Document ID: SEC-2021-0074-0001
Agency: sec
Document Type: Proposed Rule
Title: Rule 144 Holding Period and Form 144 Filings
Posted Date: 2021-01-19T05:00Z

[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Proposed Rules]
[Pages 5063-5086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28790]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 232, 239, and 249

[Release Nos. 33-10911; 34-90773; File No. S7-24-20]
RIN 3235-AM78

Rule 144 Holding Period and Form 144 Filings

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing to amend Rule 144 to revise the holding period determination 
for securities acquired upon the conversion or exchange of certain 
market-adjustable securities of issuers that do not have securities 
listed on a national securities exchange. Under the proposed 
amendments, the holding period for those securities would not begin 
until the securities are acquired upon the conversion or exchange of 
the market-adjustable security. The Commission is also proposing to 
mandate electronic filing of Form 144 with respect to securities issued 
by issuers subject to Exchange Act reporting requirements, to amend the 
filing deadline for Form 144 to coincide with the filing deadline for 
Form 4, and to streamline the filing process in cases where both Form 4 
and Form 144 are required to report the same transaction. Finally, the 
Commission is proposing to eliminate

[[Page 5064]]

the requirement to file a Form 144 for resales of securities of issuers 
that are not subject to Exchange Act reporting.

DATES: Comments should be received on or before March 22, 2021.

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/submitcomments.htm).

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-24-20. We will post all 
submitted comments, requests, other submissions and other materials on 
our internet website (http://www.sec.gov/rules/proposed.shtml). 
Typically, comments are also available for website viewing and printing 
in the Commission's Public Reference Room, 100 F Street NE, Washington, 
DC 20549, on official business days between the hours of 10 a.m. and 3 
p.m. Due to pandemic conditions, however, access to the Commission's 
public reference room is not permitted at this time. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information. You should submit only information that you wish to make 
available publicly.
    Studies, memoranda or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any such materials 
will be made available on the Commission's website. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: John Fieldsend or Sean Harrison, at 
(202) 551-3430, in the Office of Rulemaking, Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to:

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                            Commission reference                              CFR citation
                                                                              (17 CFR)
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Regulation S-T [17 CFR 232.10 through     Rule 101..........................  Sec.   232.101.
 232.903].
Securities Act of 1933 (``Securities      Rule 144(b)(3)....................  Sec.   230.144(b)(3).
 Act'') [15 U.S.C. 77a et seq.].
                                          Rule 144(d)(3)(ii)................  Sec.   230.144(d)(3)(ii).
                                          Rule 144(h).......................  Sec.   230.144(h).
                                          Form 144..........................  Sec.   239.144.
Securities Exchange Act of 1934           Form 4............................  Sec.   249.104.
 (``Exchange Act'') [15 U.S.C. 78a et
 seq.].
                                          Form 5............................  Sec.   249.105.
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Table of Contents

I. Discussion of the Proposed Amendments
    A. Overview of the Proposed Amendments
    B. Proposed Amendment to Rule 144(d)(3)(ii)
    1. Background
    a. Rule 144 Safe Harbor
    b. Rule 144 Holding Period Condition and Tacking
    c. Market-Adjustable Securities Transactions
    2. Proposed Amendment
    C. Proposed Amendment to the Form 144 Filing Requirements
    1. Background
    2. Proposed Amendments
    a. Mandatory Electronic Filing of Form 144
    b. Eliminating Form 144 Filing Requirement for Investors Selling 
Securities of Non-Reporting Issuers
    c. Filing Options for Form 4 and Form 144
    d. Rule 10b5-1(c) Transaction Indication in Forms 4 and 5
II. Economic Analysis
    A. Introduction
    B. Proposed Amendments to Holding Period for Market-Adjustable 
Securities
    1. Broad Economic Considerations
    2. Economic Baseline
    3. Benefits and Costs to Proposed Amendment to Rule 
144(d)(3)(ii)
    4. Effects on Efficiency, Competition, and Capital Formation
    5. Reasonable Alternatives
    6. Request for Comment
    C. Proposed Amendments to Form 144, Form 4 and Regulation S-T
    1. Broad Economic Considerations
    2. Economic Baseline.
    a. Affected parties
    b. EDGAR
    3. Benefits and Costs of Proposed Amendments to Form 144, Form 
4, and Regulation S-T
    4. Efficiency, Competition, and Capital Formation
    5. Reasonable Alternatives
    D. Request for Comment
III. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Summary of the Proposed Amendments' Effects on the 
Collections of Information
    C. Incremental and Aggregate Burden and Cost Estimates
    D. Request for Comment
IV. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Proposed Reporting, Recordkeeping, and other Compliance 
Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. Request for Comment
V. Small Business Regulatory Enforcement Fairness Act
VI. Statutory Authority
Text of the Proposed Amendments

I. Discussion of the Proposed Amendments

A. Overview of the Proposed Amendments

    We are proposing to amend Rule 144, Form 144, Form 4, Form 5 and 
Rule 101 of Regulation S-T. We propose to amend Rule 144(d)(3)(ii) to 
revise the holding period determination for securities acquired upon 
the conversion or exchange of certain market-adjustable securities of 
an issuer that does not have a class of securities listed, or approved 
to be listed, on a national securities exchange registered pursuant to 
Section 6 \1\ of the Exchange Act (``unlisted issuer'') so that the 
holding period would not begin until the conversion or exchange. As 
used in this release, a ``market-adjustable security'' is a convertible 
or exchangeable security that provides for a conversion rate, 
conversion price, or other terms that, in each case, would have the 
effect of offsetting, in whole or in part, declines in value of the 
underlying securities that may occur prior to conversion or exchange.
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    \1\ 15 U.S.C. 78f.
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    We are proposing this amendment to mitigate the risk of 
unregistered distributions in connection with sales of market-
adjustable securities. As

[[Page 5065]]

discussed below, the application of the ``tacking'' provisions of Rule 
144 to market-adjustable securities undermines one of the key premises 
of Rule 144, which is that holding securities at risk for an 
appropriate period of time prior to resale can demonstrate that the 
seller did not purchase the securities with a view to distribution \2\ 
and, therefore, is not an underwriter for the purpose of Securities Act 
Section 4(a)(1).\3\ Amending the Rule 144 holding period for the 
securities received on conversion or exchange of market-adjustable 
securities so that it will not commence until the time the underlying 
securities are acquired would help maintain the effectiveness of this 
key aspect of the Rule 144 safe harbor.
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    \2\ The term ``underwriter'' is broadly defined 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. See 
Securities Act Section 2(a)(11) [15 U.S.C. 77b(a)(11)]. 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.'' For simplicity, in this release 
we often only refer to the ``with a view to'' prong of the 
underwriter definition.
    \3\ 15 U.S.C. 77d(a)(1).
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    We are also proposing amendments to update and simplify the Form 
144 filing requirements by mandating the electronic filing of all Form 
144 notices related to the resale of securities of issuers that are 
subject to the reporting requirements of Section 13 or 15(d) of the 
Exchange Act, and eliminating the filing requirement for Form 144 
notices related to the resale of securities of issuers that are not 
subject to Exchange Act reporting. Additionally, we are proposing to 
eliminate two unnecessary data fields and intend to create an online 
fillable document for entering the information required by Form 144. In 
connection with these amendments, we are planning to streamline filing 
procedures for individuals who are subject to notice filing 
requirements under Rule 144 and reporting requirements under Section 16 
\4\ of the Exchange Act. These amendments would also change the filing 
deadline for Form 144 to coincide with the filing deadline for Form 4. 
In addition, we are proposing to amend Forms 4 and 5 to add a check box 
to permit filers to indicate that a sale or purchase reported on the 
form was made pursuant to a transaction that satisfied 17 CFR 240.10b5-
1(c) (``Rule 10b5-1(c)'').
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    \4\ 15 U.S.C. 78p.
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    We welcome feedback and encourage interested parties to submit 
comments on any or all aspects of the proposed rule amendments. When 
commenting, it would be most helpful if you include the reasoning 
behind your position or recommendation.

