 144(e) 

to permit the resale of debt securities in 

an amount that does not exceed ten 

percent of a tranche (or class when the 

securities are non-participatory 

preferred stock), together with all sales 

of securities of the same tranche sold for 

the account of the selling security 

holder within a three-month period.121

We believe that this new ten percent 

limitation provision will permit a more 

reasonable amount of trading in debt 

securities than the one percent 

limitation has permitted.122 These 

revised volume limitations also apply to 

resales of non-participatory preferred 

stock or asset-backed securities, which 

are defined as debt securities for 

purposes of Rule 144. 

E. Increase of the Thresholds That 

Trigger the Form 144 Filing 

Requirement for Affiliates 

Before today’s amendments, Rule 

144(h) required a selling security holder 

to file a notice on Form 144 if the 

security holder’s intended sale exceeded 

either 500 shares or $10,000 within a 

three-month period.123 These filing 

thresholds had not been modified since 

1972.124 In the 1997 Proposing Release, 

we proposed to increase the filing 

thresholds to 1,000 shares or $40,000. 

Thirteen commenters supported raising 

the filing threshold and no commenters 

opposed the idea.125 Some commenters 

suggested that we eliminate Form 144 

altogether.126 One commenter suggested 

raising the threshold to $100,000.127

Another commenter suggested raising it 

to $250,000.128

In the 2007 Proposing Release, we 

proposed to increase the Form 144 filing 

thresholds to cover sales of 1,000 shares 

or $50,000 within a three-month 

period.129 Some commenters 

specifically expressed support for 

raising the Form 144 filing 

thresholds.130 One of these commenters 

recommended filing thresholds of 

10,000 shares or $100,000, if the 

Commission chose to retain a Form 144 

filing requirement for affiliates.131

We are adopting the increased Form 

144 filing thresholds with some 

modification. As proposed, we are 

raising the dollar threshold to $50,000 

to adjust for inflation since 1972.132

After considering the comments, we are 

raising the share threshold to 5,000 

shares, rather than the proposed 1,000 

shares. We believe that the 5,000 share 

threshold is an appropriate alternate 

threshold for trades in amounts that 

may not reach the $50,000 dollar 

threshold, but that merit notice to the 

market. 

In the 2007 Proposing Release, we 

also solicited comment on whether we 

should coordinate the Form 144 filing 

requirements with Form 4 filing 


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133See, e.g., comment letters on the 2007 

Proposing Release from ABA; BAIS; Brill 1; Fried 

Frank; Pink Sheets; Sichenzia; SCSGP; and 

Sullivan. The comment letters from ABA, BAIS, 

SCSGP and Sullivan advocated that the 

Commission should eliminate the Form 144 filing 

requirement; however, to the extent that we 

determine to retain any items required by Form 144, 

they provided suggestions regarding the proposal to 

combine Form 144 with Form 4. 

134See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; Financial 

Associations; Fried Frank; and Richardson Patel. 

135See comment letter on the 2007 Proposing 

Release from Financial Associations. 

136 15 U.S.C. 77d(6). Section 4(6) was included in 

the Securities Act pursuant to the Small Business 

Investment Incentive Act of 1980 [Pub. L. No. 96–

477 (Oct. 21, 1980)]. 

137 17 CFR 230.144(a)(3). See the Division of 

Corporation Finance’s Compliance and Disclosure 

Interpretations on Rule 144 (Updated April 2, 

2007), at Section 104 (Rule 144(a)(3)), Question No. 

104.03. 

138See 15 U.S.C. 77d(6). 

139See amendments to Rule 144(a)(3). 

140See the Division of Corporation Finance’s 

letter to Morgan, Olmstead, Kennedy & Gardner 

Capital Corporation (Jan. 8, 1988). 

141See comment letters on the 2007 Proposing 

Release from Sichenzia and Sullivan. 

142See new Rule 144(d)(3)(ix). 

143See the Division of Corporation Finance’s 

letter to Planning Research Corp. (Dec. 8, 1980). 

requirements. Many commenters 

supported a combination of the two 

forms.133 Although we are not adopting 

those changes today, we expect to issue 

a separate release in the future to 

provide affiliates that are subject to both 

the Form 4 and Form 144 filing 

requirements with greater flexibility in 

satisfying their requirements. 

F. Codification of Several Staff Positions 

In the 2007 Proposing Release, we 

proposed to codify several interpretive 

positions issued by the staff of the 

Division of Corporation Finance. We 

proposed to codify the first three staff 

positions listed below in both the 1997 

Proposing Release and the 2007 

Proposing Release, but we proposed to 

codify the last four staff positions listed 

below only in the 2007 Proposing 

Release. 

Some commenters expressed general 

support for the proposed codifications 

of staff interpretations relating to Rule 

144.134 One commenter specifically 

expressed the view that the action 

should help to resolve any lingering 

confusion regarding the calculation of 

holding periods in the circumstances 

addressed by the interpretations.135 We 

are adopting all of the codifications 

substantially as proposed. The 

codifications should make these 

interpretations more transparent and 

readily available to the public. 

1. Securities Acquired Under Section 

4(6) of the Securities Act Are 

Considered ‘‘Restricted Securities’’

In 1997, we first proposed to codify 

the Division of Corporation Finance’s 

interpretive position that securities 

acquired from the issuer pursuant to an 

exemption from registration under 

Section 4(6) of the Securities Act 136 are 

considered ‘‘restricted securities’’ under 

Rule 144(a)(3).137 We did not receive 

any comments on this proposal at the 

time. In the 2007 Proposing Release, we 

again proposed to codify this position. 

We did not receive any comments. 

Section 4(6) provides for an 

exemption from registration for an 

offering that does not exceed $5,000,000 

that is made only to accredited 

investors, that does not involve any 

advertising or public solicitation by the 

issuer or anyone acting on the issuer’s 

behalf and for which a Form D has been 

filed.138 Because the resale status of 

securities acquired in Section 4(6) 

exempt transactions should be the same 

as securities received in other nonpublic offerings that are included in the 

definition of restricted securities, we are 

of the view that securities acquired 

under Section 4(6) should be defined as 

restricted securities for purposes of Rule 

144. Therefore, we are adopting an 

amendment to add securities acquired 

under Section 4(6) of the Securities Act 

to the definition of restricted securities, 

as proposed.139

2. Tacking of Holding Periods When a 

Company Reorganizes Into a Holding 

Company Structure 

In 1997, we also proposed to codify 

the Division of Corporation Finance’s 

interpretive position that holders may 

tack the Rule 144 holding period in 

connection with transactions made 

solely to form a holding company.140

When ‘‘tacking,’’ holders may count the 

period during which they held the 

restricted securities of the predecessor 

company before the predecessor 

company reorganized into a holding 

company structure when calculating the 

holding period of the restricted 

securities of the holding company 

received in the reorganization. We did 

not receive any comments on this 

proposal. 

We again proposed to codify this 

interpretive position in the 2007 

Proposing Release. Two commenters 

recommended codification of the staff 

interpretive position covering tacking, 

in certain circumstances, in connection 

with the reincorporation of the issuer in 

a different state.141 We did not receive 

any comments opposing this proposal. 

We are adopting this amendment to 

Rule 144(d), as proposed.142 This 

provision will permit tacking of the 

holding period if the following three 

conditions are satisfied: 

• The newly formed holding 

company’s securities were issued solely 

in exchange for the securities of the 

predecessor company as part of a 

reorganization of the predecessor 

company into a holding company 

structure; 

• Security holders received securities 

of the same class evidencing the same 

proportional interest in the holding 

company as they held in the 

predecessor company, and the rights 

and interests of the holders of such 

securities are substantially the same as 

those they possessed as holders of the 

predecessor company’s securities; and 

• Immediately following the 

transaction, the holding company had 

no significant assets other than 

securities of the predecessor and its 

existing subsidiaries and had 

substantially the same assets and 

liabilities on a consolidated basis as the 

predecessor had before the transaction. 

In such transactions, tacking is 

appropriate because the securities being 

exchanged are substantially equivalent, 

and there is no significant change in the 

economic risk of the investment in the 

restricted securities. The amendment 

that we are adopting does not change 

the staff interpretive position that 

permits tacking in connection with the 

reincorporation of the issuer in a 

different state in certain situations. 

3. Tacking of Holding Periods for 

Conversions and Exchanges of 

Securities 

The 1997 Proposing Release proposed 

codifying the Division of Corporation 

Finance’s position that, if the securities 

to be sold were acquired from the issuer 

solely in exchange for other securities of 

the same issuer, the newly acquired 

securities shall be deemed to have been 

acquired at the same time as the 

securities surrendered for conversion or 

exchange, even if the securities 

surrendered were not convertible or 

exchangeable by their terms.143 As 

noted in the 1997 release, Rule 144 does 

not state whether the surrendered 

securities must have been convertible by 

their terms in order for tacking to be 

permitted, which led to some confusion 

on how to calculate the Rule 144 

holding period. We did not receive any 

comments on this proposal. 

We again proposed this amendment to 

Rule 144(d)(3)(ii) in the 2007 Proposing 

Release. In addition, we proposed a note 

to this provision that clarifies the 

Division’s position that if: 


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144See the Division of Corporation Finance’s 

letter to Morgan Stanley & Co., Inc. (June 30, 1993). 

145See comment letter on the 2007 Proposing 

Release from Feldman. 

146See comment letter on the 2007 Proposing 

Release from Sullivan. 

147See amendments to Rule 144(d)(3)(ii). 

148See the Division of Corporation Finance’s 

Compliance and Disclosure Interpretations on Rule 

144 (Updated April 2, 2007), at Section 212 (Rule 

144(d)(3)), Interpretation No. 212.01. 

149See the Division of Corporation Finance’s 

letter to Morgan Stanley & Co., Inc. (June 30, 1993). 

150See the Division of Corporation Finance’s 

letters to Morgan Stanley & Co., Inc. (June 30, 1993) 

and Malden Trust Corporation (Feb. 21, 1989). 

151See comment letters on the 2007 Proposing 

Release from Cleary Gottlieb; Feldman; and 

Richardson Patel. 

152See comment letters on the 2007 Proposing 

Release from Cleary Gottlieb; Financial 

Associations; Richardson Patel; and Weisman. 

153See comment letters on the 2007 Proposing 

Release from Cleary Gottlieb and Financial 

Associations. 

154See comment letter on the 2007 Proposing 

Release from Sullivan. 

155See new Rule 144(d)(3)(x) and related notes. 

156See Note 2 to Rule 144(d)(3)(x). 

157Under the amendments that we are adopting, 

the volume limitations in Rule 144(e) would apply 

only to affiliates. 

158See the Division of Corporation Finance’s 

Compliance and Disclosure Interpretations on Rule 

144 (Updated April 2, 2007), at Section 216 (Rule 

144(e)(3)), Interpretation No. 216.01. See also the 

Division of Corporation Finance’s letter to Standard 

Chartered Bank (June 22, 1987). 

159See amendments to Rule 144(e)(3)(ii). 

160 17 CFR 230.419. The term ‘‘penny stock’’ is 

defined in Exchange Act Rule 3a51–1 [17 CFR 

240.3a51–1]. 

• The original securities do not 

permit cashless conversion or exchange 

by their terms; 

• The parties amend the original 

securities to allow for cashless 

conversion or exchange; and 

• The security holder provides 

consideration, other than solely 

securities of the issuer, for that 

amendment, 

then the newly acquired securities will 

be deemed to have been acquired on the 

date that the original securities were so 

amended.144

One commenter expressed support for 

this proposed amendment.145 Another 

commenter provided a suggestion for a 

technical change to the proposed note, 

that the phrase ‘‘so long as the 

conversion or exchange itself meets the 

conditions of this section,’’ be 

deleted.146 We are adopting the changes 

to Rule 144(d), substantially as 

proposed.147 In response to comment, 

we are further clarifying the note to Rule 

144(d)(3)(ii) to clarify that the newly 

acquired securities shall be deemed to 

have been acquired at the same time as 

the amendment to the surrendered 

securities, so long as, in the conversion 

or exchange, the securities to be sold 

were acquired from the issuer solely in 

exchange for other securities of the same 

issuer. 

4. Cashless Exercise of Options and 

Warrants 

Several commenters responding to the 

1997 Proposing Release suggested that 

we codify the Division of Corporation 

Finance’s position that, upon a cashless 

exercise of options or warrants, the 

newly acquired underlying securities 

are deemed to have been acquired when 

the corresponding options or warrants 

were acquired, even if the options or 

warrants originally did not provide for 

cashless exercise by their terms.148

In the 2007 Proposing Release, we 

proposed to revise Rule 144 to codify 

that position. We also proposed to add 

two notes to this new paragraph. As 

proposed, the first note would codify 

the Division’s position that if: 

• The original options or warrants do 

not permit cashless exercise by their 

terms; and 

• The holder provides consideration, 

other than solely securities of the issuer, 

to amend the options or warrants to 

allow for cashless exercise, 

then the amended options or warrants 

would be deemed to have been acquired 

on the date that the original options or 

warrants were so amended.149 This 

treatment is analogous to our treatment 

of conversions and exchanges. 

The second note would codify the 

Division’s position that the grant of 

certain options or warrants that are not 

purchased for cash or property does not 

create an investment risk in a manner 

that would justify tacking the holding 

period for the options or warrants to the 

holding period for the securities 

received upon exercise of the options or 

warrants.150 This is the case for options 

granted under an employee benefit plan. 

The note would clarify that, in such 

instances, the holder would not be 

allowed to tack the holding period of 

the option or warrant and would be 

deemed to have acquired the underlying 

securities on the date the option or 

warrant was exercised, if the conditions 

of Rule 144(d)(1) and Rule 144(d)(2) are 

met at the time of exercise. 

Three commenters supported the 

codification of the staff interpretation 

relating to the cashless exercise of 

options and warrants.151 Some 

commenters believed that the proposed 

rule should be expanded,152 such as to 

include warrants and options that have 

only a de minimis exercise price.153 One 

commenter suggested that we delete the 

phrase ‘‘so long as the conditions of 

Rule 144(d)(1) and Rule 144(d)(2) are 

met at the time of exercise,’’ in the 

second proposed note.154

We are adopting the amendments, 

substantially as proposed.155 In 

response to comment, we have further 

clarified the second note to Rule 144 to 

make it clear that the newly acquired 

securities shall be deemed to have been 

acquired at the same time as the 

amendment to the options or warrants 

so long as the exercise itself was 

cashless.156

5. Aggregation of Pledged Securities 

In response to suggestions from 

commenters on the 1997 proposals, we 

proposed in the 2007 Proposing Release 

to add a note that would address how 

a pledgee of securities should calculate 

the Rule 144(e) volume limitation 

condition.157 The note would codify the 

Division of Corporation Finance’s 

position that, so long as the pledgees are 

not the same ‘‘person’’ under Rule 

144(a)(2), a pledgee of securities may 

sell the pledged securities without 

having to aggregate the sale with sales 

by other pledgees of the same securities 

from the same pledgor, as long as there 

is no concerted action by those 

pledgees.158 As an example, assume that 

a security holder (the pledgor) pledges 

the securities he owns in Company A to 

two banks, Bank X and Bank Y (the 

pledgees). If the pledgor defaults: 

• Upon default, Bank X does not have 

to aggregate its sales of Company A 

securities with Bank Y’s sales of 

Company A securities unless Bank X 

and Bank Y are acting in concert, but 

• Bank X individually still must 

aggregate its sales with the pledgor’s 

sales, and 

• Bank Y individually still must 

aggregate its sales with the pledgor’s 

sales. 