B. Proposed Amendment to Rule 144(d)(3)(ii)

1. Background
a. Rule 144 Safe Harbor
    Securities Act Section 5 requires registration of all offers and 
sales of securities in interstate commerce or by use of the United 
States mails, unless an exemption from the registration requirement is 
available.\5\ Securities Act Section 4(a)(1) provides an exemption for 
``transactions by any person other than an issuer, underwriter, or 
dealer.'' Securities Act Section 2(a)(11) defines an ``underwriter'' 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.\6\
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    \5\ 15 U.S.C. 77e.
    \6\ As used in Section 2(a)(11), the term ``issuer'' includes 
any person directly or indirectly controlling or controlled by the 
issuer, or any person under direct or indirect common control with 
the issuer. An affiliate of an 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 230.405 and 17 CFR 230.144(a)(1).
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    In 1972,\7\ the Commission adopted Rule 144 to provide a non-
exclusive safe harbor from the statutory definition of ``underwriter'' 
to assist security holders in determining whether the Section 4(a)(1) 
exemption is available for their resale of restricted or control 
securities.\8\ Rule 144 sets forth objective criteria on which security 
holders seeking to resell such securities may rely to be assured they 
would not be deemed to be engaged in a distribution and, therefore, not 
be considered an underwriter under Section 2(a)(11). A selling security 
holder that seeks to rely on the safe harbor for the resale of 
securities must satisfy the following conditions: \9\
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    \7\ See Definition of Terms ``Underwriter'' and ``Brokers' 
Transactions,'' Release No. 33-5223 (Jan. 11, 1972) [37 FR 591 (Jan. 
14, 1972)] (``1972 Adopting Release'').
    \8\ Restricted securities are securities acquired pursuant to 
one of the transactions listed in Securities Act Rule 144(a)(3), 
such as securities issued in a private placement. Although not 
defined in Rule 144, the term ``control securities'' commonly refers 
to securities held by an affiliate of the issuer, regardless of how 
the affiliate acquired the securities. See Rule 144(b)(2).
    \9\ In general, these are the conditions that a selling security 
holder must satisfy when seeking to rely on the safe harbor for the 
resale of securities. However, a person seeking to rely on the safe 
harbor when reselling securities of certain types of companies must 
satisfy different conditions. See 17 CFR 230.144(i).
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     There must be adequate current public information 
available about the issuer if the selling security holder is an 
affiliate of the issuer; \10\
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    \10\ See 17 CFR 230.144(c). A sale by a non-affiliate also must 
satisfy the current public information condition if the non-
affiliate is selling securities of a reporting issuer and has held 
the securities for less than one year.
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     The selling security holder must have held the securities 
for a specified holding period if the securities being sold are 
restricted securities; \11\
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    \11\ See 17 CFR 230.144(d).
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     The resale must be within specified sales volume 
limitations if the selling security holder is an affiliate of the 
issuer; \12\
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    \12\ See 17 CFR 230.144(e).
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     The resale must comply with the manner of sale 
requirements if the selling security holder is an affiliate of the 
issuer; \13\ and
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    \13\ See 17 CFR 230.144(f) and (g).
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     The selling security holder must file a Form 144 if the 
selling security holder is an affiliate of the issuer and the amount of 
securities being sold exceeds specified thresholds.\14\
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    \14\ See Rule 144(h).
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b. Rule 144 Holding Period Condition and Tacking
    One of the conditions of Rule 144 for restricted securities is that 
a selling security holder must have held the securities for a specified 
period of time prior to resale. This condition helps to ensure that a 
holder who claims an exemption under Section 4(a)(1) has assumed the 
full economic risks of investment and, therefore, is not acting as a 
conduit, directly or indirectly, on behalf of the issuer for the sale 
of unregistered securities to the public.\15\ Under Rule 144(d)(1)(i), 
restricted securities acquired from an issuer that has been subject to 
Exchange Act reporting for at least 90 days before the sale (a 
``reporting issuer'') must be held for a minimum of six months. If the 
issuer is not subject to Exchange Act reporting, or has not been for a 
period of at least 90 days immediately before the sale (a ``non-
reporting issuer''), the restricted securities must be held for a 
minimum of one year pursuant to Rule 144(d)(1)(ii).
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    \15\ See 1972 Adopting Release, supra note 7, at 594 (noting 
that the holding period condition in Rule 144 was designed to assure 
that the registration provisions of the Securities Act are not 
circumvented by persons acting, directly or indirectly, as conduits 
for an issuer in connection with resales of restricted securities 
and that to accomplish this, the rule provides that such persons be 
subject to the full economic risks of investment during the holding 
period).
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    As originally adopted, Rule 144 required a two-year holding period 
before a security holder could make

[[Page 5066]]

limited sales of restricted securities.\16\ Later changes to the rule 
established a separate three-year holding period for unlimited sales of 
restricted securities by non-affiliates of the issuer.\17\ In 1997, the 
Commission shortened the holding periods for restricted securities to 
one-year and two-year periods, respectively.\18\ In 2007, the 
Commission adopted the current holding periods of six months for 
reporting issuers and one year for non-reporting issuers based on its 
observations of Rule 144's application since 1997 and its desire that 
the holding period be no longer than necessary nor impose any 
unnecessary costs or restrictions on capital formation.\19\ By reducing 
the holding periods for restricted securities, the Commission intended 
to help companies to raise capital more easily and less 
expensively.\20\
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    \16\ See id.
    \17\ See Resales of Securities, Release No. 33-6032 (Mar. 5, 
1979) [44 FR 15610 (Mar. 14, 1979)] and Resales of Securities, 
Release No. 33-6286 (Feb. 6, 1981) [46 FR 12195 (Feb. 13, 1981)] 
(``1981 Adopting Release'').
    \18\ See Revision of Holding Period Requirements in Rules 144 
and 145, Release No. 33-7390 (Feb. 20, 1997) [62 FR 9242 (Feb. 28, 
1997)]. In that adopting release, the Commission stated that it was 
shortening the holding to reduce the cost of capital, lower the 
illiquidity discount given by companies raising capital in private 
placements, and increase the usefulness of the Rule 144 safe harbor. 
See id. at 9242. Additionally, the Commission stated that it did not 
believe that the shorter holding periods would diminish investor 
protection because the holding periods were still sufficiently long 
to ensure that resales under Rule 144 would not facilitate indirect 
public distributions of unregistered securities by issuers or 
affiliates.
    \19\ See Revisions to Rules 144 and 145, Release No. 33-8869 
(Dec. 6, 2007) [72 FR 71546 (Dec. 17, 2007)] (``2007 Adopting 
Release''). In the 2007 Adopting Release, the Commission eliminated 
the bifurcated holding periods for affiliates and non-affiliates, 
and added different holding periods for reporting and non-reporting 
issuers because non-reporting issuers are not obliged to file 
periodic reports with updated financial information that are 
publicly available on EDGAR.
    \20\ See id.
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    Rule 144 contains ``tacking'' provisions in specified situations 
that allow holders to count other holding periods--either of prior 
owners of the securities or of different securities owned by the 
holders--to satisfy their holding period requirement. One situation 
where Rule 144 permits tacking of the holding period involves 
convertible securities. Rule 144(d)(3)(ii) allows securities acquired 
solely in exchange for other securities of the same issuer to be deemed 
to have been acquired at the same time as the securities surrendered 
for conversion or exchange. A variation of this provision has existed 
since 1972,\21\ and the current version of this provision was adopted 
in 2007.\22\
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    \21\ See 1972 Adopting Release, supra note 7, at 597.
    \22\ See 2007 Adopting Release, supra note 19, at 71555.
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c. Market-Adjustable Securities Transactions
    A typical convertible security, for example a convertible bond, a 
convertible promissory note, or convertible preferred stock, can be 
converted into a different security, such as shares of the issuer's 
common stock, under specified terms and conditions.\23\ In a 
conventional convertible security transaction, the conversion formula 
is generally fixed, such that the convertible security converts into 
common stock based on a conversion price that is fixed at the time the 
convertible security is sold and remains at that fixed price through 
its conversion. Convertible securities may contain mechanical 
adjustments to the number of underlying shares and the conversion price 
upon the occurrence of events such as splits, dividends, or other 
distributions on the underlying securities. They also may contain anti-
dilution provisions designed to protect the holder's economic interest 
if the issuer subsequently issues shares of the underlying securities 
at a price below their current market value or below the holder's 
original purchase price. The terms of market-adjustable securities, 
however, go beyond these typical adjustments and anti-dilution 
provisions to adjust for, and protect the holder against, general 
decreases in market value of the underlying securities.\24\
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    \23\ See infra Section II.B.1; see also, Convertible Securities, 
U.S. Sec. & Exchange Commission (last visited Dec. 18, 2020), 
available at https://www.sec.gov/fast-answers/answersconvertibleshtm.html.
    \24\ For example, the conversion or exchange rate of the 
overlying convertible securities into the underlying equity 
securities may be discounted from a weighted average price of the 
publicly traded class of securities, typically, common stock, 
calculated for a period leading up to the date of conversion or 
exchange. Therefore, the conversion price provides a discount from 
the recent market price that can be realized at the time sales of 
the underlying equity securities begin.
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    While the holder of a typical convertible security is at 
substantial economic risk upon conversion with respect to the 
underlying security if the underlying security fails to appreciate or 
declines in value, this is not the case in market-adjustable securities 
transactions where the conversion or exchange price and/or the amount 
of securities received on conversion are not fixed at the time of the 
initial transaction. In these transactions, holders have the right to 
convert the securities into the underlying securities (often shares of 
common stock) at a conversion price that yields a substantial discount 
to the market price of the underlying securities at the time of 
conversion or exchange. If the securities are converted or exchanged 
after the Rule 144 holding period is satisfied, the underlying 
securities may be sold quickly into the public market at prices above 
the price at which they were acquired. Accordingly, initial purchasers 
or subsequent holders have an incentive to purchase the market-
adjustable securities with a view to distribution of the underlying 
securities following conversion to capture the difference between the 
built-in discount and the market value of the underlying securities. As 
noted above, when a holder purchases with a view to distribution, it is 
acting as an underwriter and is unable to rely on the Section 4(a)(1) 
exemption from registration.
    A holding period is essential to assure that purchasers have 
assumed the economic risks of investment, and therefore, are not acting 
as conduits for sale to the public of unregistered securities, directly 
or indirectly, on behalf of an issuer.\25\ The discounted conversion or 
exchange features in market-adjustable securities typically provide 
holders with protection against investment losses that would occur due 
to declines in the market value of the underlying securities prior to 
conversion or exchange. As a result, these holders are not exposed to 
the market risk associated with holding the underlying security prior 
to conversion or exchange; \26\ they are only exposed to that market 
risk during the time that they hold the underlying security after the 
conversion or exchange.\27\ In these circumstances, holders that 
convert and promptly resell the underlying security in order to secure 
a profit on the sale based on the built-in discount have not assumed 
the economic risks of investment of the underlying security. Therefore, 
under Rule 144's current

[[Page 5067]]

formulation, holders are able to purchase market-adjustable securities 
with a view to distribution while still satisfying the holding period 
requirements and tacking period provisions of Rule 144.
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    \25\ See 1972 Adopting Release, supra note 7.
    \26\ Prior to conversion or exchange, a holder of market-
adjustable securities is at risk of bankruptcy of the issuer. 
However, this risk is borne for a briefer duration currently than 
when Rule 144 was originally adopted because of the shortened 
holding periods.
    \27\ This period of time can be very limited because the 
discounted equity securities acquisition, through conversion or 
exchange, and the market-priced sales can occur almost 
simultaneously. For example, when the applicable holding period 
ends, the holder may demand that the issuer issue the required 
number of underlying securities at the discounted conversion or 
exchange price and concurrently sell those securities at market 
prices. The underlying securities are received from the issuer in 
time to settle the sales at market prices made earlier.
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    Permitting the holding period of the underlying securities to be 
``tacked'' onto the holding period of the convertible or exchangeable 
security allows the initial holders of market-adjustable securities to 
structure transactions without significant economic risk prior to 
conversion. The structure of these transactions incentivizes purchases 
with a view to distribution because, by selling the underlying 
securities into the market promptly after conversion, holders of 
market-adjustable securities can capture the value of the built-in 
discount to the then-current market value. This is inconsistent with 
the purpose of Rule 144 to provide a safe harbor for transactions that 
are not distributions of securities. These unregistered transactions 
pose the risk that distributions of securities will reach the public 
markets without the same level of disclosure and liability protections 
that registration provides to investors.
2. Proposed Amendment
    We are proposing to amend Rule 144(d)(3)(ii) to provide that the 
holding period for the securities acquired upon conversion or exchange 
of certain market-adjustable securities issued by unlisted issuers 
would not begin until conversion or exchange.\28\ The proposed 
amendment would be limited to unlisted issuers because national 
securities exchanges registered pursuant to Section 6 of the Exchange 
Act have certain listing requirements, such as requiring shareholder 
approval of an issuance of 20 percent or more of a company's common 
stock. Because market-adjustable securities have the potential to 
result in highly dilutive issuances of large amounts of the issuer's 
securities, these required approvals are not likely to be granted in 
the situations the amendment is intended to address.\29\
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    \28\ Nothing in this proposed amendment is intended to impact 
the availability of the Securities Act Section 3(a)(9), 15 U.S.C. 
77c(a)(9), exemption from registration for such conversions or 
exchanges as long as the requirements of Section 3(a)(9) are 
otherwise met.
    \29\ See, e.g., Section 312.03(c) of the New York Stock Exchange 
LLC Listed Company Manual (requiring shareholder approval of any 
issuance of securities in any transaction or related transactions 
relating to 20 percent or more of a listed company's stock before 
the issuance) and Nasdaq Stock Market LLC Listing Rule 5635(d) 
(requiring shareholder approval prior to an issuance or potential 
issuance by a company of common stock (or securities convertible 
into or exercisable for common stock), which alone or together with 
sales by officers, directors, or certain other shareholders equals 
20 percent or more of the common stock or 20 percent or more of the 
voting power outstanding before the issuance at a price that is less 
than the certain, minimum price).
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    We have also observed that issuers that are able to satisfy the 
listing criteria of these exchanges have generally not been engaging in 
these transactions. The proposed amendment is intended to avoid the 
potential under the current Rule 144 safe harbor for holders to acquire 
market-adjustable securities with a view to an unregistered 
distribution of the underlying securities acquired upon their 
conversion or exchange, resulting in significant resales of the 
underlying securities without investors having the benefit of 
registration.\30\
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    \30\ In addition to lacking the disclosure and liability 
protections that registration provides, market-adjustable securities 
may result in extreme dilution to holders of the underlying 
securities, especially when the conversions or exchanges occur in 
tranches at subsequently lower market prices.
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    The proposed amendment would not affect the use of Rule 144 for 
most convertible or variable-rate securities transactions. The proposed 
amendment would apply only to market-adjustable securities transactions 
where:
     The newly acquired securities were acquired from an issuer 
that, at the time of the conversion or exchange, does not have a class 
of securities listed, or approved for listing, on a national securities 
exchange registered pursuant to Section 6 of the Exchange Act; and
     The convertible or exchangeable security contains terms, 
such as conversion rate or price adjustments, that offset, in whole or 
in part, declines in the market value of the underlying securities 
occurring prior to conversion or exchange, other than terms that adjust 
for stock splits, dividends, or other issuer-initiated changes in its 
capitalization.
    We believe the proposed amendment would reduce the potential for 
unregistered distributions because after the conversion or exchange of 
the overlying convertible securities, the underlying securities would 
need to be held for the applicable Rule 144 holding period before they 
would be eligible for resale under the Rule 144 safe harbor. A holder 
who has held the underlying securities for the entire six months or one 
year, as applicable, during which period market adjustments are no 
longer available, is generally appropriately excluded from the 
definition of an underwriter.
    While we believe the proposed amendment would mitigate the risk of 
unregistered distributions in connection with market-adjustable 
securities transactions, we also emphasize that the Rule 144 safe 
harbor is not available to any person with respect to any transaction 
or series of transactions that is part of a plan or scheme to evade the 
registration requirements of the Securities Act, as currently stated in 
the Preliminary Note to Rule 144. We propose to move this statement to 
new paragraph (b)(3) of Rule 144 so that the statement is explicitly 
included in the rule text.\31\
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    \31\ In addition to this amendment, due to current Federal 
Register formatting requirements we are also proposing a technical 
change to move the rest of Rule 144's Preliminary Note to a note 
that immediately follows the rule. Neither new Rule 144(b)(3) nor 
this technical change would alter the substance of the Preliminary 
Note.
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Request for Comment
    1. Should we amend Rule 144(d)(3)(ii) as proposed?
    2. Should the rule only apply if the issuer is an ``unlisted 
issuer'' at the time of conversion or exchange, as proposed? Or should 
the determination of whether an issuer is unlisted be made at the time 
the holder buys the market-adjustable security, the time of the resale 
of any of the underlying equity securities, or some other time? Should 
the determination be made both at the time of the purchase of the 
market-adjustable security and at the time of the conversion or 
exchange, or some other combination of times?
    3. Is the description of market-adjustable securities in proposed 
Rule 144(d)(3)(ii) sufficient to achieve the purpose of the proposal? 
If not, how should we modify the description?
    4. Should we define the securities that would be subject to the 
proposed rules more narrowly or more broadly? If so, how? We do not 
intend for adjustments for recapitalizations, stock or cash dividends, 
or other anti-dilution adjustments that apply to issuer-initiated 
actions, to be considered the type of adjustments that would cause a 
security to be considered a market-adjustable security. However, are 
there specific additional factors or clarification that we should 
provide in the rule to indicate when a transaction may be considered a 
market-adjustable securities transaction?
    5. As an alternative to the proposed amendment to Rule 
144(d)(3)(ii), should we amend Rule 144(d)(1)(i) to increase from six 
months to one year (or some other period) the holding period that would 
apply to the market-adjustable securities that are issued by reporting, 
unlisted issuers? Should we amend Rule 144(d)(1)(i) to increase the 
holding period to one year (or some other period) for these market-
adjustable

[[Page 5068]]

securities in addition to amending Rule 144(d)(3)(ii) as proposed?
    6. Are there alternative approaches that we should consider that 
would better mitigate the risk of unregistered distributions of 
securities acquired upon the conversion or exchange of market-
adjustable securities?
    7. Should market-adjustable securities of both listed and unlisted 
issuers be covered by the amendment to Rule 144(d)(3)(ii) rather than 
only those of unlisted issuers, as proposed? Do an exchange's listing 
criteria provide sufficient safeguards against the type of transaction 
that the proposal seeks to address? If not, are there alternatives that 
we should consider?
    8. Should the proposed amendment to Rule 144(d)(3)(ii) only apply 
to issuers that do not have a class of equity security listed on an 
exchange, rather than to issuers that do not have any class of security 
listed on an exchange, as proposed?
    9. Are there any additional amendments or changes to the proposed 
amendments that we should consider that would help achieve the purposes 
of the proposal?