Provided that the loans and pledges 

are bona fide transactions and there is 

no concerted action among pledgees and 

no other aggregation provisions under 

Rule 144(e) apply, we do not believe 

that extra burdens on pledgees to track 

and coordinate resales by other pledgees 

are warranted. 

We received no comments on this 

proposal, and we are adopting the 

amendment to Rule 144(e), as 

proposed.159

6. Treatment of Securities Issued by 

‘‘Reporting and Non-Reporting Shell 

Companies’’

A blank check company is a company 

that: 

• Is in the development stage; 

• Has no specific business plan or 

purpose, or has indicated that its 

business plan is to merge with or 

acquire an unidentified third party; and 

• Issues penny stock.160


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161See Release No. 33–6932 (Apr. 28, 1992) [57 

FR 18037]. 

162 17 CFR 230.419. 

163 17 CFR 230.405. 

164See Release No. 33–8587 (Jul. 15, 2005) [70 FR 

42234]. 

165See the Division of Corporation Finance’s 

letter to Ken Worm, NASD Regulation, Inc. (Jan. 21, 

2000). In that letter, the Division stated that 

‘‘transactions in blank check company securities by 

their promoters or affiliates . . . are not the kind of 

ordinary trading transactions between individual 

investors of securities already issued that Section 

4(1) [of the Securities Act] was designed to 

exempt.’’ The Division stated its view that ‘‘both 

before and after the business combination or 

transaction with an operating entity or other person, 

the promoters or affiliates of blank check 

companies, as well as their transferees, are 

‘underwriters’ of the securities issued. . . . Rule 144 

would not be available for resale transactions in this 

situation, regardless of technical compliance with 

that rule, because these resale transactions appear 

to be designed to distribute or redistribute securities 

to the public without compliance with the 

registration requirements of the Securities Act.’’

166A ‘‘business combination related shell 

company’’ is defined in Securities Act Rule 405 as 

a shell company that is (1) formed by an entity that 

is not a shell company solely for the purpose of 

changing the corporate domicile of that entity solely 

within the United States; or (2) formed by an entity 

that is not a shell company solely for the purpose 

of completing a business combination transaction 

(as defined in § 230.165(f)) among one or more 

entities other than the shell company, none of 

which is a shell company. 

167See, e.g., comment letters on the 2007 

Proposing Release from Feldman; Financial 

Associations; Parsons; Pink Sheets; and Williams. 

168See comment letter on the 2007 Proposing 

Release from Pink Sheets. 

169See comment letters on the 2007 Proposing 

Release from Sichenzia and Williams. 

170See comment letter on the 2007 Proposing 

Release from Sichenzia. 

171See new Rule 144(i). 

172Rule 144(i) does not prohibit the resale of 

securities under Rule 144 that were not initially 

issued by a reporting or non-reporting shell 

company or an issuer that has been at any time 

previously such a company, even when the issuer 

is a reporting or non-reporting shell company at the 

time of sale. Contrary to commenters’ concerns, 

Rule 144(i)(1)(i) is not intended to capture a 

‘‘startup company,’’ or, in other words, a company 

with a limited operating history, in the definition 

of a reporting or non-reporting shell company, as 

we believe that such a company does not meet the 

condition of having ‘‘no or nominal operations.’’

173 17 CFR 239.16b. 

174See Release No. 33–8587. These provisions are 

consistent with the Form S–8 provisions for shell 

companies, except that Form S–8 requires a former 

shell company to wait 60 days, rather than 90 days, 

before it is able to use the form to register securities. 

175 17 CFR 249.210 and 17 CFR 249.220f. In 

another Commission release, we are rescinding 

Form 10–SB [17 CFR 249.210b]. See SEC Press 

Release No. 2007–233 (Nov. 15, 2007), available at 

http://www.sec.gov/news/press/2007/2007-233.htm. 

176 17 CFR 249.308. Items 2.01(f) and 5.01(a)(8) of 

Form 8–K require a company in a transaction where 

the company ceases being a shell company to file 

a current report on Form 8–K containing the 

information (or identifying the previous filing in 

which the information is included) that would be 

required in a registration statement on Form 10 or 

Form 10–SB to register a class of securities under 

Section 12 of the Exchange Act. 

Such companies historically have 

provided opportunity for abuse of the 

federal securities laws, particularly by 

serving as vehicles to avoid the 

registration requirements of the 

securities laws.161 Rule 419 under the 

Securities Act 162 was adopted in 1992 

to control the extent to which such 

companies are able to access funds from 

a public offering. 

In 2005, we amended Securities Act 

Rule 405 163 to define a ‘‘shell 

company’’ to mean a registrant, other 

than an asset-backed issuer, that has: 

(1) No or nominal operations; and 

(2) Either: 

• No or nominal assets; 

• Assets consisting solely of cash and 

cash equivalents; or 

• Assets consisting of any amount of 

cash and cash equivalents and nominal 

other assets.164

On January 21, 2000, the Division of 

Corporation Finance concluded in a 

letter to NASD Regulation, Inc. that Rule 

144 is not available for the resale of 

securities initially issued by companies 

that are, or previously were, blank check 

companies.165 In an effort to curtail 

misuse of Rule 144 by security holders 

through transactions in the securities of 

blank check companies, we proposed to 

codify this position with some 

modifications. First, we proposed to 

modify the staff interpretation to 

address securities of all companies, 

other than asset-backed issuers, that 

meet the definition of a shell company, 

including blank check companies. The 

category of companies to whom the staff 

interpretation was proposed to apply is 

broader than the Rule 405 definition of 

a ‘‘shell company,’’ however, as it 

would apply to any ‘‘issuer’’ meeting 

that standard, whereas the Rule 405 

definition refers only to ‘‘registrants.’’

For purposes of the discussion in this 

release only, we call these companies, 

‘‘reporting and non-reporting shell 

companies.’’ Under the proposed rule, a 

person who wishes to resell securities of 

a company that is, or was, a reporting 

or a non-reporting shell company, other 

than a business combination related 

shell company,166 would not be able to 

rely on Rule 144 to sell the securities. 

Several commenters provided 

comments on the proposal to codify this 

staff interpretation with some 

modification. Some commenters 

expressed support for the proposed 

codification,167 with one commenter 

noting that most micro-cap frauds result 

from the purchase and sale of securities 

issued by shell companies.168 Two 

commenters expressed concern that 

expanding the staff interpretation to 

shell companies would prohibit reliance 

on Rule 144 by security holders of 

businesses attempting to implement real 

business plans that technically meet the 

definition of a shell company, but are 

not blank check companies.169 One 

commenter recommended that the 

Commission only preclude reliance on 

Rule 144 for the resale of securities if 

they were issued at the time the issuer 

was a shell company.170

We are adopting, as proposed, the 

amendment to prohibit reliance on Rule 

144 for the resale of securities of a 

company that is a reporting or a nonreporting shell company.171 Under the 

amended rules, Rule 144 will not be 

available for the resale of securities 

initially issued by either a reporting or 

non-reporting shell company (other than 

a business combination related shell 

company) or an issuer that has been at 

any time previously a reporting or nonreporting shell company, unless the 

issuer is a former shell company that 

meets all of the conditions discussed 

below.172

In another part of our proposal 

regarding the resale of securities of 

reporting and non-reporting shell 

companies, we proposed to modify the 

staff interpretation to make Rule 144 

available for resales of securities of 

companies that were formerly shell 

companies under provisions that are 

similar to other provisions that permit 

the use of a Securities Act Form S–8173

registration statement by reporting 

companies that were former shell 

companies.174 Under the proposal, 

despite the general prohibition against 

reliance on Rule 144 with respect to 

securities acquired by shell companies 

or former shell companies, a security 

holder would have been able to resell 

securities subject to Rule 144 conditions 

if the issuer: 

• Had ceased to be a shell company; 

• Is subject to Exchange Act reporting 

obligations; 

• Has filed all required Exchange Act 

reports during the preceding twelve 

months; and 

• At least 90 days have elapsed from 

the time the issuer files ‘‘Form 10 

information’’ reflecting the fact that it 

had ceased to be a shell company before 

any securities were sold under Rule 144. 

‘‘Form 10 information’’ is equivalent to 

information that a company would be 

required to file if it were registering a 

class of securities on Form 10 or Form 

20–F under the Exchange Act.175 This 

information is ordinarily included in a 

Form 8–K if the former shell company 

has been filing Exchange Act reports.176

As proposed, the Rule 144(d) holding 

period for restricted securities sold 

under this provision would have 


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177See new Rule 144(i)(2). 

178See comment letter on the 2007 Proposing 

Release from Sichenzia. 

179See new Rule 144(i)(3). 

180See, e.g., comment letters on the 2007 

Proposing Release from Charles Nelson; Tom 

Russell; and Williams. 

181 17 CFR 240.10b5–1. 

182 15 U.S.C. 78j(b). 

183 17 CFR 240.10b–5. As stated in Rule 10b5–

1(a), the ‘‘manipulative and deceptive devices’’

prohibited by Section 10(b) and Rule 10b–5 

include, among other things, the purchase or sale 

of a security of any issuer, on the basis of material 

nonpublic information about that security or issuer, 

in breach of a duty of trust or confidence that is 

owed directly, indirectly, or derivatively, to the 

issuer of that security or the shareholders of that 

issuer, or to any other person who is the source of 

the material nonpublic information. 

184See the Division of Corporation Finance’s 

Manual of Publicly Available Telephone 

Interpretations, Fourth Supplement (May 30, 2001), 

at Rule 10b5–1; Form 144, Interpretation No. 2. 

185See amendments to Form 144. 

186 17 CFR 230.145. 

187See comment letters on the 1997 Proposing 

Release from ABA; ASCS; AT&T; BG&E; Brobeck, 

Phleger & Harrison, LLP (‘‘Brobeck’’); Corporate 

Counsel; Intel; NY Bar; NY City Bar; SIA; Smith 

Barney; Sullivan; and Testa Hurwitz. 

commenced at the time that the Form 10 

information was filed. 

We are adopting this part of the 

amendments, with some 

modification.177 We have modified the 

proposal to require at least one year to 

elapse after Form 10 information is filed 

with Commission before a security 

holder can resell any securities of an 

issuer that was formerly a shell 

company subject to Rule 144 conditions. 

We believe that the one-year period is 

necessary for investor protection given 

the comments relating to the abuse and 

micro-cap fraud occurring in connection 

with the securities of shell companies. 

Both restricted securities and 

unrestricted securities will be subject to 

the same one-year waiting period. Thus, 

under the amendments that we are 

adopting, Rule 144 is available for the 

resale of restricted or unrestricted 

securities that were initially issued by a 

reporting or non-reporting shell 

company or an issuer that has been at 

any time previously a reporting or nonreporting shell company, only if the 

following conditions are met: 

• The issuer of the securities that was 

formerly a reporting or non-reporting 

shell company has ceased to be a shell 

company; 

• The issuer of the securities is 

subject to the reporting requirements of 

Section 13 or 15(d) of the Exchange Act; 

• The issuer of the securities has filed 

all reports and material required to be 

filed under Section 13 or 15(d) of the 

Exchange Act, as applicable, during the 

preceding 12 months (or for such 

shorter period that the issuer was 

required to file such reports and 

materials), other than Form 8–K reports 

(§ 249.308 of this chapter); and 

• At least one year has elapsed from 

the time that the issuer filed current 

Form 10 type information with the 

Commission reflecting its status as an 

entity that is not a shell company. 

One commenter requested clarification 

on when a Form 10 is deemed filed, if 

the staff is undertaking a review of the 

filing, and recommended that the Form 

10 should be deemed filed when the 

information is filed initially with the 

Commission.178 To promote consistency 

and to provide a date that security 

holders can rely upon, the Form 10 

information will be deemed filed when 

the initial filing is made with the 

Commission, rather than when the staff 

of the Division of Corporation Finance 

has completed its review of the filing or 

an amendment is made in response to 

staff comments, for purposes of the 

amendments.179

Some commenters recommended that 

we permit security holders of nonreporting companies that have merged 

with a private operating company and 

therefore have ceased to be shell 

companies to be able to rely on Rule 

144.180 We are not adopting a provision 

to permit this, because we believe that 

Form 10 type information and Exchange 

Act reporting requirements are 

important in protecting against potential 

abuse. 

7. Representations Required From 

Security Holders Relying on Exchange 

Act Rule 10b5–1(c) 

Rule 10b5–1181 under the Exchange 

Act defines when a purchase or sale 

constitutes trading ‘‘on the basis of’’

material nonpublic information in 

insider trading cases brought under 

Exchange Act Section 10(b)182 and Rule 

10b–5.183 Specifically, a purchase or 

sale of a security of an issuer is ‘‘on the 

basis of’’ material nonpublic 

information about that security or issuer 

if the person making the purchase or 

sale was aware of the material 

nonpublic information when the person 

made the purchase or sale. However, 

Rule 10b5–1(c) provides an affirmative 

defense that a person’s purchase or sale 

was not ‘‘on the basis of’’ material 

nonpublic information. For this defense 

to be available, the person must 

demonstrate that: 

• Before becoming aware of the 

material nonpublic information, he or 

she had entered into a binding contract 

to purchase or sell the securities, 

provided instructions to another person 

to execute the trade for the instructing 

person’s account, or adopted a written 

plan for trading the securities; 

• The contract, instructions or written 

trading plan satisfy the conditions of 

Rule 10b5–1(c); and 

• The purchase or sale that occurred 

was pursuant to the contract, 

instruction, or plan. 