C. Proposed Amendment to the Form 144 Filing Requirements

1. Background
    Form 144 is a notice form that must be filed with the Commission by 
an affiliate of an issuer who intends to resell restricted or control 
securities \32\ of that issuer in reliance upon Securities Act Rule 
144.\33\ Under Securities Act Rule 144(h), an affiliate who intends to 
resell securities of the issuer during any three-month period in a 
transaction that exceeds either 5,000 shares or has an aggregate sales 
price of more than $50,000 must file a Form 144 concurrently with 
either the placing of an order with a broker to execute the sale or the 
execution of a sale directly with a market maker.
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    \32\ See Rule 144(h).
    \33\ See Rule 144(a)(1) (defining ``affiliate of the issuer as a 
person who directly, or indirectly through one or more 
intermediaries, controls, or is controlled by, or is under common 
control with, the issuer).
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    Rule 101(b) of Regulation S-T permits Form 144 to be filed 
electronically or in paper if the issuer of the securities is subject 
to Exchange Act reporting requirements. If the issuer of the securities 
is not subject to Exchange Act reporting requirements, Rule 101(c)(6) 
of Regulation S-T requires Form 144 to be filed in paper.\34\ During 
the 2019 calendar year, the Commission received over 31,000 Form 144 
filings. Based on an analysis of these filings, Commission staff 
estimates that approximately 99 percent related to the resale of 
securities of issuers subject to Exchange Act reporting requirements. 
Although most of these Form 144 filings can be made electronically, 
during the 2019 calendar year, only 221 Form 144 filings were made 
electronically and the vast majority were filed in paper.\35\
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    \34\ In April 2020, in recognition of several logistical 
difficulties related to the submission of Form 144 in paper pursuant 
to Rules 101(b)(4) or 101(c)(6) of Regulation S-T, as well as 
ongoing health and safety concerns related to COVID-19, the Division 
of Corporation Finance provided temporary no-action relief that 
specified that it would not recommend enforcement action to the 
Commission if Forms 144 for the period from and including April 10, 
2020 to June 30, 2020 were submitted as a complete PDF attachment 
and emailed to the Commission in lieu of filing the form in paper. 
Subsequently, on June 25, 2020, the Division of Corporation Finance 
updated this no-action relief by indefinitely extending it from the 
period beginning on April 10, 2020. See Division of Corporation 
Finance Statement Regarding Requirements for Form 144 Paper Filings 
in Light of COVID-19 Concerns, U.S. Sec. & Exchange Comm'n (June 25, 
2020), available at https://www.sec.gov/corpfin/announcement/form-144-paper-filings-email-option-update.
    \35\ The paper filings of Form 144 are retained in the 
Commission's public reference room for a period of 90 days. 
Investors or other interested parties wishing to access and review a 
Form 144 filed in paper must do so in person at our public reference 
room or subscribe to a third party information service that records 
and distributes the information electronically after a paper Form 
144 is filed. Due to pandemic conditions, prospective data users 
cannot, at this time, access the Commission's public reference room. 
Therefore, access to paper filings is limited to those records which 
have been obtained and incorporated by vendor databases.
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2. Proposed Amendments
a. Mandatory Electronic Filing of Form 144
    Since the Commission's implementation of the Electronic Data 
Gathering, Analysis, and Retrieval system (``EDGAR''), we have sought 
to make the system more comprehensive by subjecting more filings to our 
mandated electronic filing requirements. The mandated electronic 
submission of documents required to be filed with the Commission has 
enabled investors, market participants, and other EDGAR users to access 
more quickly the information contained in registration statements, 
periodic reports, and other filings made with the Commission. We are 
proposing rule amendments that would mandate the electronic filing of 
Form 144 and eliminate the paper filing option. Specifically, we 
propose to amend Rules 101(a) and 101(b) of Regulation S-T to mandate 
the electronic filing of all Form 144 filings for the sale of 
securities of Exchange Act reporting companies.
    Mandating the electronic filing of Form 144 would facilitate more 
efficient storage and retrieval of the transaction information and 
facilitate analysis of this information. In addition, as described in 
more detail below, Form 144 filers would benefit from the planned EDGAR 
changes to make the form an online fillable document that would make 
electronic filing easier. Under the proposed amendments, affiliates of 
an issuer that is subject to Exchange Act reporting who resell or 
expect to resell securities in reliance upon Rule 144 in an amount 
exceeding the Form 144 filing thresholds would be required to file a 
Form 144 electronically on EDGAR.\36\ Any Form 144 filer who has not 
previously made an electronic filing on EDGAR would need to apply for 
EDGAR access in accordance with the EDGAR Filer Manual in order to file 
documents on EDGAR. We are also proposing to provide a six-month 
transition period after the effective date of the amendments to 
Regulation S-T to give Form 144 paper filers who would be first-time 
electronic filers sufficient time to apply for codes to make filings on 
EDGAR.
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    \36\ An affiliate, however, would be able to file the form in 
paper pursuant to a temporary hardship exemption under 17 CFR 
232.201 (Rule 201 of Regulation S-T) if the affiliate experiences 
unanticipated technical difficulties preventing the timely 
preparation and submission of the electronic filing.
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    In addition, we propose to amend Rule 144(h)(1) to delete the 
requirement that an affiliate send one copy of the Form 144 notice to 
the principal exchange, if any, on which the restricted securities are 
admitted to trading. This provision was designed for Form 144 filings 
made in paper and will no longer be needed if we mandate the electronic 
filing of Form 144.\37\
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    \37\ Many exchanges have rules or guidance that specify that it 
is not necessary for a company listed on the exchange to provide it 
with physical copies of any documents that the company has filed on 
EDGAR. See, e.g., New York Stock Exchange Listed Company Regulation 
Guidance Memo, N.Y. Stock Exch. (Feb. 20, 2018), available at 
https://www.nyse.com/publicdocs/nyse/regulation/nyse/2018_Listed_Company_Regulation_Guidance_Memo.pdf.
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    We are also proposing minor changes to Form 144 to update the form 
and eliminate certain personally identifiable information (``PII'') and 
immaterial information fields that are unnecessary. Specifically, we 
propose to delete the fields requiring the home address of the person 
for whose account the securities are to be sold and the IRS 
identification number of the issuer of the securities.\38\
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    \38\ For purposes of Form 144, we have determined that we can 
achieve our regulatory objectives without the PII. Furthermore, the 
IRS identification number of the issuer is redundant as this 
information is required to be disclosed on the cover page of 
registration statements and periodic reports and would be available 
through these forms.