Form 144 requires a selling security 

holder to represent, as of the date that 

the form is signed, that he or she ‘‘does 

not know any material adverse 

information in regard to the current and 

prospective operations of the issuer of 

the securities to be sold which has not 

been publicly disclosed.’’ The Division 

of Corporation Finance has indicated 

that a selling security holder who 

satisfies Rule 10b5–1(c) may modify the 

Form 144 representation to indicate that 

he or she had no knowledge of material 

adverse information about the issuer as 

of the date on which the holder adopted 

the written trading plan or gave the 

trading instructions. In this case, the 

security holder must specify that date 

and indicate that the representation 

speaks as of that date.184

In order to reconcile the Form 144 

representation with Rule 10b5–1, we 

proposed to codify this interpretive 

position. Under the proposed 

amendments, Form 144 filers would be 

able to make the required representation 

as of the date that they adopted written 

trading plans or gave trading 

instructions that satisfied Rule 10b5–

1(c). We did not receive any comments 

specifically on this proposal. We are 

adopting this amendment, as 

proposed.185

G. Amendments to Rule 145 

Securities Act Rule 145 186 provides 

that exchanges of securities in 

connection with reclassifications of 

securities, mergers or consolidations or 

transfers of assets that are subject to 

shareholder vote constitute sales of 

those securities. Unless an exemption 

from the registration requirement is 

available, Rule 145(a) requires the 

registration of these sales. Rule 145(c) 

deems persons who were parties to such 

a transaction, other than the issuer, or 

affiliates of such parties to be 

underwriters. Rule 145(d) permits the 

resale, subject to specified conditions, of 

securities received in such transactions 

by persons deemed underwriters. In the 

1997 Proposing Release, we proposed to 

eliminate the presumed underwriter and 

resale provisions in Rule 145(c) and (d). 

Many commenters supported the 1997 

proposal.187

In the 2007 Proposing Release, we 

proposed amendments to Rule 145(c) 

and (d) that would: 


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188The terms ‘‘shell company’’ and ‘‘business 

combination related shell company’’ are defined in 

Securities Act Rule 405. See also Release No. 33–

8587 (Jul. 15, 2005) [70 FR 42233]. 

189See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; Fried Frank; 

Financial Associations; and SCSGP. 

190 15 U.S.C. 77c(a)(10). 

191See comment letters on the 2007 Proposing 

Release from Barron and Fried Frank. 

192With respect to a transaction that is exempt 

from registration pursuant to Section 3(a)(10) of the 

Securities Act that falls within Rule 145(a), if any 

party to the transaction is a shell company, then 

any party to the transaction, other than the issuer, 

and its affiliates will be permitted to resell their 

securities in accordance with the restrictions of 

Rule 145(d). Also, the staff intends to issue a 

revised Staff Legal Bulletin No. 3 concurrently with 

the effective date of the amendments that we are 

adopting that will address the treatment of parties 

to a transaction and their affiliates that have 

acquired securities in a transaction exempt from 

registration pursuant to Section 3(a)(10) of the 

Securities Act. 

193We are also adding the definition of ‘‘affiliate’’

to paragraph (e) and transferring the definition of 

‘‘party’’ from paragraph (c) to paragraph (e). 

194The requirement in the newly added Rule 

144(i)(2) that Form 10 information be filed 

reflecting a company’s status as no longer a shell 

company is fulfilled with respect to a Rule 145(a) 

transaction through the filing of the registration 

statement. 

195See new Note to Rule 145(c) and (d). 

196See amendments to Rule 145(d) relating to 

‘‘securities acquired in a transaction specified in 

paragraph (a) that was registered under the Act.’’

197 17 CFR 230.901 through 230.905 and 

Preliminary Notes. 

198See 17 CFR 230.903. 

199See Release No. 33–7505. 

200See comment letters on the 2007 Proposing 

Release from ABA; Cleary Gottlieb; Financial 

Associations; Fried Frank; Herbert Smith CIS LLP 

(‘‘Herbert Smith’’); London Forum; Parsons; and 

Sullivan. 

201See, e.g., comment letters on the 2007 

Proposing Release from Cleary Gottlieb; Financial 

Associations; and London Forum. 

202See Release No. 33–7505. 

203See amendments to Rule 903(b)(3) of the 

Securities Act. 

• Eliminate the presumed 

underwriter provision in Rule 145(c), 

except with regard to Rule 145(a) 

transactions that involve a shell 

company (other than a business 

combination related shell company); 188

and 

• Harmonize the requirements in 

Rule 145(d) with the proposed 

provisions in Rule 144 that would apply 

to securities of shell companies. 

Under the proposed rule, where a party 

to a Rule 145(a) transaction, other than 

the issuer, is a shell company (other 

than a business combination related 

shell company), the party and its 

affiliates could resell securities acquired 

in connection with the transaction only 

in accordance with Rule 145(d). 

Five commenters expressly supported 

the proposed changes to Rule 145.189

Two commenters requested that we 

reassess the impact of the proposed Rule 

145 amendments on the staff’s position 

that stock received in a reorganization 

that is exempt from registration 

pursuant to Section 3(a)(10) of the 

Securities Act 190 could be publicly 

resold pursuant to Rule 145(d)(2).191

After considering the comments, we 

believe that it is appropriate to adopt 

the amendments to Rule 145, as 

proposed. The presumptive underwriter 

provision in Rule 145 is no longer 

necessary in most circumstances. 

However, based on our experience with 

transactions involving shell companies 

that have resulted in abusive sales of 

securities, we believe that there 

continues to be a need to apply the 

presumptive underwriter provision to 

reporting and non-reporting shell 

companies and their affiliates and 

promoters. We are amending Rule 145 

to eliminate the presumptive 

underwriter provision except when a 

party to the Rule 145(a) transaction is a 

shell company.192

Rule 145(c) now provides that any 

party, other than the issuer, to a Rule 

145(a) transaction involving a shell 

company (but not a business 

combination related shell company), 

including any affiliate of such party, 

who publicly offers or sells securities of 

the issuer acquired in connection with 

the transaction, will continue to be 

deemed an underwriter.193

Under the amendments to Rule 145 

that we are adopting, if the issuer has 

met the requirements of new paragraph 

(i)(2) of Rule 144,194 the persons and 

parties deemed underwriters will be 

able to resell their securities subject to 

paragraphs (c), (e), (f), and (g) of Rule 

144 after at least 90 days have elapsed 

since the securities were acquired in the 

transaction. After six months have 

elapsed since the securities were 

acquired in the Rule 145(a) transaction, 

the persons and parties will be 

permitted to resell their securities, 

subject only to the Rule 144(c) current 

public information condition, provided 

that the sellers are not affiliates of the 

issuer at the time of sale and have not 

been affiliates during the three months 

before the sale. After one year has 

elapsed since the securities were 

acquired in the transaction, the persons 

and parties will be permitted to resell 

their securities without any limitations 

under Rule 145(d), provided that they 

are non-affiliates at the time of sale and 

have not been affiliates during the three 

months before the sale. 

In addition, we are adopting, as 

proposed, a note to paragraphs (c) and 

(d) of Rule 145 that paragraph (d) is not 

available with respect to any transaction 

or series of transactions that, although 

in technical compliance with the rule, is 

part of a plan or scheme to evade the 

registration requirements of the 

Securities Act. 195 We have included a 

similar statement in the Preliminary 

Note to Rule 144. We also are adopting, 

as proposed, the clarification to the 

language in Rule 145(d) regarding the 

securities that were acquired in a 

transaction specified in Rule 145(a). 196

H. Conforming and Other Amendments 

1. Regulation S Distribution Compliance 

Period for Category Three Issuers 

The purpose of the distribution 

compliance period in Regulation S 197 is 

to ensure that during the offering period 

and in the subsequent aftermarket 

trading that takes place offshore, the 

persons complying with the Rule 903 198

safe harbor (issuers, distributors and 

their affiliates) are not engaged in an 

unregistered, non-exempt distribution of 

securities into the United States capital 

markets. 199 In the 2007 Proposing 

Release, we requested comment on 

whether to amend Regulation S to 

conform the one-year distribution 

compliance period in Rule 903(b)(3)(iii) 

for Category 3 issuers (U.S. reporting 

issuers) to the proposed six-month Rule 

144(d) holding period, or to retain the 

one-year distribution compliance 

period. 

Several commenters recommended 

revising the Regulation S distribution 

compliance period in Rule 903(b)(3)(iii) 

to coincide with the six-month holding 

period under a revised Rule 144. 200

Commenters reasoned, among other 

things, that such a revision is logical 

and would promote consistency among 

the rules. 201 We did not receive any 

comment letters objecting to such an 

amendment to Regulation S. 

When Regulation S was amended in 

1998, the distribution compliance 

period was revised to coincide with the 

Rule 144(d) holding period.202 In 

making this revision, we noted that a 

distribution compliance period that is 

longer than the Rule 144 holding period 

is unnecessary and could be confusing 

to apply. For the same reason, we are 

amending Regulation S to conform the 

distribution compliance period in Rule 

903(b)(3)(iii) for Category 3 reporting 

issuers to the amendments to the Rule 

144 holding period.203 As a result, U.S. 

reporting issuers will be subject to a 

distribution compliance period of six 

months under Regulation S. 


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204 17 CFR 230.190 and Release No. 33–8518. 

205 17 CFR 230.190(a)(3). 

206Although the asset-backed securities we are 

discussing may be privately placed, the issuing 

trust will have also registered the sale of other assetbacked securities and may have a reporting 

obligation under Section 15(d) of the Exchange Act 

for some time. 

207This change would not in any way impact the 

disclosure requirements for resecuritizations. 

208See Saskia Scholtes, Left in the Dark on Debt 

Obligations, FT.com (Mar. 27, 2007) (describing 

privately placed collateralized debt obligations 

(CDOs) vehicles used to repackage portfolios of 

other debt and noting that ‘‘the biggest category of 

deals, at 44%, consisted of CDOS backed by assetbacked securities such as those backed by subprime 

mortgages’’). 

209See comment letter on the 2007 Proposing 

Release from Financial Associations. 

210See amendments to Rule 190(a) of the 

Securities Act. 211 17 CFR 230.701(g)(3). 212See comment letter on the 2007 Proposing 

Release from ABA. 213See amendments to Rule 701(g)(3) of the 

Securities Act. 

214 44 U.S.C. 3501 et seq. 

215See 44 U.S.C. 3507 and 5 CFR 1320.11. 

2. Underlying Securities in AssetBacked Securities Transactions 

In 2004, we adopted Securities Act 

Rule 190 to clarify when registration of 

the sale of underlying securities in 

asset-backed securities transactions is 

required. 204 One of the basic premises 

underlying asset-backed securities 

offerings is that an investor is buying 

participation in the underlying assets. 

Therefore, if the assets being securitized 

are themselves securities under the 

Securities Act (commonly referred to as 

a ‘‘resecuritization’’), the offering of the 

underlying securities must itself be 

registered or exempt from registration 

under the Securities Act. Rule 190 

provides the framework for determining 

if registration of the sale of these 

underlying assets is required at the time 

of the registered asset-backed securities 

offering. 

One of the requirements of Rule 190 

is that the depositor must be free to 

publicly resell the securities without 

registration under the Securities Act. 205

Before the amendments that we are 

adopting, this provision noted as an 

example that if the underlying securities 

are Rule 144 restricted securities, under 

the conditions of the previous Rule 

144(k), at least two years must have 

elapsed from the date the underlying 

securities were acquired from the issuer, 

or an affiliate of the issuer, and the date 

they are pooled and resecuritized 

pursuant to Rule 190. 

The changes to Rule 144 with no 

concurrent revision to Rule 190 would 

have allowed privately placed debt or 

other asset-backed securities to be 

publicly resecuritized in as little as six 

months after their original issuance 

without registration of the underlying 

securities. 206 Given that Rule 190 

addresses the public distribution of 

privately placed securities via 

resecuritization transactions, we 

proposed to revise Rule 190 to retain the 

current two-year period for 

resecuritizations that do not require 

registration of the underlying 

securities. 207

A particular issuance of asset-backed 

securities often involves one or more 

publicly offered classes (e.g., classes 

rated investment grade) as well as one 

or more privately placed classes (e.g., 

non-investment grade subordinated 

classes). In most instances, the 

subordinated classes act as structural 

credit enhancement for the publicly 

offered senior classes by receiving 

payments after, and therefore absorbing 

losses before, the senior classes. These 

unregistered asset-backed securities are 

typically rated below investment grade, 

or are unrated, and as such could not be 

offered on Form S–3. They typically are 

not fungible with registered securities 

from the same offering and are held by 

very few investors. Further, the trust or 

issuing entity usually ceases reporting 

under the Exchange Act with respect to 

the publicly offered classes after its 

initial Form 10–K is filed. We 

understand that the privately placed 

subordinated securities in these 

transactions are often the types of 

securities that are pooled and 

resecuritized into new asset-backed 

securities. 208

One commenter provided comments 

on the proposal to retain the two-year 

period for resecuritizations that do not 

require registration of the underlying 

securities. 209 The commenter submitted 

that the proposed two-year holding 

period for resecuritizations should be 

shortened to no more than six months 

(or twelve months, if tolling were to be 

reinstituted). With respect to non-assetbacked securities (e.g., corporate debt), 

the commenter stated that we should 

permit securitization without 

registration during the revised period, as 

these securities face fewer 

complications and are not the focus of 

our concerns. 

Due to the particular circumstances of 

asset-backed securities and our 

experience with a two-year period 

under both Regulation AB and the prior 

staff positions that were codified by 

those rules, we are not making any 

changes to shorten the current two-year 

holding period for restricted securities 

that are to be resecuritized in publicly 

registered offerings. In light of the 

changes that we are making to Rule 144, 

we are amending Rule 190 to provide 

that if the underlying securities are 

restricted securities, Rule 144 is 

available for the sale of the securities in 

the resecuritization, if at least two years 

have elapsed since the later of the date 

the securities were acquired from the 

issuer of the underlying securities or 

from an affiliate of the issuer of the 

underlying securities. 210 Of course, the 

underlying securities could still be 

resecuritized if they do not meet this 

requirement; their sale would need to be 

concurrently registered with the offering 

of the asset-backed securities on a form 

for which the offering of the class of 

underlying securities would be eligible. 

In addition, nothing in Rule 190, as 

amended, will lengthen the six-month 

holding period of the underlying 

securities under Rule 144 for resales 

other than in connection with publicly 

registered resecuritizations. 

3. Securities Act Rule 701(g)(3) 

Securities Act Rule 701(g)(3) 211

outlines the resale limitations for 

securities issued under Rule 701. The 

limitations for resales by non-affiliates 

includes references to paragraphs (e) 

and (h) of Rule 144, which under the 

amendments that we are adopting no 

longer apply to resales by non-affiliates. 

We received one comment on the 

conforming change, and the commenter 

concurred with the proposed 

amendment to Securities Act Rule 

701(g)(3). 212 Accordingly, we believe 

that it is appropriate to conform the 

resale restrictions of securities acquired 

pursuant to employee benefit plans 

under Rule 701 of the Securities Act. 

We are adopting the amendment to 

remove references to Rule 144(e) and (h) 

from Rule 701.213

III. Paperwork Reduction Act 

A. Background 

Our amendments contain ‘‘collection 

of information’’ requirements within the 

meaning of the Paperwork Reduction 

Act of 1995 (‘‘PRA’’).214 We submitted 

the amendments to Form 144 to the 

Office of Management and Budget 

(OMB) for review in accordance with 

the PRA.215 OMB has approved the 

revision. The title for the information 

collection is ‘‘Notice of Proposed Sale of 

Securities Pursuant to Rule 144 under 

the Securities Act of 1933’’ (OMB 

Control No. 3235–0101). An agency may 

not conduct or sponsor, and a person is 

not required to respond to, a collection 

of information unless it displays a 

current valid control number. 

The primary purpose of this 

collection of information is the 

disclosure of a proposed sale of 


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Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / Rules and Regulations 71561 

216We proposed to amend Form 144 to include 

information regarding security holders’ hedging 

activities and to allow security holders to represent 

that they do not know of material adverse 

information about the company as of the date they 

adopt a plan under Exchange Act Rule 10b5–1. We 

are adopting the amendment to Form 144 regarding 

the representation that the security holder does not 

know of material adverse information about the 

company as of the date that he or she adopts a plan 

under Exchange Act Rule 10b5–1. 

217See comment letter on the 2007 Proposing 

Release from Washington Service on PRA estimates 

(‘‘WS 1’’). 

218This reflects current OMB estimates. 

219The Office of Economic Analysis obtained 

data from the Thomson Financial Wharton Research 

Database. The estimate is based on information 

contained in notices on Form 144 filed in 2005. 

220This estimate is based on information 

contained in notices on Form 144 filed in 2005. 

securities by security holders deemed 

not to be engaged in the distribution of 

the securities and therefore not 

underwriters. Form 144 may be filed in 

paper or electronically using the EDGAR 

filing system. Form 144 filings are 

publicly available. Persons reselling 

securities in reliance on Rule 144 are 

the respondents to the information 

required by Form 144. The information 

collection requirements imposed by 

Form 144 are mandatory. 

B. Summary of Amendments 

In the 2007 Proposing Release, we 

proposed an amendment to the Form 

144 filing requirement to eliminate the 

need for non-affiliates of the issuer to 

file Form 144 in order to sell their 

securities under Rule 144. In addition, 

the proposal would have raised the 

filing threshold for Form 144 to 1,000 

shares or $50,000 worth of securities 

during a three-month period. Currently, 

the Form 144 filing threshold is 500 

shares or $10,000. The proposed 

amendments also included two other 

minor changes to Form 144.216

The 2007 Proposing Release included 

a PRA analysis. We received one 

comment letter addressing this analysis. 

The commenter noted that our estimate 

of burden hours necessary to complete 

a notice on Form 4 is 0.5 hours, while 

we estimate that it takes 2.0 burden 

hours to complete Form 144.217 This 

commenter believed our estimates for 

the two forms should be comparable. 

Because this commenter estimated that 

it takes only three minutes on average 

to key and proof Form 144 data items, 

the commenter believed that 0.5 hours 

is probably a more accurate estimate of 

the burden hours needed to complete 

the Form 144. 

In addition, in response to comment, 

we are raising the thresholds that trigger 

a Form 144 filing requirement to 5,000 

shares or $50,000 of securities within a 

three-month period, from the proposed 

thresholds of 1,000 shares or $50,000. 

Therefore, we are adjusting our 

paperwork burden estimates for Form 

144. 

C. Revised Burden Estimates 

Due to comment and the changes that 

we are adopting, we are publishing 

revised burden estimates for Form 144. 

Currently, we estimate that 60,500 

notices on Form 144 are filed annually 

for a total burden of 121,000 hours.218

As noted in the proposing release, the 

amendments that eliminate the need for 

non-affiliates to file Form 144 notices 

will decrease the annual Form 144 

filings by approximately 45%. As a 

result, we estimate that the number of 

annual Form 144 filings will be reduced 

from 60,500 filings to 33,373 filings.219

In addition, we estimate that 

increasing the Form 144 filing 

thresholds from 500 shares or $10,000 to 

5,000 shares or $50,000 will further 

reduce the number of Form 144 filings 

that we receive annually by 

approximately 30% (10,012 fewer 

filings).220 After considering the 

comment letter that we received on the 

current PRA estimate for Form 144, we 

estimate that each notice on Form 144 

imposes a burden for PRA purposes of 

one hour. Therefore, under these revised 

estimates, the amendments that we are 

adopting will reduce the burden on 

selling security holders who sell the 

securities under Rule 144 by a total of 

approximately 37,139 burden hours. 

D. Solicitation of Comments 

Pursuant to 44 U.S.C. 3506(c)(2)(A), 

we request comments to (1) evaluate 

whether the proposed collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information would have practical 

utility; (2) evaluate the accuracy of our 

estimate of the burden of the proposed 

collection of information; (3) determine 

whether there are ways to enhance the 

quality, utility and clarity of the 

information to be collected; and (4) 

evaluate whether there are ways to 

minimize the burden of the collection of 

information on those who are to 

respond, including through the use of 

automated collection techniques or 

other forms of information technology. 

Persons submitting comments on the 

collection of information requirements 

should direct the comments to the 

Office of Management and Budget, 

Attention: Desk Officer for the 

Securities and Exchange Commission, 

Office of Information and Regulatory 

Affairs, Washington, DC 20503, and 

should send a copy to Nancy M. Morris, 

Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–9303, with 

reference to File No. S7–11–07. 

Requests for materials submitted to 

OMB by the Commission with regard to 

these collections of information should 

be in writing, refer to File No. S7–11–

07, and be submitted to the Securities 

and Exchange Commission, Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549–0609. OMB is 

required to make a decision concerning 

the collection of information between 30 

and 60 days after publication of this 

release. Consequently, a comment to 

OMB is best assured of having its full 

effect if OMB receives it within 30 days 

of publication. 

IV. Cost-Benefit Analysis 

A. Background 

Rule 144 under the Securities Act of 

1933 creates a safe harbor for the sale of 

securities under the exemption set forth 

in Section 4(1) of the Securities Act. 

Specifically, a selling security holder is 

deemed not to be an underwriter under 

Section 2(a)(11), and therefore may take 

advantage of the Section 4(1) exemption 

and need not register its sale of 

securities, if the sale complies with the 

provisions of the rule. Securities Act 

Rule 145 requires Securities Act 

registration of certain types of business 

combination transactions, unless an 

exemption from the registration 

requirement is available. Rule 145 

contains a safe harbor provision similar 

to Rule 144 for presumed underwriters 

who receive securities in such a 

business combination transaction. Form 

144 is required to be filed by persons 

intending to sell securities in reliance 

on Rule 144 if the amount of securities 

to be sold in any three-month period 

exceeds specified thresholds. The 

primary purpose of the form is to 

publicly disclose the proposed sale of 

securities by persons deemed not to be 

engaged in the distribution of the 

securities. 

B. Description of Amendments 

We are adopting, substantially as 

proposed, amendments to Rule 144, 

Rule 145, and Form 144 that will 

accomplish the following: 

• Simplify the Preliminary Note to 

Rule 144 and the text of Rule 144, using 

plain English principles; 

• Shorten the Rule 144(d) holding 

period for restricted securities of 

Exchange Act reporting issuers to six 

months for both affiliates and nonaffiliates; 


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221These filings were obtained through Thomson 

Financial’s Wharton Research Database which 

includes Forms 144 filed from 1996 through 2007. 

222There is also evidence that the non-trading 

period is associated with the premium that 

investors charge for lack of liquidity. See, for 

example, Silber, W.L., Discounts on restricted stock: 

The impact of illiquidity on stock prices, Financial 

Analysts Journal, 47, 60–64 (1991). Several studies 

have attempted to separate the discount associated 

with the non-transferability of the shares from other 

factors that affect the discount. See, e.g., Wruck, 

K.H., Equity Ownership Concentration and Firm 

Value, Evidence from Private Equity Financings, 

Journal of Financial Economics, 23, 3–28 (1989); 

Hertzel, M., and R.L. Smith, Market Discounts and 

Shareholder Gains for Placing Equity Privately, 

Journal of Finance, 459–485 (1993); Bajaj, M., 

Denis, D., Ferris, S.P., and A. Sarin, Firm Value and 

Marketability Discounts, Journal of Corporate Law, 

27, 89–115 (2001); Finnerty, J.D., The Impact of 

Transfer Restrictions on Stock Prices (Fordham U. 

Working Paper, 2002). The average discounts 

attributed to lack of transferability across these 

studies is estimated between 7% and 20%. Among 

the other factors that could affect the discount are 

the amount of resources that private investors need 

to expend to assess the quality of the issuing firm 

or to monitor the firm, the ability of the investors 

to diversify the risk associated with the investment, 

whether the investors are cash constrained, and the 

financial situation of the firm. 

223We are not aware of any empirical work that 

examines the effect of shortening the holding period 

in Rule 144 on the discount. Longstaff calculates an 

upper bound for percentage discounts for lack of 

marketability. According to his model, drops in a 

restriction from two years to one year and from one 

year to 180 days are each associated with a 30% 

drop in the discount. Longstaff, F.A., How Much 

Can Marketability Affect Security Values?, Journal 

of Finance, 50, 1767–1774 (1995). 

224See, e.g., comment letters on the 2007 

Proposing Release from Financial Associations; 

Richardson Patel; and Roth. 

225See, e.g., comment letters on the 2007 

Proposing Release from Pink Sheets and Sichenzia. 

226See comment letter on the 2007 Proposing 

Release from Parsons. 

227See comment letter on the 2007 Proposing 

Release from Weisman. 

• Significantly reduce requirements 

applicable to non-affiliates of reporting 

and non-reporting issuers so that: 

• Non-affiliates of reporting issuers 

will be subject only to the current 

public information requirement after 

meeting the six-month holding period 

for restricted securities of these issuers 

and up until one year since the date 

they acquired the restricted securities 

from the issuer or affiliate of the issuer; 

and 

• Non-affiliates of non-reporting 

issuers will be able to resell restricted 

securities of these issuers after satisfying 

a one-year holding period without 

having to comply with any other 

condition of Rule 144; 

• For affiliate sales: 

• Revise the ‘‘manner of sale’’

limitations, 

• Eliminate the ‘‘manner of sale’’

limitations with respect to debt 

securities, 

• Raise the volume limitations for 

debt securities, and 

• Increase the thresholds that trigger 

a Form 144 filing requirement; 

• Codify staff interpretive positions, 

as they relate to Rule 144, concerning 

the following issues: 

• Inclusion of securities acquired in a 

transaction under Section 4(6) of the 

Securities Act in the definition of 

‘‘restricted securities,’’

• The effect that creation of a holding 

company structure has on a security 

holder’s holding period, 

• Holding periods for conversions 

and exchanges of securities, 

• Holding periods for cashless 

exercise of options and warrants, 

• Aggregation of a pledgee’s resales 

with resales by other pledgees of the 

same security for the purpose of 

determining the amount of securities to 

be sold, 

• The extent to which securities 

issued by reporting and non-reporting 

shell companies are eligible for resale 

under Rule 144, and 

• Representations required from 

security holders relying on Exchange 

Act Rule 10b5–1(c); and 

• Eliminate the presumptive 

underwriter provision in Securities Act 

Rule 145, except for transactions 

involving a shell company, and revise 

the resale provisions for presumed 

underwriters in that rule. 

C. Benefits 

We believe that the amendments will 

reduce the cost of complying with Rules 

144 and 145. We examined the Forms 

144 that were filed with the 

Commission since 1997.221 In 2006, the 

volume of transactions filed under Rule 

144 exceeded $71 billion, and more 

than 50% of U.S. public companies, 

large and small alike, every year have 

had at least one transaction reported on 

Form 144. Reducing the burden 

associated with these transactions can 

reduce the cost of capital to these 

companies. 

One item on Form 144 requires 

security holders to provide information 

on the nature of the acquisition 

transaction. Some Form 144 filers 

acquire their securities from the issuer 

as a private investment, while others 

receive the securities as part of their 

employee awards, or as a form of 

payment for services to the issuer. 

Reducing the burden associated with 

selling these securities not only can 

reduce the cost of raising capital, but 

also may increase the value of these 

securities in non-cash transactions and 

thereby may reduce the cost of services 

and employment. 

For the most part, transactions that 

have been reported on Form 144 have 

been small. In 2006, about 90% of the 

transactions had a market value of less 

than $2 million and 99% of these 

transactions had a market value of less 

than $20 million. More than half of the 

investors report total annual 

transactions of a market value of less 

than $240,000 with any specific issuer. 

Thus, reducing the costs associated with 

filing Form 144 and raising the 

thresholds that trigger a Form 144 filing 

requirement are likely to affect a large 

number of investors. 

We expect that the increase in the 

value of these securities will come from 

several sources under the amendments 

we are adopting. The first is the increase 

in the liquidity of the securities. 

Investors, suppliers, or employees who 

are restricted from selling securities and 

who cannot hedge their positions are 

generally exposed to more risk than 

those who are not subject to such 

limitations, and generally require higher 

compensation (or a larger discount with 

respect to the securities) for this risk.222

We also should expect that the longer 

the non-trading period, the higher the 

premium that investors will charge for 

their lack of liquidity.223 Thus, reducing 

the time limit for selling these securities 

in the market is likely to reduce the 

discount that investors will charge for 

these securities, or the amount of 

securities that the issuer will need to 

provide for services. The actual 

reduction in this cost of capital will 

depend on the extent to which the sixmonth limit has a binding impact on 

security holders’ decisions to resell their 

securities, and the extent to which 

investors, employees, or service 

providers can protect themselves against 

such exposure. 

Commenters expressed support for 

the belief that the proposals would 

increase liquidity for issuers and make 

capital investment more attractive 

without sacrificing investor 

protection.224 Some commenters also 

stated that the proposals would decrease 

the cost of capital for smaller 

companies.225 One commenter noted 

that if the proposals are adopted, 

companies will have greater financing 

options, which will save them time and 

resources.226 One commenter noted that 

the reduction of the holding period 

requirement will reduce costs involved 

in any private investment in public 

equity financings, since investors will 

be incurring less risk in holding 

restricted securities.227

Also, resale transactional costs for 

non-affiliate selling security holders 

should decrease as a result of the 


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228We base the estimate on number of filings that 

indicated that the securities were debt securities in 

the section of Form 144 that requests information 

on the nature of the acquisition transaction. 

229For example, under the amendments, the 

posting of bid and ask prices in alternative trading 

systems will not be considered a solicitation 

proscribed by Rule 144(g), provided that the broker 

has published bona fide bid and ask quotations for 

the security in the alternative trading system on 

each of the last twelve days. As noted above, 

trading in alternative trading systems has become 

increasingly common such that, in the second 

quarter of 2007, alternative trading systems handled 

approximately $1.3 trillion in volume of matched 

orders. We obtained this data from information 

provided in Form ATS-R Quarterly Reports. 