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[[Page 5069]]

    We intend to provide an online fillable document on EDGAR for 
entering information required by Form 144 and to streamline the 
electronic filing process for those filing both a Form 144 and a Form 4 
to report the same sale of equity securities, as discussed in more 
detail below. In connection with these changes, we are also proposing 
to amend the Form 144 filing deadline to coincide with the Form 4 
filing deadline.\39\ Specifically, we propose to amend Securities Act 
Rule 144(h)(2) to revise the filing deadline to require that a Form 144 
be filed before the end of the second business day following the day on 
which the sale of securities has been executed or the deemed date of 
execution \40\ rather than have it due concurrently with either the 
placing of an order with a broker to execute the sale or the execution 
of a sale directly with a market maker, as currently required.
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    \39\ We are proposing to amend the filing deadline for Form 144 
to facilitate the simultaneous filing of Form 144 and Form 4. See 
infra Section II.B.2.c.
    \40\ Consistent with the exception to the Form 4 two-business 
day filing deadline provided in Exchange Act Rule 16a-3(g)(2)(i) [17 
CFR 240.16a-3(g)(2)(i)], the proposed amendments provide that if the 
transaction is pursuant to a contract, instruction or written plan 
that satisfies the affirmative defense conditions of Exchange Act 
Rule 10b5-1(c), and the affiliate does not select the date of 
execution, the date on which the executing broker, dealer notifies 
the security holder of the execution of the transaction is deemed 
the date of execution for a transaction.
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    The proposed amendment to the Form 144 filing deadline would 
facilitate this new filing process. This filing deadline would apply to 
all Forms 144, regardless of whether a Form 4 also needs to be filed 
for the same transaction.\41\ The proposal therefore would provide all 
Form 144 filers more time to file the form, yet would generally result 
in the Form 144 becoming publicly available earlier than under the 
existing filing deadline because the Form 144 would be filed 
electronically rather than mailed to the Commission in paper at the 
time the sale is executed. The proposed filing deadline, however, would 
not preclude filers from filing a Form 144 concurrently with either the 
placing of an order to execute a sale with a broker, or the execution 
of a sale directly with a market maker.
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    \41\ To better reflect the proposed change to the Form 144 
filing deadline, we also propose to revise the title of Form 144 to 
read: ``Notice of sale or proposed sale of securities pursuant to 
Rule 144 under the Securities Act of 1933.'' We are also proposing a 
conforming amendment to Instruction 3(d) to Form 144 to clarify that 
the filer should provide the total sales proceeds for completed 
sales rather than the aggregate market value for sales that have not 
yet been completed.
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    Finally, we observe that the Commission considered Rule 144 to be 
in the nature of an experiment at the time of its adoption in 1972.\42\ 
The Commission has used Form 144 filings to monitor the operation of 
the rule and as an enforcement tool to assist in the detection of 
abuses.\43\ Since the Commission initially adopted the Rule 144 
requirements, the Commission has amended the rule to eliminate certain 
Form 144 filing requirements.\44\ While, at this time, we are not 
proposing the elimination of the current Form 144 filing requirement 
for sales of securities by affiliates of issuers that are subject to 
Exchange Act reporting, we are soliciting comment on the continued 
utility of Form 144 filings.
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    \42\ See 1972 Adopting Release, supra note 7, at 595.
    \43\ See Resales of Securities, Release No. 33-6252 (Oct. 24, 
1980) [45 FR 72685 (Nov. 3, 1980)] at 72686.
    \44\ See, e.g., 1981 Adopting Release, supra note 17, at 12197 
(amending Rule 144 to relieve non-affiliates from the Form 144 
filing requirement and explaining that the ``costs and burdens of 
the requirement outweigh its usefulness, at least in this area'').
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Request for Comment
    10. Do investors or other market participants have an interest in 
the information provided by Form 144? Does Form 144 provide important 
information that would not otherwise be publicly available? Do 
investors or other market participants obtain benefits from this 
information? If so, please describe the benefits.
    11. How do market participants and the public currently access Form 
144 information? Should we mandate the electronic filing of Form 144 
for affiliates' sales of securities of issuers that are subject to 
Exchange Act reporting and that exceed the thresholds in Rule 144(h), 
as proposed? Would electronic filing of Form 144 make those forms more 
readily accessible to the public? Would electronic filing result in 
cost savings? Given that the majority of Form 144 filings are made in 
paper, has the inability to access the paper Forms 144 filed during the 
pandemic had any effect on the usefulness of this information to market 
participants and the public?
    12. Should we, as proposed, amend Rule 144(h)(1) to eliminate the 
requirement that an affiliate send one copy of the Form 144 notice to 
the principal exchange, if any, on which the restricted securities are 
admitted to trading?
    13. Should we amend Form 144 to update the form and eliminate 
certain information, as proposed? Is there any other information in 
Form 144 that we should remove because it is unnecessary to further the 
purposes of Rule 144? Is there any other information that should be 
included in the form?
    14. Should we instead continue to permit a Form 144 filer to have 
the option of filing in paper or electronically?
    15. In the alternative, should we eliminate the Form 144 filing 
requirement altogether?
    16. Is the proposed six-month transition period appropriate? Would 
a shorter or longer transition period be more appropriate (e.g., three 
months, nine months)?
    17. Is it common for Form 144 filers to use a filing agent or a 
third party such as a broker to prepare and submit the Form 144 filing? 
If so, would the proposed amendments create any difficulties in the 
filing process or add costs to the process?
    18. Should we amend the Form 144 filing deadline to coincide with 
the Form 4 filing deadline, as proposed? If not, should we change the 
deadline in some other way?
    19. If we mandate the electronic filing of Form 144 without 
amending the filing due date, the Form 144 disclosures would be 
available to investors and other EDGAR users more quickly than if we 
amend the Form 144 filing deadline to coincide with the Form 4 filing 
deadline. Should we maintain the existing Form 144 filing deadline that 
requires the form to be transmitted for filing concurrently with either 
the placing with a broker of an order to execute a sale of securities 
in reliance on the rule or execution of the sale directly with a market 
maker? Is there a benefit to having the Form 144 filed at an earlier 
date than a Form 4 that reports the same sale? If so, how does that 
benefit compare to the efficiencies that a filer subject to both the 
Form 144 and Form 4 requirements could realize from being able to file 
both forms simultaneously?
b. Eliminating Form 144 Filing Requirement for Investors Selling 
Securities of Non-Reporting Issuers
    As noted above, the Commission staff estimates that approximately 
one percent of the Form 144 filings made during the 2019 calendar year 
related to the resale of securities of issuers that are not subject to 
Exchange Act reporting.\45\ The proposed amendments discussed above 
that would mandate the electronic filing of a Form 144 notice for the 
securities of an Exchange Act

[[Page 5070]]