230We are, however, modifying the staff 

interpretation relating to the treatment of reporting 

and non-reporting shell companies to allow resales 

of securities of former shell companies one year 

after Form 10 information is filed reflecting the 

issuer of the securities has ceased to be a shell 

company. 

231See comment letter on the 2007 Proposing 

Release from Financial Associations. 

232See comment letter on the 2007 Proposing 

Release from ABA. 

removal of all conditions other than the 

holding period condition and the 

current public information condition 

applicable to non-affiliates of reporting 

issuers. Reducing restrictions on resales 

by non-affiliates should streamline the 

rule and reduce the complexity of the 

rule. This and other simplifications of 

Rule 144 and its Preliminary Note 

should make it easier to understand and 

follow, reducing the time that investors 

must spend analyzing whether or not 

they can rely on the rule as a safe harbor 

from the requirement to register the 

resale of their securities. The differences 

in holding period conditions between 

resales of securities of reporting issuers 

and resales of securities of nonreporting issuers, however, adds some 

complexity to the rule that may 

diminish the effect of simplifying other 

aspects of the rule. 

Under the amendments, non-affiliates 

no longer are required to file Form 144 

or comply with the manner of sale 

requirements and volume limitations, 

after the Rule 144(d) holding period 

requirement is met. Therefore, they will 

save the cost of preparing and filing 

Form 144, as well as the transactional 

costs related to complying with the 

manner of sale requirements and 

volume of sale limitations. As noted 

above, we estimate that the amendments 

reducing the restrictions applicable to 

non-affiliates will decrease the annual 

Form 144 filings by approximately 45%. 

In addition, the increase in the Form 

144 filing thresholds should further 

reduce the number of transactions for 

which Form 144 needs to be filed for 

proposed sales of securities held by 

affiliates of the issuer. This will 

eliminate the cost of preparing and 

filing the form for transactions that fall 

below the new thresholds. 

The elimination of the manner of sale 

requirements, combined with the 

relaxation of volume limitations, 

applicable to resales of debt securities 

will reduce costs for debt security 

holders. It is difficult to estimate the 

amount of reduction. Among the Forms 

144 filed with the Commission in 2005, 

we found at least 200 filings covering a 

sale of debt securities, although we 

believe the actual number of debt 

securities resales relying on Rule 144 

may be higher than this.228 The 

elimination of the manner of sale 

requirements for resales of debt 

securities may also reduce brokers’ fees 

and, therefore, result in a reduction of 

revenue for brokers. 

In the 2007 Proposing Release, we 

requested comment on whether to 

eliminate the manner of sale 

requirements also for resales of equity 

securities. After considering the 

comments, we are retaining and 

amending the manner of sale 

requirements for resales of equity 

securities by affiliates. We believe that 

the amendments we are adopting will 

benefit investors and companies by 

modernizing Rule 144 so that it better 

reflects current trading practices and 

venues for sales of securities.229

The codification of existing staff 

interpretive positions should not create 

added cost to companies or investors 

because, substantively, there is no 

expected change in practice as a result 

of the codification.230 However, these 

codifications should provide substantial 

benefit to the investing community by 

clarifying and better publicizing the 

staff’s positions. Greater clarity and 

transparency of our rules should reduce 

security holders’ transactional costs by 

eliminating uncertainty and reducing 

the need for legal analysis. We received 

one comment letter in support of this 

reasoning, noting that codification of the 

staff’s interpretive positions should help 

to resolve any lingering confusion and 

assist in making Rule 144 more readily 

understandable to market 

participants.231 Another commenter 

noted that the codification of staff 

interpretations should reduce legal 

research costs for those who are 

considering the question for the first 

time.232

The amendments to Rule 145 remove 

what we believe are unnecessary 

restraints on the resale of securities by 

parties, or their affiliates, to a merger, 

recapitalization, or other transaction 

listed in Rule 145(a). The amendments 

to Rule 145 will reduce costs incurred 

by companies, parties to the transaction, 

and their affiliates to comply with the 

resale and other restrictions of the rule. 

Retaining the presumptive underwriter 

provision for transactions involving 

shell companies is intended to preserve 

for investors protection against 

manipulative practices or abusive sales 

by parties to the transaction and their 

affiliates after the completion of the 

Rule 145 transaction. 

D. Costs 

Relative to other options, the choice 

to register equity securities is attractive 

to issuers, because issuers can assure 

investors that there will be a liquid 

aftermarket for their equity securities. 

However, in the 2007 Proposing 

Release, we noted that reducing the 

requirements under Rule 144 might also 

cause a substitution effect, where 

companies might choose to rely more on 

private transactions than on public 

transactions to raise capital. Also, 

reducing the requirements under Rule 

144 could also lead to the movement of 

certain investors from public 

transactions to private transactions. 

We also acknowledge that there is the 

risk that the market will not be informed 

about the nature of these transactions, 

given that these transactions are not 

required to be registered and given the 

changes to the Form 144 filing 

requirements. The market may also be 

less informed, given that restricted 

securities of reporting companies could 

be resold by non-affiliates earlier 

without satisfying the condition that 

current information on the issuer of the 

securities be publicly available, and 

restricted securities of non-reporting 

companies could be resold by nonaffiliates without current information on 

the issuer ever being publicly available. 

This, in return, could lead to a less 

efficient price formation. Direct 

negotiated deals with companies could 

also lead to informational advantage of 

some investors. The effect of the 

amendments on these movements and 

their effect on investor wealth or on 

issuers’ cost of capital are thus subject 

to many factors. 

Under the amendments we are 

adopting, with respect to securities of 

reporting issuers, after the six-month 

holding period is satisfied, non-affiliates 

of the issuer will be subject, for an 

additional six months, only to the 

condition requiring the availability of 

adequate current information on the 

issuer. After one year, non-affiliates of 

both reporting and non-reporting issuers 

will be permitted to sell their restricted 

securities freely without being subject to 

any other Rule 144 condition. We 


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233See comment letter on the 2007 Proposing 

Release from Brill 1. 234See comment letters on the 2007 Proposing 

Release from Brill 1 and WS 2. 235See comment letter on the 2007 Proposing 

Release from Brill 1. 236Osborne, Alfred E., Rule 144 Volume 

Limitations and the Sale of Restricted Securities in 

the Over-The-Counter Market, Journal of Finance, 

37, 505–523 (1982). 237See comment letters on the 2007 Proposing 

Release from NASAA. 

238 15 U.S.C. 77b(b). 

239See section IV.C of this section. 

240See, e.g., comment letters on the 2007 

Proposing Release from Financial Associations; 

Pink Sheets; Richardson Patel; Roth; and Sichenzia. 

241See comment letter on the 2007 Proposing 

Release from Williams. 

242See, e.g., comment letters on the 2007 

Proposing Release from Fried Frank and SCSGP. 

Some commenters even supported eliminating the 

Form 144 filing requirement for both affiliates and 

non-affiliates. See comment letters from ABA; 

BAIS; SCSGP; and Sullivan. 

received comments in support of the 

proposed amendments regarding nonaffiliates, as well as a few comments 

objecting to some of the changes. Some 

commenters objected to the aspect of the 

proposed amendments that would allow 

non-affiliates to resell their restricted 

securities after the holding period 

without being required to comply with 

the manner of sale requirements,233 or 

the Form 144 filing requirement,234 for 

an additional year. Another commenter 

was concerned that, for sales of 

securities of a non-reporting company, 

relieving non-affiliates from compliance 

with Rule 144’s existing conditions, 

including the current public 

information condition, would lead to 

abuse.235 We did not receive comments 

quantifying the effect of the proposed 

amendments on investor wealth or on 

cost of capital. 

While we acknowledge that these are 

potential costs of the amendments that 

we are adopting, we continue to believe 

that they are justified by the potential 

benefits of the amendments and may not 

be significant in the aggregate. As stated 

in the 2007 Proposing Release, there is 

some evidence that, on average, the 

announcement of resales under Rule 

144 by security holders has no adverse 

effect on stock prices, suggesting that 

the market does not attribute an 

informational advantage to these 

security holders at the time of selling.236

Second, the rule, as amended, continues 

to impose several conditions to selling 

restricted securities by affiliated 

investors to alleviate these concerns. 

One commenter expressed concern 

about the extent of the reduction of the 

restrictions for non-affiliates and 

contended that the changes will shift 

the market value of a company’s 

securities away from the security 

holders who have held the securities for 

a longer time period and ‘‘into the 

pockets of the security holders’’ who are 

able to sell their securities without 

limitation after holding them for six 

months.237 However, we believe that the 

possible impact that such a change 

could have is likely temporary and not 

significant. Also, to the extent that 

privately negotiated deals give private 

investors lucrative terms at the expense 

of public investors, public investors 

may avoid such companies, and these 

companies may eventually be worse off. 

V. Promotion of Efficiency, Competition 

and Capital Formation 

Securities Act Section 2(b) 238 requires 

us, when engaging in rulemaking that 

requires us to consider or determine 

whether an action is necessary or 

appropriate in the public interest, to 

consider in addition to the protection of 

investors whether the action will 

promote efficiency, competition, and 

capital formation. 

The amendments are intended to 

reduce regulatory requirements for the 

resale of securities and simplify the 

process of reselling such securities. 

Before today’s amendments, a security 

holder who wished to rely on the Rule 

144 safe harbor for the resale of 

restricted securities had to wait until at 

least one year after the securities were 

last sold by the issuer or an affiliate 

before any securities could be sold 

under Rule 144. The amendments to 

Rule 144 will reduce this holding period 

requirement to six months for the resale 

of restricted securities of Exchange Act 

reporting companies. Restricted 

securities of non-reporting companies 

will continue to be subject to a one-year 

holding period requirement. 

After considering the comments on 

the 2007 Proposing Release, we 

continue to believe that the shorter 

holding period requirement for 

restricted securities of reporting 

companies will increase the liquidity of 

securities sold in private 

transactions.239 This could result in 

increased efficiency in securities 

offerings to the extent that companies 

are able to sell securities in private 

offerings at prices closer to prices that 

they may obtain in public markets, 

without the need to register those 

securities, and otherwise obtain better 

terms in private offerings. We also 

believe that this will promote capital 

formation, particularly for smaller 

companies, because the amendments 

will increase the liquidity of securities 

sold in private transactions. The 

amendments should increase a 

company’s ability to raise capital in 

private securities transactions, which 

may improve the competitiveness of 

those companies, particularly smaller 

businesses that do not have ready access 

to public markets. 

The other amendments to Rule 144 

generally also should increase efficiency 

and assist in capital formation. We 

believe that the elimination of most of 

the Rule 144 conditions applicable to 

non-affiliates may further increase the 

liquidity of privately sold securities. We 

anticipate that the elimination of the 

manner of sale requirements for debt 

securities and the amendments to the 

volume limitations will provide debt 

security holders with greater flexibility 

in the resale of their securities, thereby 

increasing efficiency. 

As noted above, several commenters 

supported the proposed amendments 

because they promote capital formation, 

noting that they enhance the ability to 

raise capital for issuers, and, in 

particular, smaller issuers.240 One 

commenter, however, noted that the 

codification of the staff interpretation 

relating to reporting and non-reporting 

shell companies will adversely affect 

small business capital formation.241 We 

are, however, modifying the staff 

interpretation to permit resales of 

securities of former reporting and nonreporting shell companies under certain 

circumstances. Also, we believe that the 

impact on small business capital 

formation due to the amendments will 

be limited, given that we believe there 

will not be a substantial change in 

existing practices, and the interest of 

investor protection is paramount where 

we believe there may be significant 

potential for abuse. 

Several commenters noted in their 

letters that the Form 144 filing 

requirement imposes a burden on 

selling security holders.242 Raising the 

Form 144 filing thresholds should also 

improve efficiency by reducing security 

holders’ paperwork burden. 

Under the amendments to Rule 145, 

individuals and smaller entities owning 

securities in companies that engage in 

transactions specified in Rule 145(a) 

will no longer be subject to the 

presumptive underwriter provision, 

except in the case of transactions 

involving a shell company. These 

amendments should improve the 

competitiveness of many smaller 

entities in permitting them to resell 

securities without the restrictions that 

were imposed by the rule before the 

amendments that we are adopting. 

VI. Final Regulatory Flexibility 

Analysis 

We have prepared this Final 

Regulatory Flexibility Analysis in 


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243 5 U.S.C. 603. 

244See Release No. 33–8813. 

245See, e.g., comment letters on the 2007 

Proposing Release from Pink Sheets; Roth; and 

Sichenzia. 

246See comment letter on the 2007 Proposing 

Release from Brill 1. 

247See comment letter on the 2007 Proposing 

Release from NASAA. 

248See comment letters on the 2007 Proposing 

Release from Nelson; Russell; and Williams. The 

comment letter on the 2007 Proposing Release from 

Pink Sheets submitted various recommendations 

regarding how to improve the adequacy of 

information on non-reporting companies. 

249See comment letters on the 2007 Proposing 

Release from Nelson and Russell. 

250 17 CFR 230.157. 

251 15 U.S.C. 77c(b). 

252 17 CFR 240.0–10. 

253The estimated number of reporting small 

entities is based on 2007 data including the SEC 

EDGAR database and Thomson Financial’s 

Worldscope database. This represents an update 

from the number of reporting small entities 

estimated in prior rulemakings. 

254This reflects current OMB estimates. 

accordance with Section 603 of the 

Regulatory Flexibility Act.243 This 

analysis relates to the amendments to 

Rules 144 and 145 and Form 144 under 

the Securities Act. An Initial Regulatory 

Flexibility Analysis (IRFA) was 

prepared in accordance with the 

Regulatory Flexibility Act in 

conjunction with the 2007 Proposing 

Release. The 2007 Proposing Release 

included, and solicited comment on, the 

IRFA. 

A. Reasons for, and Objectives of, the 

Amendments 

On July 5, 2007, we proposed 

amendments to Rules 144 and 145 of the 

Securities Act.244 Rule 144 provides a 

safe harbor for the sale of securities 

under the exemption set forth in Section 

4(1) of the Securities Act. If a selling 

security holder satisfies the Rule 144 

conditions, that selling security holder 

may resell his or her securities publicly 

without registration and without being 

deemed an underwriter. 

Rule 145 governs the offer and sale of 

certain securities received in connection 

with reclassifications, mergers, 

consolidations and asset transfers. It 

imposes restrictions similar to Rule 144 

on a party to such transactions and to 

persons who are affiliates of that party 

at the time the transaction is submitted 

for vote or consent, with regard to 

securities acquired in that transaction. 

Under the amendments we are 

adopting, Form 144 is required to be 

filed by affiliates of the issuer intending 

to sell securities in reliance on Rule 144 

if the amount of securities to be sold in 

any three-month period exceeds 5,000 

shares or other units or the aggregate 

sales price exceeds $50,000. The 

primary purpose of the form is to 

publicly disclose the proposed sale of 

securities by persons who, under Rule 

144, are deemed not to be engaged in 

the distribution of the securities. 

We are amending Rule 144 to make it 

easier to understand and apply. We are 

streamlining both the Preliminary Note 

to Rule 144 and the Rule 144 text. In 

addition to codifying several staff 

interpretive positions, the amendments 

will reduce the Rule 144 holding period 

requirement and substantially reduce 

other Rule 144 conditions for the resales 

of securities by non-affiliates. 

The reduction of the Rule 144 holding 

period requirement for restricted 

securities of reporting companies for 

affiliates and non-affiliates should 

increase the liquidity of privately issued 

securities, enabling companies to raise 

private capital more efficiently. 

Although the codification of several 

staff interpretive positions is not 

intended to substantively change the 

rules, this should simplify analysis 

under Rule 144 by compiling these 

interpretations in one readily accessible 

location. The objectives of the 

amendments are to simplify Rule 144, to 

reduce its burdens on investors where 

consistent with investor protection, and 

to facilitate capital formation. 

The amendments that increase the 

share and dollar thresholds that trigger 

a Form 144 filing take into account the 

effects of inflation since 1972. The 

amendments to the Form 144 filing 

requirements will eliminate much of the 

paperwork burden for selling security 

holders. 

B. Significant Issues Raised by 

Comments 

Some commenters stated that the 

proposals would facilitate capital 

raising for smaller companies without 

compromising investor protection.245

One commenter noted that the 

elimination of the restrictions 

applicable to non-affiliates would save 

countless dollars and wasted 

resources.246 On the other hand, one 

commenter that opposed the shortened 

holding periods stated that under the 

amendments, companies, especially 

small companies, will avoid registration 

on the federal and state level.247 We 

acknowledge that, while this may be a 

potential cost of shortening the holding 

period, a six-month holding period is a 

reasonable indication that the security 

holder has assumed sufficient economic 

risk in the securities. Further, the 

potential cost caused by the 

amendments is justified by the potential 

benefits relating to capital formation 

that we believe will result from the 

amendments. 

Some commenters had concerns about 

the codification of the staff 

interpretation that prohibits security 

holders of shell companies or former 

shell companies from relying on Rule 

144 for the resale of their securities. 

Three commenters expressed concern 

that under the proposed amendments, 

security holders of non-reporting shell 

companies would not be able to rely on 

Rule 144.248 Two commenters were 

concerned that this could reduce 

funding for and penalize smaller 

companies.249 We believe that the 

amendments relating to the use of Rule 

144 for the resale of securities of shell 

companies are necessary to protect 

against abuses relating to the 

distribution of securities of shell 

companies. 

C. Small Entities Subject to the Rule 

The rules will affect both small 

entities that issue securities and small 

entities that hold such securities. An 

issuer, other than an investment 

company, is considered a ‘‘small 

business’’ for purposes of the Regulatory 

Flexibility Act if that issuer: 

• Has assets of $5 million or less on 

the last day of its most recent fiscal year, 

and 

• Is engaged or proposing to engage in 

a small business financing.250

An issuer is considered to be engaged in 

a small business financing if it is 

conducting or proposes to conduct an 

offering of securities that does not 

exceed the dollar limitation prescribed 

by Section 3(b) 251 of the Securities Act. 

This dollar amount is currently $5 

million. When used with reference to an 

issuer or person, other than an 

investment company, Exchange Act 

Rule 0–10 252 defines small entity to 

mean an issuer or person that, on the 

last day of its most recent fiscal year, 

had total assets of $5 million or less. 

We are aware of approximately 1,100 

Exchange Act reporting companies that 

currently satisfy the definition of ‘‘small 

business’’ and may be affected by the 

amendments as issuers of the securities 

sold under Rule 144.253 The 

amendments also may affect companies 

that are small businesses, but that are 

not subject to Exchange Act reporting 

requirements. As noted above, we 

currently estimate that approximately 

60,500 notices on Form 144 are filed 

annually.254 We do not collect 

information in Form 144 about the size 

of an issuer, but we believe that some 

non-reporting issuers may be ‘‘small.’’

The amendments that relate to the 

Rule 144 manner of sale requirements 

may also affect brokers that qualify as 


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255For purposes of the Regulatory Flexibility Act, 

a broker or dealer is a small entity if it (i) had total 

capital of less than $500,000 on the date in its prior 

fiscal year as of which its audited financial 

statements were prepared or, if not required to file 

audited financial statements, on the last business 

day of its prior fiscal year, and (ii) is not affiliated 

with any person that is not a small entity and is 

not affiliated with any person that is not a small 

entity. 17 CFR 240.0–1. 

small entities. We estimate that 910 

broker-dealers registered with the 

Commission are small entities for the 

purposes of the Regulatory Flexibility 

Act.255

In the 2007 Proposing Release, we 

solicited comment on the estimate of the 

number of small entities that may be 

affected by the proposed amendments. 

We did not receive any comments 

providing an estimate of the number of 

small entities that will be affected by the 

amendments. 

D. Reporting, Recordkeeping and Other 

Compliance Requirements 

We expect several of the amendments 

to reduce the number of Forms 144 filed 

with us by selling security holders. We 

are adopting amendments that will 

eliminate the need for non-affiliates 

relying on the Rule 144 safe harbor to 

comply with most of the conditions of 

Rule 144, after the holding period is 

met. We are also increasing the share 

number and dollar amount thresholds 

that trigger a Form 144 filing 

requirement. 

As a result of the amendments, nonaffiliates no longer will be required to 

file a Form 144, after the requisite 

holding period is met, in order to sell 

their securities under Rule 144, 

regardless of the amount of securities to 

be sold. As noted earlier, we estimate 

that 45% of Forms 144 that we currently 

receive relate to restricted securities 

held by non-affiliates. Therefore, this 

particular amendment should result in a 

corresponding reduction in the number 

of Forms 144 filed annually. 

The increase in the filing thresholds 

for Form 144 should decrease the 

number of Forms 144 filed by affiliates. 

Based on studies conducted by our 

Office of Economic Analysis, we expect 

the number of Form 144 filings to 

decrease further by approximately 30%, 

as a result of the increase in the filing 

thresholds to 5,000 shares or $50,000 in 

sales price in a three-month period. 

Clerical skills are necessary to 

complete Form 144. 

Also, because the amendments 

significantly reduce the conditions in 

Rule 144 to which non-affiliates are 

subject in the resale of their securities, 

non-affiliates will no longer be required 

to keep track of compliance with those 

conditions to which non-affiliates will 

no longer be subject. Non-affiliates 

selling securities of either reporting 

issuers or non-reporting issuers under 

Rule 144 will no longer be required to 

comply with the manner of sale 

requirements and volume limitations. 

Non-affiliates selling securities of nonreporting issuers under Rule 144 will no 

longer be required to comply with the 

current public information requirement. 

The amendments eliminating the 

manner of sale requirements for debt 

securities also will obviate the need for 

security holders to determine whether 

such condition has been met in the 

resale of their debt securities. As a result 

of both the amendments relating to the 

manner of sale requirements and the 

volume limitations with regard to debt 

securities, however, more security 

holders will be able to sell their 

securities under the Rule 144 safe 

harbor. 

The amendments to Rule 145 will 

eliminate the need for parties to a Rule 

145(a) transaction or their affiliates to 

determine whether they have complied 

with the Rule 145 resale provisions for 

presumed underwriters, except when 

the transaction involves a shell 

company. 

E. Agency Action To Minimize Effect on 

Small Entities 

We considered different compliance 

standards for the small entities that will 

be affected by the amendments. In the 

1997 Proposing Release, we solicited 

comment regarding the possibility of 

different standards for small entities. 

However, we believe that such 

differences would be inconsistent with 

the purposes of the rules. 

Because the amendments will benefit 

all companies and holders of restricted 

securities, differing compliance 

timetables or standards for small entities 

are not appropriate. In addition, the 

shortened holding period will likely 

have a favorable impact on small 

entities by increasing a company’s 

ability to raise capital in private 

securities transactions, which may 

improve the competitiveness of those 

companies, particularly smaller 

businesses that do not have ready access 

to public markets. The amendments that 

clarify and streamline Rule 144 should 

benefit all companies, including small 

entities. The amendments relating to the 

manner of sale requirements and 

volume limitations for debt securities 

should benefit issuers of debt securities, 

preferred stock, and asset-backed 

securities. We continue to believe that 

further changes, such as the use of 

performance standards or other 

exemptions with regard to small 

entities, would overly complicate the 

rule, which is contrary to our stated 

purpose. The prohibition against 

security holders of reporting and nonreporting shell companies from relying 

on Rule 144 protects against abuses 

relating to the resale of privately issued 

securities. 

The amendments to Rule 145 will 

eliminate the presumptive underwriter 

provision and resale restrictions on 

parties to a transaction specified in Rule 

145(a) and their affiliates, including 

small entities and their affiliates, except 

when the transaction involves a shell 

company. We believe that retaining the 

presumptive underwriter provision 

when the transaction involves a shell 

company is necessary, given the 

potential for abuse relating to such 

transactions. 

VII. Statutory Basis and Text of 

Amendments 

We are adopting the amendments 

pursuant to Sections 2(a)(11), 4(1), 4(3), 

4(4), 7, 10, 19(a) and 28 of the Securities 

Act, as amended. 

List of Subjects 

17 CFR Part 230 

Advertising, Reporting and 

recordkeeping requirements, Securities. 

17 CFR Part 239 

Reporting and recordkeeping 

requirements, Securities. 

■ For the reasons set out above, Title 17, 

Chapter II of the Code of Federal 

Regulations is amended as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. Revise the authority citation for Part 

230 to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 

77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 

78j, 78l, 78m, 78n, 78o, 78t, 78w, 78ll(d), 

78mm, 80a–8, 80a–24, 80a–28, 80a–29, 80a–

30, and 80a–37, unless otherwise noted. 

* * * * * 

■ 2. Amend § 230.144 by: 

■ a. Revising the preliminary note; 

■ b. Revising paragraphs (a)(3)(vi) and 

(a)(3)(vii), and adding paragraphs 

(a)(3)(viii) and (a)(4); 

■ c. Revising paragraphs (b), (c), (d)(1), 

(d)(3)(i), (d)(3)(ii), (d)(3)(vii) and 

(d)(3)(viii); 

■ d. Adding paragraphs (d)(3)(ix) 

through paragraphs (d)(3)(x); 

■ e. Revising the introductory text to 

paragraphs (e) and (e)(1); 

■ f. Revising paragraphs (e)(2) and (e)(3); 

■ g. Revising paragraph (f); 

■ h. Revising paragraph (g)(1); 


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■ i. Redesignating existing paragraph 

(g)(2) as paragraph (g)(3) and revising 

newly redesignated paragraph (g)(3); 

■ j. Redesignating existing paragraph 

(g)(3) and related notes as paragraph 

(g)(4) and related notes; 

■ k. Adding new paragraph (g)(2); 

■ l. Revising paragraphs (h) and (i); and 

■ m. Removing paragraphs (j) and (k). 

The revisions and additions read as 

follows: 

§ 230.144 Persons deemed not to be 

engaged in a distribution and therefore not 

underwriters. 

Preliminary Note: Certain basic principles 

are essential to an understanding of the 

registration requirements in the Securities 

Act of 1933 (the Act or the Securities Act) 

and the purposes underlying Rule 144: 

1. If any person sells a non-exempt security 

to any other person, the sale must be 

registered unless an exemption can be found 

for the transaction. 

2. Section 4(1) of the Securities Act 

provides one such exemption for a 

transaction ‘‘by a person other than an issuer, 

underwriter, or dealer.’’ Therefore, an 

understanding of the term ‘‘underwriter’’ is 

important in determining whether or not the 

Section 4(1) exemption from registration is 

available for the sale of the securities. 

The term ‘‘underwriter’’ is broadly defined 

in Section 2(a)(11) of the Securities Act to 

mean any person who has purchased from an 

issuer with a view to, or offers or sells for an 

issuer in connection with, the distribution of 

any security, or participates, or has a direct 

or indirect participation in any such 

undertaking, or participates or has a 

participation in the direct or indirect 

underwriting of any such undertaking. The 

interpretation of this definition traditionally 

has focused on the words ‘‘with a view to’’

in the phrase ‘‘purchased from an issuer with 

a view to * * * distribution.’’ An investment 

banking firm which arranges with an issuer 

for the public sale of its securities is clearly 

an ‘‘underwriter’’ under that section. 

However, individual investors who are not 

professionals in the securities business also 

may be ‘‘underwriters’’ if they act as links in 

a chain of transactions through which 

securities move from an issuer to the public. 

Since it is difficult to ascertain the mental 

state of the purchaser at the time of an 

acquisition of securities, prior to and since 

the adoption of Rule 144, subsequent acts 

and circumstances have been considered to 

determine whether the purchaser took the 

securities ‘‘with a view to distribution’’ at the 

time of the acquisition. Emphasis has been 

placed on factors such as the length of time 

the person held the securities and whether 

there has been an unforeseeable change in 

circumstances of the holder. Experience has 

shown, however, that reliance upon such 

factors alone has led to uncertainty in the 

application of the registration provisions of 

the Act. 

The Commission adopted Rule 144 to 

establish specific criteria for determining 

whether a person is not engaged in a 

distribution. Rule 144 creates a safe harbor 

from the Section 2(a)(11) definition of 

‘‘underwriter.’’ A person satisfying the 

applicable conditions of the Rule 144 safe 

harbor is deemed not to be engaged in a 

distribution of the securities and therefore 

not an underwriter of the securities for 

purposes of Section 2(a)(11). Therefore, such 

a person is deemed not to be an underwriter 

when determining whether a sale is eligible 

for the Section 4(1) exemption for 

‘‘transactions by any person other than an 

issuer, underwriter, or dealer.’’ If a sale of 

securities complies with all of the applicable 

conditions of Rule 144: 

1. Any affiliate or other person who sells 

restricted securities will be deemed not to be 

engaged in a distribution and therefore not an 

underwriter for that transaction; 

2. Any person who sells restricted or other 

securities on behalf of an affiliate of the 

issuer will be deemed not to be engaged in 

a distribution and therefore not an 

underwriter for that transaction; and 

3. The purchaser in such transaction will 

receive securities that are not restricted 

securities. 

Rule 144 is not an exclusive safe harbor. 

A person who does not meet all of the 

applicable conditions of Rule 144 still may 

claim any other available exemption under 

the Act for the sale of the securities. The Rule 

144 safe harbor is not available to any person 

with respect to any transaction or series of 

transactions that, although in technical 

compliance with Rule 144, is part of a plan 

or scheme to evade the registration 

requirements of the Act. 