reporting issuer would reduce a large majority of the paper Form 144 
filings that the Commission receives. Although one of the primary goals 
of EDGAR is to facilitate the dissemination of financial and business 
information contained in Commission filings,\46\ given the limited 
number of paper Form 144 filings related to non-reporting issuers that 
we receive, we believe that the benefits of having this information 
filed electronically would not justify the burdens on filers. For this 
reason, we are proposing to amend Rule 144 and Rule 101(c)(6) of 
Regulation S-T to require affiliates relying on Rule 144 to file a 
notice of sale on Form 144 only when the issuer of the securities is 
subject to the reporting requirements of Section 13 or 15(d) of the 
Exchange Act.
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    \45\ See infra Section I.C.1.
    \46\ See Electronic Filing, Processing and Information 
Dissemination System, Release No. 33-6519 (Mar. 22, 1984) [49 FR 
12707 (Mar. 30, 1984)].
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    Form 144 provides the Commission, among other things, with 
information concerning the issuer, the person on whose behalf the 
securities are to be sold, the broker who will execute the sale order, 
the securities to be sold, the approximate date of sale, and other 
securities of the same issuer sold during the past three months. The 
form, however, is not the sole source of information available to the 
Commission regarding resale transactions under the rule. For example, 
brokers are generally required to make and maintain records, for a 
period of time, of all purchases and sales of securities \47\ and to 
furnish promptly legible, true, complete, and current copies of those 
records upon request by a representative of the Commission.\48\ In 
addition, brokers that execute a sale under Rule 144 must conduct a 
reasonable inquiry to determine that the person for whose account the 
securities are sold is not an underwriter or that the transaction is 
not part of a distribution of securities of the issuer.\49\
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    \47\ See 17 CFR 240.17a-3 and 17 CFR 240.17a-4.
    \48\ See 17 CFR 240.17a-4(j).
    \49\ See 17 CFR 230.144(g)(4) (Rule 144(g)(4)).
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    Although the Form 144 filing requirement would be eliminated for 
resales of securities by affiliates of issuers that are not subject to 
Exchange Act reporting, the proposed amendments to eliminate the Form 
144 filing requirement would not change any of the other conditions of 
the Rule 144 safe harbor.
Request for Comment
    20. Should we eliminate the Form 144 filing requirement for 
affiliates' sales of securities of non-reporting companies, as 
proposed? Does Form 144 provide important information concerning the 
resale of securities of non-reporting issuers that would not otherwise 
be publicly available to investors or other users of this information? 
Do investors or market participants currently rely on Form 144 for this 
information or do they rely on other publicly available sources? If so, 
which other public sources are relied upon?
    21. Do investors have an interest in the information provided by 
Form 144 regarding the resale of securities of non-reporting issuers? 
Do investors or market participants obtain benefits from this 
information? If so, please describe the benefits.
    22. We have received comments indicating that the information 
contained in Form 144 could be used to satisfy some of the public 
information requirements in Rule 144(c)(2),\50\ in particular the 
information specified in Rule 15c2-11(b)(5)(i)(N) and (b)(5)(i)(P).\51\ 
For the purpose of Rule 144(c)(2), is the Rule 15c2-11 information 
specified in paragraphs (b)(5)(i)(N) and (b)(5)(i)(P) publicly 
available from other sources? If so, which sources?
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    \50\ See letter from OTC Markets Group Inc. (dated Sept. 24, 
2019), available at https://www.sec.gov/comments/s7-08-19/s70819-6193364-192517.pdf, which was submitted in response to the Concept 
Release on Harmonization of Securities Offerings Exemptions, Release 
No. 33-10649 (Jun. 18, 2019) [84 FR 30460 (Jun. 26, 2019)] 
(recommending ``pre-publication'' of Form 144 so that the 
information contained in it is publicly available for the purposes 
of rule 144(c)(2)). See also U.S. Sec. & Exch. Comm'n, Report on the 
39th Annual Small Business Forum 31 (2020) (recommending ``pre-
publication'' of Form 144), available at https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf.
    \51\ See 17 CFR 240.15c2-11. Rule 15c2-11(b)(5)(i)(N) requires 
information about whether the broker or dealer or any associated 
person of the broker or dealer is affiliated, directly or 
indirectly, with the issuer. Rule 15c2-11(b)(5)(i)(P) requires 
information about whether the quotation is being submitted or 
published, directly or indirectly, by or on behalf of the issuer or 
a company insider and, if so, the name of such person and the basis 
for any exemption under the Federal securities laws for any sales of 
such securities on behalf of such person. In the recently adopted 
amendments to Rule 15c2-11, the prior references to Rule 15c2-
11(a)(5)(xiv) and (a)(5)(xvi) were changed to (b)(5)(i)(N) and 
(b)(5)(i)(P). See Publication or Submission of Quotations Without 
Specified Information, Release No. 33-10842 (Sept. 16, 2020) [85 FR 
68124 (Oct. 27, 2020)].
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    23. Rule 15c2-11 does not require that the information specified in 
paragraphs (b)(5)(i)(N) and (b)(5)(i)(P) of Rule 15c2-11 be publicly 
available but requires, in certain circumstances, that a broker-dealer 
make it available upon request of a person expressing an interest in a 
proposed transaction in the issuer's security. Rule 144(c)(2) requires 
the information specified in these paragraphs to be publicly available. 
Should we amend Rule 144(c)(2) to require the information in these 
paragraphs to be available upon request in accordance with the 
provisions of Rule 15c2-11(b)(5)(ii) instead of publicly available?
    24. How do the costs of electronically filing a Form 144 notice 
related to the resale of securities of a non-reporting issuer compare 
with the benefits of having the form available on EDGAR?
c. Filing Options for Form 4 and Form 144
    Section 16 of the Exchange Act applies to every person who is the 
beneficial owner of more than 10 percent of any class of equity 
security registered under Section 12 of the Exchange Act \52\ and each 
officer and director (collectively, ``reporting persons'' or 
``insiders'') of the issuer of the security. Upon becoming a reporting 
person, or upon the Section 12 registration of that class of 
securities, Section 16(a) requires a reporting person to file an 
initial report with the Commission disclosing the amount of his or her 
beneficial ownership of all equity securities of the issuer. To keep 
this information current, Section 16(a) also requires insiders to 
report changes in such ownership. Under Rule 16a-3 of the Exchange 
Act,\53\ insiders are required to report most changes in beneficial 
ownership, including purchases and sales of securities, on Form 4.
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    \52\ 15 U.S.C. 78l.
    \53\ 17 CFR 240.16a-3.
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    As discussed above, Rule 144 requires an affiliate of an issuer to 
file a Form 144 concurrently with either the placing with a broker of 
an order to execute a sale of securities in reliance upon Rule 144 or 
the execution directly with a market maker of such a sale. Some of the 
disclosures required by Form 144 duplicate the disclosure requirements 
of Form 4. For example, both Form 144 and Form 4 require disclosure 
concerning the title of the class of securities being sold, the number 
of shares subject to sale, the aggregate market value of those shares, 
and the date of sale.
    Many affiliates of an issuer under Rule 144 are also insiders of 
that issuer under Section 16 of the Exchange Act. Affiliates selling 
securities under Rule 144 often are required to file a Form 4 within 
two business days after they file a Form 144 to report information 
regarding the same sale of securities.\54\
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    \54\ The Sarbanes-Oxley Act of 2002 [Public Law 107-204, 116 
Stat. 745] amended Section 16(a) to require insiders to file Form 4 
before the end of the second business day following the day on which 
the subject transaction has been executed or at such other time as 
the Commission shall establish if the 2-day period is not feasible. 
On August 27, 2002, the Commission adopted rule and form amendments 
to implement this filing deadline. See Ownership Reports and Trading 
by Officers, Directors and Principal Security Holders, Release No. 
34-46421 (Aug. 27, 2002) [67 FR 56462 (Sept. 3, 2002)].

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[[Page 5071]]

    In June 2007, the Commission issued a release proposing amendments 
to update Securities Act Rules 144 and 145.\55\ In that release, the 
Commission discussed possible approaches to, and requested comment 
about, amending Form 144 and Form 4 in order to reduce duplicative 
requirements and coordinate the filing requirements of these two forms. 
The Commission ultimately did not adopt any amendments to the forms to 
reduce duplicative requirements.\56\ The Commission also has received a 
rulemaking petition requesting that the Commission revise its rules and 
regulations so that Form 144 be combined into Form 4 for persons that 
need to file both forms.\57\
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    \55\ 17 CFR 230.145. See Revisions to Rule 144 and Rule 145, 
Release No. 33-8813 (June 22, 2007) [72 FR 36822 (July 5, 2007)].
    \56\ In the 2007 Adopting Release, the Commission stated that it 
expected 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. See 2007 Adopting Release, supra note 19, at 72 FR 
71554 and 71555.
    \57\ See Request for rulemaking to combine Form 144 into Form 4, 
File No. 4-671 (Dec. 13, 2013) (requesting that the Commission amend 
its rules to combine Form 144 with Form 4), https://www.sec.gov/rules/petitions/2013/petn4-671.pdf. The proposal, if adopted, would 
achieve the objectives sought by the petitioner.
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    If we adopt the proposed amendments to Form 144 discussed above, we 
intend to modify EDGAR to provide filers with the option to file a Form 
144 and a Form 4 through a single user interface. The system would use 
the information entered into the fields to create separate Form 4 and 
Form 144 filings. After the information is entered, a filer would have 
the opportunity to correct errors and verify the accuracy of the 
information before choosing to file one or both forms on EDGAR. Once 
the information is filed on EDGAR, the system would provide the filer 
with separate accession numbers for the Form 4 and Form 144 and also a 
return copy for both the Form 4 and Form 144 shortly after filing. We 
believe these changes would make the filing of these forms more 
efficient for filers subject to both reporting requirements. This 
filing option, however, would not be available for a Form 4 filing that 
is made on behalf of multiple insiders.\58\
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    \58\ Form 4 permits multiple insiders to file on a single form 
if they all have an interest in the transaction(s) being reported. 
Form 144, however, does not have a similar feature.
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    In addition, we would make Form 144 available online as a fillable 
document that could be used by filers that do not have a corresponding 
Form 4 reporting obligation, as well as those who need to report the 
same sale on Form 4 and Form 144 but choose to enter the information 
separately for each form. An online fillable form would enable the 
convenient input of information, and support the electronic assembly of 
such information and transmission to EDGAR, without requiring a Form 
144 filer to purchase or maintain additional software or technology. 
The fillable form would be similar to other fillable forms that are 
currently available to file Forms D,\59\ 3, 4, and 5.
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    \59\ 17 CFR 239.500.
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Request for Comment
    25. If the Commission adopts the proposed rules, should we enable 
the filing of a Form 4 and Form 144 on EDGAR through a single user 
interface? Would this option make the filing of these documents more 
efficient for filers?
    26. Are there alternative methods that we should consider that 
could reduce the duplicative requirements of Form 144 and Form 4?
d. Rule 10b5-1(c) Transaction Indication in Forms 4 and 5
    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. In 2007, we amended Form 144 to allow filers who satisfy 
Rule 10b5-1(c) by adopting a written trading plan or providing trading 
instructions to make that representation as of the date they adopted 
the plan or gave instructions, rather than the date they signed the 
Form 144.\60\
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    \60\ See 2007 Adopting Release, supra note 19. Exchange Act Rule 
10b5-1 defines when a purchase or sale of a security constitutes 
trading ``on the basis of'' material nonpublic information in 
insider trading cases brought under Section 10(b) of the Exchange 
Act [15 U.S.C. 78j] and Rule 10b-5. 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. Rule 10b5-1(c) 
establishes affirmative defenses that permit a person to trade in 
circumstances where it is clear that the information was not a 
factor in the decision to trade.
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    Exchange Act Rule 16a-3(g) provides that a reporting person must 
report specified changes in beneficial ownership on Form 4 before the 
end of the second business day following the date of execution for the 
transaction. In addition, Rule 16a-3(f) provides that every person who 
at any time during an issuer's fiscal year was subject to Section 16 of 
the Exchange Act must file a Form 5 within 45 days after the issuer's 
fiscal year end to disclose certain beneficial ownership transactions 
and holdings not reported previously on Forms 3,\61\ 4, or 5. For 
transactions executed pursuant to a contract, instruction, or written 
plan for the purchase or sale of equity securities that satisfies the 
affirmative defense conditions of Rule 10b5-1(c) \62\ and for which the 
reporting person does not select the date of execution, the date on 
which the executing broker, dealer, or plan administrator notifies the 
reporting person of execution of the transaction is deemed the date of 
execution, so long as the notification date is not later than the third 
business day following the trade date.\63\
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    \61\ 17 CFR 249.103.
    \62\ Reporting persons sometimes provide additional disclosure 
in the ``Explanation of Responses'' portion of Form 4 indicating 
that a transaction satisfies the affirmative defenses conditions of 
Rule 10b5-1(c). For example, a reporting person may state that a 
transaction was made pursuant to a written trading plan and indicate 
the date the plan was adopted.
    \63\ See 17 CFR 240.16a-3(g)(2) (Exchange Act Rule 16a-3(g)(2)) 
and 17 CFR 240.16a-3(g)(4) (Exchange Act Rule 16a-3(g)(4)). If the 
notification date is later than the third business day following the 
trade date, the date of execution is deemed to be the third business 
day following the trade date.
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    We propose to permit a Form 4 filer, at the filer's option, to 
indicate through a check box on the form that a sale or purchase 
reported on the form was made pursuant to Rule 10b5-1(c).We believe 
that the check box option would provide Form 4 filers with an efficient 
method to provide this disclosure. Consistent with current practice, 
filers could provide additional information, such as the date of a Rule 
10b5-1 plan, in the ``Explanation of Responses'' portion of the form 
along with other relevant information about the transactions reported 
on the Form 4. We propose to add a similar checkbox to Form 5.\64\
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    \64\ Under the proposal, the check boxes on Forms 4 and 5 would 
permit filers to indicate whether a transaction was made pursuant to 
a binding contract, instruction, or written trading plan for the 
purchase or sale of equity securities of the issuer that satisfies 
the conditions of Rule 10b5-1(c). This is broader than the 
representation on Form 144, which refers only to written trading 
plans and trading instructions, because the purpose of the proposed 
amendment is to simplify reporting for filers who provide Rule 10b5-
1(c) transaction information in the ``Explanation of Responses'' 
portion of Forms 4 and 5, and some filers provide this information 
with respect to transactions made pursuant to binding contracts.