(a) * * * 

(3) * * * 

(vi) Securities acquired in a 

transaction made under § 230.801 to the 

same extent and proportion that the 

securities held by the security holder of 

the class with respect to which the 

rights offering was made were, as of the 

record date for the rights offering, 

‘‘restricted securities’’ within the 

meaning of this paragraph (a)(3); 

(vii) Securities acquired in a 

transaction made under § 230.802 to the 

same extent and proportion that the 

securities that were tendered or 

exchanged in the exchange offer or 

business combination were ‘‘restricted 

securities’’ within the meaning of this 

paragraph (a)(3); and 

(viii) Securities acquired from the 

issuer in a transaction subject to an 

exemption under section 4(6) (15 U.S.C. 

77d(6)) of the Act. 

(4) The term debt securities means: 

(i) Any security other than an equity 

security as defined in § 230.405; 

(ii) Non-participatory preferred stock, 

which is defined as non-convertible 

capital stock, the holders of which are 

entitled to a preference in payment of 

dividends and in distribution of assets 

on liquidation, dissolution, or winding 

up of the issuer, but are not entitled to 

participate in residual earnings or assets 

of the issuer; and 

(iii) Asset-backed securities, as 

defined in § 229.1101 of this chapter. 

(b) Conditions to be met. Subject to 

paragraph (i) of this section, the 

following conditions must be met: 

(1) Non-Affiliates. (i) If the issuer of 

the securities is, and has been for a 

period of at least 90 days immediately 

before the sale, subject to the reporting 

requirements of section 13 or 15(d) of 

the Securities Exchange Act of 1934 (the 

Exchange Act), any person who is not 

an affiliate of the issuer at the time of 

the sale, and has not been an affiliate 

during the preceding three months, who 

sells restricted securities of the issuer 

for his or her own account shall be 

deemed not to be an underwriter of 

those securities within the meaning of 

section 2(a)(11) of the Act if all of the 

conditions of paragraphs (c)(1) and (d) 

of this section are met. The 

requirements of paragraph (c)(1) of this 

section shall not apply to restricted 

securities sold for the account of a 

person who is not an affiliate of the 

issuer at the time of the sale and has not 

been an affiliate during the preceding 

three months, provided a period of one 

year has elapsed since the later of the 

date the securities were acquired from 

the issuer or from an affiliate of the 

issuer. 

(ii) If the issuer of the securities is not, 

or has not been for a period of at least 

90 days immediately before the sale, 

subject to the reporting requirements of 

section 13 or 15(d) of the Exchange Act, 

any person who is not an affiliate of the 

issuer at the time of the sale, and has not 

been an affiliate during the preceding 

three months, who sells restricted 

securities of the issuer for his or her 

own account shall be deemed not to be 

an underwriter of those securities 

within the meaning of section 2(a)(11) of 

the Act if the condition of paragraph (d) 

of this section is met. 

(2) Affiliates or persons selling on 

behalf of affiliates. Any affiliate of the 

issuer, or any person who was an 

affiliate at any time during the 90 days 

immediately before the sale, who sells 

restricted securities, or any person who 

sells restricted or any other securities 

for the account of an affiliate of the 

issuer of such securities, or any person 

who sells restricted or any other 

securities for the account of a person 

who was an affiliate at any time during 

the 90 days immediately before the sale, 

shall be deemed not to be an 

underwriter of those securities within 

the meaning of section 2(a)(11) of the 

Act if all of the conditions of this 

section are met. 

(c) Current public information. 

Adequate current public information 

with respect to the issuer of the 


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securities must be available. Such 

information will be deemed to be 

available only if the applicable 

condition set forth in this paragraph is 

met: 

(1) Reporting Issuers. The issuer is, 

and has been for a period of at least 90 

days immediately before the sale, 

subject to the reporting requirements of 

section 13 or 15(d) of the Exchange Act 

and has filed all required reports under 

section 13 or 15(d) of the Exchange Act, 

as applicable, during the 12 months 

preceding such sale (or for such shorter 

period that the issuer was required to 

file such reports), other than Form 8–K 

reports (§ 249.308 of this chapter); or 

(2) Non-reporting Issuers. If the issuer 

is not subject to the reporting 

requirements of section 13 or 15(d) of 

the Exchange Act, there is publicly 

available the information concerning the 

issuer specified in paragraphs (a)(5)(i) to 

(xiv), inclusive, and paragraph 

(a)(5)(xvi) of § 240.15c2–11 of this 

chapter, or, if the issuer is an insurance 

company, the information specified in 

section 12(g)(2)(G)(i) of the Exchange 

Act (15 U.S.C. 78l(g)(2)(G)(i)). 

Note to § 230.144(c). With respect to 

paragraph (c)(1), the person can rely upon: 

1. A statement in whichever is the most 

recent report, quarterly or annual, required to 

be filed and filed by the issuer that such 

issuer has filed all reports required under 

section 13 or 15(d) of the Exchange Act, as 

applicable, during the preceding 12 months 

(or for such shorter period that the issuer was 

required to file such reports), other than 

Form 8–K reports (§ 249.308 of this chapter), 

and has been subject to such filing 

requirements for the past 90 days; or 

2. A written statement from the issuer that 

it has complied with such reporting 

requirements. 

3. Neither type of statement may be relied 

upon, however, if the person knows or has 

reason to believe that the issuer has not 

complied with such requirements. 

(d) * * * 

(1) General rule. (i) If the issuer of the 

securities is, and has been for a period 

of at least 90 days immediately before 

the sale, subject to the reporting 

requirements of section 13 or 15(d) of 

the Exchange Act, a minimum of six 

months must elapse between the later of 

the date of the acquisition of the 

securities from the issuer, or from an 

affiliate of the issuer, and any resale of 

such securities in reliance on this 

section for the account of either the 

acquiror or any subsequent holder of 

those securities. 

(ii) If the issuer of the securities is not, 

or has not been for a period of at least 

90 days immediately before the sale, 

subject to the reporting requirements of 

section 13 or 15(d) of the Exchange Act, 

a minimum of one year must elapse 

between the later of the date of the 

acquisition of the securities from the 

issuer, or from an affiliate of the issuer, 

and any resale of such securities in 

reliance on this section for the account 

of either the acquiror or any subsequent 

holder of those securities. 

(iii) If the acquiror takes the securities 

by purchase, the holding period shall 

not begin until the full purchase price 

or other consideration is paid or given 

by the person acquiring the securities 

from the issuer or from an affiliate of the 

issuer. 

* * * * * 

(3) * * * 

(i) Stock dividends, splits and 

recapitalizations. Securities acquired 

from the issuer as a dividend or 

pursuant to a stock split, reverse split or 

recapitalization shall be deemed to have 

been acquired at the same time as the 

securities on which the dividend or, if 

more than one, the initial dividend was 

paid, the securities involved in the split 

or reverse split, or the securities 

surrendered in connection with the 

recapitalization. 

(ii) Conversions and exchanges. If the 

securities sold were acquired from the 

issuer solely in exchange for other 

securities of the same issuer, the newly 

acquired securities shall be deemed to 

have been acquired at the same time as 

the securities surrendered for 

conversion or exchange, even if the 

securities surrendered were not 

convertible or exchangeable by their 

terms. 

Note to § 230.144(d)(3)(ii). If the 

surrendered securities originally did not 

provide for cashless conversion or exchange 

by their terms and the holder provided 

consideration, other than solely securities of 

the same issuer, in connection with the 

amendment of the surrendered securities to 

permit cashless conversion or exchange, then 

the newly acquired securities shall be 

deemed to have been acquired at the same 

time as such amendment to the surrendered 

securities, so long as, in the conversion or 

exchange, the securities sold were acquired 

from the issuer solely in exchange for other 

securities of the same issuer. 

* * * * * 

(vii) Estates. Where a deceased person 

was an affiliate of the issuer, securities 

held by the estate of such person or 

acquired from such estate by the estate 

beneficiaries shall be deemed to have 

been acquired when they were acquired 

by the deceased person, except that no 

holding period is required if the estate 

is not an affiliate of the issuer or if the 

securities are sold by a beneficiary of 

the estate who is not such an affiliate. 

Note to § 230.144(d)(3)(vii). While there is 

no holding period or amount limitation for 

estates and estate beneficiaries which are not 

affiliates of the issuer, paragraphs (c) and (h) 

of this section apply to securities sold by 

such persons in reliance upon this section. 

(viii) Rule 145(a) Transactions. The 

holding period for securities acquired in 

a transaction specified in § 230.145(a) 

shall be deemed to commence on the 

date the securities were acquired by the 

purchaser in such transaction, except as 

otherwise provided in paragraphs 

(d)(3)(ii) and (ix) of this section. 

(ix) Holding company formations. 

Securities acquired from the issuer in a 

transaction effected solely for the 

purpose of forming a holding company 

shall be deemed to have been acquired 

at the same time as the securities of the 

predecessor issuer exchanged in the 

holding company formation where: 

(A) The newly formed holding 

company’s securities were issued solely 

in exchange for the securities of the 

predecessor company as part of a 

reorganization of the predecessor 

company into a holding company 

structure; 

(B) Holders received securities of the 

same class evidencing the same 

proportional interest in the holding 

company as they held in the 

predecessor, and the rights and interests 

of the holders of such securities are 

substantially the same as those they 

possessed as holders of the predecessor 

company’s securities; and 

(C) Immediately following the 

transaction, the holding company has 

no significant assets other than 

securities of the predecessor company 

and its existing subsidiaries and has 

substantially the same assets and 

liabilities on a consolidated basis as the 

predecessor company had before the 

transaction. 

(x) Cashless exercise of options and 

warrants. If the securities sold were 

acquired from the issuer solely upon 

cashless exercise of options or warrants 

issued by the issuer, the newly acquired 

securities shall be deemed to have been 

acquired at the same time as the 

exercised options or warrants, even if 

the options or warrants exercised 

originally did not provide for cashless 

exercise by their terms. 

Note 1 to § 230.144(d)(3)(x). If the options 

or warrants originally did not provide for 

cashless exercise by their terms and the 

holder provided consideration, other than 

solely securities of the same issuer, in 

connection with the amendment of the 

options or warrants to permit cashless 

exercise, then the newly acquired securities 

shall be deemed to have been acquired at the 

same time as such amendment to the options 

or warrants so long as the exercise itself was 

cashless. 

Note 2 to § 230.144(d)(3)(x). If the options 

or warrants are not purchased for cash or 

property and do not create any investment 


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risk to the holder, as in the case of employee 

stock options, the newly acquired securities 

shall be deemed to have been acquired at the 

time the options or warrants are exercised, so 

long as the full purchase price or other 

consideration for the newly acquired 

securities has been paid or given by the 

person acquiring the securities from the 

issuer or from an affiliate of the issuer at the 

time of exercise. 

(e) Limitation on amount of securities 

sold. Except as hereinafter provided, the 

amount of securities sold for the 

account of an affiliate of the issuer in 

reliance upon this section shall be 

determined as follows: 

(1) If any securities are sold for the 

account of an affiliate of the issuer, 

regardless of whether those securities 

are restricted, the amount of securities 

sold, together with all sales of securities 

of the same class sold for the account of 

such person within the preceding three 

months, shall not exceed the greatest of: 

* * * * * 

(2) If the securities sold are debt 

securities, then the amount of debt 

securities sold for the account of an 

affiliate of the issuer, regardless of 

whether those securities are restricted, 

shall not exceed the greater of the 

limitation set forth in paragraph (e)(1) of 

this section or, together with all sales of 

securities of the same tranche (or class 

when the securities are nonparticipatory preferred stock) sold for 

the account of such person within the 

preceding three months, ten percent of 

the principal amount of the tranche (or 

class when the securities are nonparticipatory preferred stock) 

attributable to the securities sold. 

(3) Determination of amount. For the 

purpose of determining the amount of 

securities specified in paragraph (e)(1) 

of this section and, as applicable, 

paragraph (e)(2) of this section, the 

following provisions shall apply: 

(i) Where both convertible securities 

and securities of the class into which 

they are convertible are sold, the 

amount of convertible securities sold 

shall be deemed to be the amount of 

securities of the class into which they 

are convertible for the purpose of 

determining the aggregate amount of 

securities of both classes sold; 

(ii) The amount of securities sold for 

the account of a pledgee of those 

securities, or for the account of a 

purchaser of the pledged securities, 

during any period of three months 

within six months (or within one year 

if the issuer of the securities is not, or 

has not been for a period of at least 90 

days immediately before the sale, 

subject to the reporting requirements of 

section 13 or 15(d) of the Exchange Act) 

after a default in the obligation secured 

by the pledge, and the amount of 

securities sold during the same threemonth period for the account of the 

pledgor shall not exceed, in the 

aggregate, the amount specified in 

paragraph (e)(1) or (2) of this section, 

whichever is applicable; 

Note to § 230.144(e)(3)(ii). Sales by a 

pledgee of securities pledged by a borrower 

will not be aggregated under paragraph 

(e)(3)(ii) with sales of the securities of the 

same issuer by other pledgees of such 

borrower in the absence of concerted action 

by such pledgees. 

(iii) The amount of securities sold for 

the account of a donee of those 

securities during any three-month 

period within six months (or within one 

year if the issuer of the securities is not, 

or has not been for a period of at least 

90 days immediately before the sale, 

subject to the reporting requirements of 

section 13 or 15(d) of the Exchange Act) 

after the donation, and the amount of 

securities sold during the same threemonth period for the account of the 

donor, shall not exceed, in the 

aggregate, the amount specified in 

paragraph (e)(1) or (2) of this section, 

whichever is applicable; 

(iv) Where securities were acquired by 

a trust from the settlor of the trust, the 

amount of such securities sold for the 

account of the trust during any threemonth period within six months (or 

within one year if the issuer of the 

securities is not, or has not been for a 

period of at least 90 days immediately 

before the sale, subject to the reporting 

requirements of section 13 or 15(d) of 

the Exchange Act) after the acquisition 

of the securities by the trust, and the 

amount of securities sold during the 

same three-month period for the 

account of the settlor, shall not exceed, 

in the aggregate, the amount specified in 

paragraph (e)(1) or (2) of this section, 

whichever is applicable; 

(v) The amount of securities sold for 

the account of the estate of a deceased 

person, or for the account of a 

beneficiary of such estate, during any 

three-month period and the amount of 

securities sold during the same threemonth period for the account of the 

deceased person prior to his death shall 

not exceed, in the aggregate, the amount 

specified in paragraph (e)(1) or (2) of 

this section, whichever is applicable: 

Provided, that no limitation on amount 

shall apply if the estate or beneficiary of 

the estate is not an affiliate of the issuer; 

(vi) When two or more affiliates or 

other persons agree to act in concert for 

the purpose of selling securities of an 

issuer, all securities of the same class 

sold for the account of all such persons 

during any three-month period shall be 

aggregated for the purpose of 

determining the limitation on the 

amount of securities sold; 

(vii) The following sales of securities 

need not be included in determining the 

amount of securities to be sold in 

reliance upon this section: 

(A) Securities sold pursuant to an 

effective registration statement under 

the Act; 

(B) Securities sold pursuant to an 

exemption provided by Regulation A 

(§ 230.251 through § 230.263) under the 

Act; 

(C) Securities sold in a transaction 

exempt pursuant to section 4 of the Act 

(15 U.S.C. 77d) and not involving any 

public offering; and 

(D) Securities sold offshore pursuant 

to Regulation S (§ 230.901 through 

§ 230.905, and Preliminary Notes) under 

the Act. 