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[[Page 5072]]

Request for Comment
    27. Should we add a check box to Forms 4 and 5 to provide filers 
the option of disclosing that their sales or purchases were made 
pursuant to Rule 10b5-1(c)?
    28. Should we instead require Form 4 and Form 5 to indicate via a 
check box whether any of their reported transactions were made pursuant 
to Rule 10b5-1(c) rather than provide it as an option for the filer?
    29. Would a Rule 10b5-1(c) check box on Forms 4 and 5 provide 
useful information to investors and market participants?

II. Economic Analysis

A. Introduction

    The Commission is proposing amendments to Rule 144, Form 144, Form 
4, Form 5, and Regulation S-T. We are mindful of the costs imposed by 
and the benefits obtained from our rules and the proposed 
amendments.\65\ The discussion below addresses the potential economic 
effects of the proposed amendments. These effects include the likely 
benefits and costs of the proposed amendments and reasonable 
alternatives thereto, as well as the potential effects on efficiency, 
competition, and capital formation. We attempt to quantify these 
economic effects whenever possible; however, due to data limitations, 
in many cases we are unable to do so. When we are unable to provide a 
quantitative assessment, we provide a qualitative discussion of the 
economic effects instead.
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    \65\ Section 2(b) of the Securities Act, 15 U.S.C. 77b(b), and 
Section 3(f) of the Exchange Act, 15 U.S.C. 78c(f), require 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. In addition, Section 23(a)(2) of the Exchange Act, 15 
U.S.C. 78w(a)(2), requires us to consider the effects on competition 
of any rules that the Commission adopts under the Exchange Act and 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.
---------------------------------------------------------------------------

    Due to the differing nature of the proposed amendments' baselines, 
affected parties, and anticipated economic effects, we provide separate 
analyses of the proposed changes. We first discuss the economic effects 
of the proposed amendments to the holding period for securities 
acquired upon conversion or exchange of certain market-adjustable 
securities issued by unlisted issuers, and then separately discuss the 
proposed amendments to Form 144, Form 4, Form 5, and Regulation S-T.

B. Proposed Amendments to Holding Period for Market-Adjustable 
Securities

1. Broad Economic Considerations
    The size of the market for all U.S.-issued convertible securities 
has historically been slightly less than half the size of the seasoned 
equity market and just less than one-tenth the size of the regular bond 
market.\66\ Despite this difference in size, it is generally understood 
that the market for convertible securities is an important and highly 
innovative market that can provide solutions to investment 
inefficiencies or barriers to capital formation that would otherwise 
occur if issuers were restricted to offerings of only non-hybrid 
securities.\67\ Studies have suggested that because convertible 
securities can mitigate certain agency problems, forms of adverse 
selection, overinvestment, and misallocation of risk, they enable firms 
to make investments in business opportunities that would otherwise be 
infeasible for those firms.\68\ Empirical evidence on the impact of 
these investments on longer-term firm value and shareholder wealth, 
however, is ambiguous on whether such investments represent efficient 
allocations of external financing.\69\ Interpreting the value of 
convertible bond financing from market outcomes like short-term stock 
returns or long-term stock price performance is further complicated by 
the increase in arbitrage hedge fund activity and arbitrage-related 
short-selling.\70\ Therefore, while there are a number of reasons why 
convertible securities can uniquely facilitate investments of economic 
value, it is difficult to generalize about their impact on shareholder 
wealth.
---------------------------------------------------------------------------

    \66\ Marie Dutordoir et al., What We Do and Do Not Know About 
Convertible Bond Financing, 24 J. CORP. FIN. 3 (2014) 
(``Dutordoir'').
    \67\ Id.; see also Craig Lewis and Patrick Verwijmeren, 
Convertible Security Design and Contract Innovation, 17 J. CORP. 
FIN. 809 (2011).
    \68\ See Dutordoir, supra note 66; see also Sudha Krishnaswami & 
Devrim Yaman, The Role of Convertible Bonds in Alleviating 
Contracting Costs, 78 Q. REV. ECON. FIN. 942 (2008); Craig Lewis et 
al., Agency Problems, Information Asymmetries, and Convertible Debt 
Security Design, J. FIN. INTERMEDIATION (1998).
    \69\ See Felix Ziedler et al., Risk Dynamics Surrounding the 
Issuance of Convertible Bonds, 18 J. CORP. FIN. 273 (2012); 
Dutordoir, supra note 66; Craig Lewis et al., The Long-Run 
Performance of Firms that Issue Convertible Debt: An Empirical 
Analysis of Operating Characteristics and Analysts Forecasts, 7 J. 
CORP. FIN. 447 (2001).
    \70\ See Eric Duca et al., Why are Convertible Bond 
Announcements Associated with Increasingly Negative Issuer Stock 
Returns? An Arbitrage-Based Explanation, 36 J. BANKING & FIN. 2884 
(2012); see also Stephen Brown et al., Convertibles and Hedge Funds 
as Distributors of Equity Exposure, 25 REV. FIN. STUD. 3077 (2012), 
and Darwin Choi et al., Convertible Bond Arbitrage, Liquidity 
Externalities, and Stock Prices, 91 J. FIN. ECON. 227 (2009)
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    Market-adjustable securities \71\ are an innovation in the market 
for convertible securities dating back to the 1990s.\72\ By allowing 
the holder of the market-adjustable security to convert at discount to 
the market price (or a reference price based on recent market prices), 
the issuer can avoid the adverse selection problems it would face by 
offering equity or fixed-rate convertible securities instead. In 
practice, however, it does not appear that many issuers have taken 
advantage of this aspect of market-adjustable securities, and their use 
has been concentrated in the subpopulation of issuers who are unable to 
issue additional equity or fixed-rate convertibles, such as financially 
distressed firms, other low- or no-revenue firms, and those approaching 
bankruptcy.\73\
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    \71\ In the empirical literature cited in the Economic Analysis 
section, the term ``floating priced convertibles'' is often used to 
denote the ``market-adjustable securities'' referred to in this 
release. Other terms, such as ``floating rate convertibles'' or 
``future-priced convertibles,'' also may be used in the literature 
referring to the same securities.
    \72\ See Dutordoir, supra note 66.
    \73\ See Austin Dwyer et al., An Investigation of Death Spiral 
Convertible Bonds, (Tenn. State Univ., Working Paper, 2018) (``Dwyer 
et al.''); Zachary T. Knepper, Future-Priced Convertible Securities 
and the Outlook for Death Spiral Securities-Fraud Litigation, 26 
WHITTIER L. REV. 359 (2004); Pierre Hillion & Theo Vermaelen, Death 
Spiral Convertibles, 71 J. Fin. Econ. 381 (2004) (``Hillion & 
Vermaelen'') (examining 467 floating-priced convertibles issued over 
the 1994-1998 period and finding, among other things, that such 
convertibles are issued by younger, smaller, riskier issuers, for 
which adverse selection problems are potentially large.)
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    The main economic characteristic of market-adjustable securities is 
that they may provide protection to the holder against declines in 
market value from the time of purchase of the overlying security until 
the time of conversion or exchange.\74\ Although the risk to investors 
from purchasing such a security is significantly lower than the risk 
associated with a convertible security with a fixed conversion rate, 
risks associated with the investment during the pre-conversion period 
still exist.\75\
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    \74\ One common method that may provide such protection is the 
inclusion of a floating conversion rate. When the amount of 
securities to be received upon conversion of a convertible security 
is conditioned on the stock price performance of the issuer prior to 
conversion, the conversion ratio is known as a floating conversion 
rate.
    \75\ For example, investors are exposed to risk during the pre-
conversion period if the company becomes bankrupt and its stock 
price declines to zero value.
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    We are proposing to amend Rule 144(d)(3)(ii) to provide that the 
holding period for certain securities acquired