(f) Manner of sale. (1) The securities 

shall be sold in one of the following 

manners: 

(i) Brokers’ transactions within the 

meaning of section 4(4) of the Act; 

(ii) Transactions directly with a 

market maker, as that term is defined in 

section 3(a)(38) of the Exchange Act; or 

(iii) Riskless principal transactions 

where: 

(A) The offsetting trades must be 

executed at the same price (exclusive of 

an explicitly disclosed markup or 

markdown, commission equivalent, or 

other fee); 

(B) The transaction is permitted to be 

reported as riskless under the rules of a 

self-regulatory organization; and 

(C) The requirements of paragraphs 

(g)(2)(applicable to any markup or 

markdown, commission equivalent, or 

other fee), (g)(3), and (g)(4) of this 

section are met. 

Note to § 230.144(f)(1): For purposes of this 

paragraph, a riskless principal transaction 

means a principal transaction where, after 

having received from a customer an order to 

buy, a broker or dealer purchases the security 

as principal in the market to satisfy the order 

to buy or, after having received from a 

customer an order to sell, sells the security 

as principal to the market to satisfy the order 

to sell. 

(2) The person selling the securities 

shall not: 

(i) Solicit or arrange for the 

solicitation of orders to buy the 

securities in anticipation of or in 

connection with such transaction, or 

(ii) Make any payment in connection 

with the offer or sale of the securities to 

any person other than the broker or 

dealer who executes the order to sell the 

securities. 

(3) Paragraph (f) of this section shall 

not apply to: 

(i) Securities sold for the account of 

the estate of a deceased person or for the 


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account of a beneficiary of such estate 

provided the estate or estate beneficiary 

is not an affiliate of the issuer; or 

(ii) Debt securities. 

(g) * * * 

(1) Does no more than execute the 

order or orders to sell the securities as 

agent for the person for whose account 

the securities are sold; 

(2) Receives no more than the usual 

and customary broker’s commission; 

(3) Neither solicits nor arranges for 

the solicitation of customers’ orders to 

buy the securities in anticipation of or 

in connection with the transaction; 

Provided, that the foregoing shall not 

preclude: 

(i) Inquiries by the broker of other 

brokers or dealers who have indicated 

an interest in the securities within the 

preceding 60 days; 

(ii) Inquiries by the broker of his 

customers who have indicated an 

unsolicited bona fide interest in the 

securities within the preceding 10 

business days; 

(iii) The publication by the broker of 

bid and ask quotations for the security 

in an inter-dealer quotation system 

provided that such quotations are 

incident to the maintenance of a bona 

fide inter-dealer market for the security 

for the broker’s own account and that 

the broker has published bona fide bid 

and ask quotations for the security in an 

inter-dealer quotation system on each of 

at least twelve days within the 

preceding thirty calendar days with no 

more than four business days in 

succession without such two-way 

quotations; or 

(iv) The publication by the broker of 

bid and ask quotations for the security 

in an alternative trading system, as 

defined in § 242.300 of this chapter, 

provided that the broker has published 

bona fide bid and ask quotations for the 

security in the alternative trading 

system on each of the last twelve 

business days; and 

Note to § 230.144(g)(3)(ii). The broker 

should obtain and retain in his files written 

evidence of indications of bona fide 

unsolicited interest by his customers in the 

securities at the time such indications are 

received. 

* * * * * 

(h) Notice of proposed sale. (1) If the 

amount of securities to be sold in 

reliance upon this rule during any 

period of three months exceeds 5,000 

shares or other units or has an aggregate 

sale price in excess of $50,000, three 

copies of a notice on Form 144 

(§ 239.144 of this chapter) shall be filed 

with the Commission. If such securities 

are admitted to trading on any national 

securities exchange, one copy of such 

notice also shall be transmitted to the 

principal exchange on which such 

securities are admitted. 

(2) The Form 144 shall be signed by 

the person for whose account the 

securities are to be sold and shall be 

transmitted for filing concurrently with 

either the placing with a broker of an 

order to execute a sale of securities in 

reliance upon this rule or the execution 

directly with a market maker of such a 

sale. Neither the filing of such notice 

nor the failure of the Commission to 

comment on such notice shall be 

deemed to preclude the Commission 

from taking any action that it deems 

necessary or appropriate with respect to 

the sale of the securities referred to in 

such notice. The person filing the notice 

required by this paragraph shall have a 

bona fide intention to sell the securities 

referred to in the notice within a 

reasonable time after the filing of such 

notice. 

(i) Unavailability to securities of 

issuers with no or nominal operations 

and no or nominal non-cash assets. (1) 

This section is not available for the 

resale of securities initially issued by an 

issuer defined below: 

(i) An issuer, other than a business 

combination related shell company, as 

defined in § 230.405, or an asset-backed 

issuer, as defined in Item 1101(b) of 

Regulation AB (§ 229.1101(b) of this 

chapter), that has: 

(A) No or nominal operations; and 

(B) Either: 

(1) No or nominal assets; 

(2) Assets consisting solely of cash 

and cash equivalents; or 

(3) Assets consisting of any amount of 

cash and cash equivalents and nominal 

other assets; or 

(ii) An issuer that has been at any 

time previously an issuer described in 

paragraph (i)(1)(i). 

(2) Notwithstanding paragraph (i)(1), 

if the issuer of the securities previously 

had been an issuer described in 

paragraph (i)(1)(i) but has ceased to be 

an issuer described in paragraph 

(i)(1)(i); is subject to the reporting 

requirements of section 13 or 15(d) of 

the Exchange Act; has filed all reports 

and other materials required to be filed 

by section 13 or 15(d) of the Exchange 

Act, as applicable, during the preceding 

12 months (or for such shorter period 

that the issuer was required to file such 

reports and materials), other than Form 

8-K reports (§ 249.308 of this chapter); 

and has filed current ‘‘Form 10 

information’’ with the Commission 

reflecting its status as an entity that is 

no longer an issuer described in 

paragraph (i)(1)(i), then those securities 

may be sold subject to the requirements 

of this section after one year has elapsed 

from the date that the issuer filed ‘‘Form 

10 information’’ with the Commission. 

(3) The term ‘‘Form 10 information’’

means the information that is required 

by Form 10 or Form 20-F (§ 249.210 or 

§ 249.220f of this chapter), as applicable 

to the issuer of the securities, to register 

under the Exchange Act each class of 

securities being sold under this rule. 

The issuer may provide the Form 10 

information in any filing of the issuer 

with the Commission. The Form 10 

information is deemed filed when the 

initial filing is made with the 

Commission. 

■ 3. Amend § 230.145 by revising 

paragraphs (c), (d) and (e) and removing 

the authority citation following 

§ 230.145 to read as follows: 

§ 230.145 Reclassification of securities, 

mergers, consolidations and acquisitions of 

assets. 

* * * * * 

(c) Persons and parties deemed to be 

underwriters. For purposes of this 

section, if any party to a transaction 

specified in paragraph (a) of this section 

is a shell company, other than a 

business combination related shell 

company, as those terms are defined in 

§ 230.405, any party to that transaction, 

other than the issuer, or any person who 

is an affiliate of such party at the time 

such transaction is submitted for vote or 

consent, who publicly offers or sells 

securities of the issuer acquired in 

connection with any such transaction, 

shall be deemed to be engaged in a 

distribution and therefore to be an 

underwriter thereof within the meaning 

of Section 2(a)(11) of the Act. 

(d) Resale provisions for persons and 

parties deemed underwriters. 

Notwithstanding the provisions of 

paragraph (c), a person or party 

specified in that paragraph shall not be 

deemed to be engaged in a distribution 

and therefore not to be an underwriter 

of securities acquired in a transaction 

specified in paragraph (a) that was 

registered under the Act if: 

(1) The issuer has met the 

requirements applicable to an issuer of 

securities in paragraph (i)(2) of 

§ 230.144; and 

(2) One of the following three 

conditions is met: 

(i) Such securities are sold by such 

person or party in accordance with the 

provisions of paragraphs (c), (e), (f), and 

(g) of § 230.144 and at least 90 days have 

elapsed since the date the securities 

were acquired from the issuer in such 

transaction; or 

(ii) Such person or party is not, and 

has not been for at least three months, 

an affiliate of the issuer, and at least six 

months, as determined in accordance 


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with paragraph (d) of § 230.144, have 

elapsed since the date the securities 

were acquired from the issuer in such 

transaction, and the issuer meets the 

requirements of paragraph (c) of 

§ 230.144; or 

(iii) Such person or party is not, and 

has not been for at least three months, 

an affiliate of the issuer, and at least one 

year, as determined in accordance with 

paragraph (d) of § 230.144, has elapsed 

since the date the securities were 

acquired from the issuer in such 

transaction. 

Note to § 230.145(c) and (d): Paragraph (d) 

is not available with respect to any 

transaction or series of transactions that, 

although in technical compliance with the 

rule, is part of a plan or scheme to evade the 

registration requirements of the Act. 

(e) Definitions. (1) The term affiliate 

as used in paragraphs (c) and (d) of this 

section shall have the same meaning as 

the definition of that term in § 230.144. 

(2) The term party as used in 

paragraphs (c) and (d) of this section 

shall mean the corporations, business 

entities, or other persons, other than the 

issuer, whose assets or capital structure 

are affected by the transactions specified 

in paragraph (a) of this section. 

(3) The term person as used in 

paragraphs (c) and (d) of this section, 

when used in reference to a person for 

whose account securities are to be sold, 

shall have the same meaning as the 

definition of that term in paragraph 

(a)(2) of § 230.144. 

■ 4. Amend § 230.190 by: 

■ a. Revising paragraphs (a)(2) and 

(a)(3); and 

■ b. Adding paragraph (a)(4). 

The revisions and addition read as 

follows: 

§ 230.190 Registration of underlying 

securities in asset-backed securities 

transactions. 

(a) * * * 

(1) * * * 

(2) Neither the issuer of the 

underlying securities nor any of its 

affiliates is an affiliate of the sponsor, 

depositor, issuing entity or underwriter 

of the asset-backed securities 

transaction; 

(3) If the underlying securities are 

restricted securities, as defined in 

§ 230.144(a)(3), § 230.144 must be 

available for the sale of the securities, 

provided however, that notwithstanding 

any other provision of § 230.144, 

§ 230.144 shall only be so available if at 

least two years have elapsed since the 

later of the date the securities were 

acquired from the issuer of the 

underlying securities or from an affiliate 

of the issuer of the underlying 

securities; and 

(4) The depositor would be free to 

publicly resell the underlying securities 

without registration under the Act. For 

example, the offering of the asset-backed 

security does not constitute part of a 

distribution of the underlying securities. 

An offering of asset-backed securities 

with an asset pool containing 

underlying securities that at the time of 

the purchase for the asset pool are part 

of a subscription or unsold allotment 

would be a distribution of the 

underlying securities. For purposes of 

this section, in an offering of assetbacked securities involving a sponsor, 

depositor or underwriter that was an 

underwriter or an affiliate of an 

underwriter in a registered offering of 

the underlying securities, the 

distribution of the asset-backed 

securities will not constitute part of a 

distribution of the underlying securities 

if the underlying securities were 

purchased at arm’s length in the 

secondary market at least three months 

after the last sale of any unsold 

allotment or subscription by the 

affiliated underwriter that participated 

in the registered offering of the 

underlying securities. 

* * * * * 

§ 230.701 [Amended] 

■ 5. Amend 230.701, paragraph (g)(3), 

by revising the phrase ‘‘without 

compliance with paragraphs (c), (d), (e), 

and (h) of § 230.144’’ to read ‘‘without 

compliance with paragraphs (c) and (d) 

of § 230.144’’. 

■ 6. Amend § 230.903 by revising 

paragraph (b)(3)(iii)(A), the introductory 

text of paragraph (b)(3)(iii)(B) and 

paragraph (b)(3)(iv) to read as follows: 

§ 230.903 Offers or sales of securities by 

the issuer, a distributor, any of their 

respective affiliates, or any person acting 

on behalf of any of the foregoing; 

conditions relating to specific securities. 

* * * * * 

(b) * * * 

(3) * * * 

(iii) * * * 

(A) The offer or sale, if made prior to 

the expiration of a one-year distribution 

compliance period (or six-month 

distribution compliance period if the 

issuer is a reporting issuer), is not made 

to a U.S. person or for the account or 

benefit of a U.S. person (other than a 

distributor); and 

(B) The offer or sale, if made prior to 

the expiration of a one-year distribution 

compliance period (or six-month 

distribution compliance period if the 

issuer is a reporting issuer), is made 

pursuant to the following conditions: 

* * * * * 

(iv) Each distributor selling securities 

to a distributor, a dealer (as defined in 

section 2(a)(12) of the Act (15 U.S.C. 

77b(a)(12)), or a person receiving a 

selling concession, fee or other 

remuneration, prior to the expiration of 

a 40-day distribution compliance period 

in the case of debt securities, or a oneyear distribution compliance period (or 

six-month distribution compliance 

period if the issuer is a reporting issuer) 

in the case of equity securities, sends a 

confirmation or other notice to the 

purchaser stating that the purchaser is 

subject to the same restrictions on offers 

and sales that apply to a distributor. 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 7. The authority citation for part 239 

continues to read in part as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 

77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 

80a–3, 80a–8, 80a–9, 80a–10, 80a–13, 80a–

24, 80a–26, 80a–29, 80a–30, and 80a–37, 

unless otherwise noted. 

* * * * * 

■ 8. Amend § 239.144 by revising 

paragraph (b) to read as follows: 

§ 239.144 Form 144, for notice of proposed 

sale of securities pursuant to § 230.144 of 

this chapter. 

* * * * * 

(b) This form need not be filed if the 

amount of securities to be sold during 

any period of three months does not 

exceed 5,000 shares or other units and 

the aggregate sale price does not exceed 

$50,000. 

* * * * * 

■ 9. Form 144 (referenced in § 239.144) 

is revised as set forth in the Appendix. 

By the Commission. 

Dated: December 6, 2007. 

Nancy M. Morris, 

Secretary. 

Note: The following Appendix to the 

Preamble will not appear in the Code of 

Federal Regulations. 

Appendix 

BILLING CODE 8011–01–P 


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[FR Doc. 07–6013 Filed 12–14–07; 8:45 am] 

BILLING CODE 8011–01–C 


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