[[Page 5073]]

upon conversion or exchange of market-adjustable securities issued by 
unlisted issuers would not begin until the conversion or exchange 
occurs. The proposed amendment would expose the holder of the market-
adjustable security to the economic risk of the underlying securities 
during the proposed corresponding holding period following the 
conversion or exchange.
    We expect that exposing these investments to risk during the post-
conversion or post-exchange period would limit market-adjustable 
security holders' ability to immediately resell converted or exchanged 
market-adjustable securities, which might otherwise constitute a public 
distribution of securities without the investor protections afforded by 
registration. However, the proposed holding period would reduce the 
liquidity of these investments, and thus could prevent some unlisted 
issuers from obtaining financing or increasing the costs of doing so, 
particularly since market-adjustable securities may constitute a ``last 
resort'' form of financing for issuers.\76\ To the extent that such 
firms have presented attractive arbitrage opportunities, it is 
foreseeable that demand-side investors would hold significant 
bargaining power in the design of the securities' specific terms and 
could require additional compensation for limitations imposed upon that 
power or on final contract terms in future exchanges.
---------------------------------------------------------------------------

    \76\ See Ming Dong et al., Why Do Firms Issue Convertible Bonds? 
7 CRITICAL FIN. REV. 111 (2018) (``Dong et al.''). See also Hillion 
& Vermaelen, supra note 73; Helgi Walker et al., Aggressive SEC 
Enforcement Actions Could Limit Small Business Recovery Resources, 
NATIONAL LAW JOURNAL (Aug. 20, 2020, 1:08 p.m.), available at 
https://www.gibsondunn.com/wp-content/uploads/2020/08/Walker-Goldsmith-Seibald-Richman-Aggressive-SEC-Enforcement-Actions-Could-Limit-Small-Business-Recovery-Resources-NLJ-08-20-2020.pdf.
---------------------------------------------------------------------------

    Overall, we believe that the net impact of the proposed amendments 
may depend on the relative significance of these two competing 
consequences.
2. Economic Baseline
    The economic baseline for the proposed amendment includes unlisted 
issuers that issue, or may seek to issue, market-adjustable 
securities.\77\ We estimate that as of the end of 2019, there were 
approximately 2,760 unlisted reporting issuers.\78\ We find that during 
2019, 106 of these issuers submitted a combined 207 disclosures 
regarding convertible securities issued that included a floating 
conversion rate feature.\79\ Of the identified floating conversion rate 
issues, roughly 80 percent involved convertible debt and 20 percent 
involved convertible preferred stock. Issuers of these securities are 
predominantly non-accelerated filers \80\ and smaller reporting 
companies (``SRCs'') \81\ concentrated in pharmaceutical, 
biotechnology, and business technology industries.\82\ Approximately 25 
percent of these convertible issuers had no revenue in their most 
recent fiscal year, but had average net income and market 
capitalization of approximately -$5.3 million and $18.8 million, 
respectively. For the remaining 75 percent of issuers, average revenue, 
net income, and market capitalization values were $7.2 million, -$12.0 
million, and $12.3 million for the most recent fiscal year reported in 
2019. We are unable to assess such characteristics for the population 
of unlisted, non-reporting issuers given current limitations to data 
availability.
---------------------------------------------------------------------------

    \77\ See Section I.B.2
    \78\ This estimate is based upon staff review of all filers who 
submitted a 10-K, 20-F, 40-F, or an amendment thereto within 
calendar year 2019. Unlisted reporting issuers are identified by 
unique CIKs as those without a class of securities registered 
pursuant to Section 12(b) of the Exchange Act. Because of 
limitations in available data, we were unable to construct a 
reliable estimate of the number of unlisted, non-reporting issuers 
who may also be affected by the proposed amendments. We request 
information on such issuers in the Request for Comment. See infra 
Section II.B.6.
    \79\ This number is based on a search of Forms 8-K (17 CFR 
249.308) filed by unlisted issuers that indicate the issuance of a 
convertible security that appears to have a floating conversion 
rate. If there are other issued securities by unlisted issuers that 
meet the definition of a market-adjustable security, the number 
reported represents a lower bound of the prevalence of such 
securities in the market.
    \80\ Although Rule 12b-2 defines the terms ``accelerated filer'' 
and ``large accelerated filer,'' it does not define the term ``non-
accelerated filer.'' If an issuer does not meet the definition of 
accelerated filer or large accelerated filer, it is considered a 
non-accelerated filer. See Accelerated Filer and Large Accelerated 
Filer Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 
(Mar. 26, 2020)] (Accelerated Filer Adopting Release), https://www.sec.gov/rules/final/2020/34-88365.pdf
    \81\ ``Smaller reporting company'' is defined in 17 CFR 
229.10(f) as an issuer that is not an investment company, an asset-
backed issuer (as defined in 17 CFR 229.1101), or a majority-owned 
subsidiary of a parent that is not a smaller reporting company and 
that: (i) Had a public float of less than $250 million; or (ii) had 
annual revenues of less than $100 million and either no public 
float, or a public float of less than $700 million.
    \82\ In calendar year 2019, all 106 identified unlisted 
reporting issuers of floating-rate convertibles self-identified as 
either a non-accelerated filer, a smaller reporting company, or 
both. Insofar as recently adopted amendments to the definitions of 
accelerated filer and smaller reporting company will effect cost 
savings for issuers newly eligible as non-accelerated filers or 
smaller reporting companies, the ability to reinvest such savings in 
business operations may to some degree offset the potential 
increased costs of financing to issuers affected by the proposed 
amendment to Rule 144(d)(1)(ii).
---------------------------------------------------------------------------

    Of Form 144 filings submitted in calendar year 2019, approximately 
two percent pertained to transactions in reporting, unlisted issuances 
and only one percent to intended sales of non-reporting, unlisted 
issuances.
3. Benefits and Costs to Proposed Amendment to Rule 144(d)(3)(ii)
    As observed, use of the current tacking provisions essentially 
eliminates the holding period that would otherwise apply to the 
underlying securities after conversion or exchange, enabling holders of 
the overlying securities to convert and then immediately sell the 
underlying securities received upon conversion or exchange to the open 
market.\83\ Investments in such securities carry little risk given the 
floating conversion rate and the ability of holders to sell the stock 
to the open market immediately upon conversion.
---------------------------------------------------------------------------

    \83\ See supra Section I.B.1.
---------------------------------------------------------------------------

    The proposed amendment to Rule 144(d)(3)(ii) would require the 
holding period of the underlying securities to begin upon conversion or 
exchange of the overlying securities by the holder. Upon conversion or 
exchange, the amount or value of the underlying securities received by 
the holder would have been determined. The proposed restriction from 
selling the underlying securities in the open market during the holding 
period would put the value of the underlying securities and the 
holder's investment at risk because, upon conversion or exchange, any 
subsequent decline in the stock price of the underlying securities 
during the holding period would result in a decrease in the value of 
the investment to the holder.
    The proposed amendment to Rule 144(d)(3)(ii) would likely have a 
number of benefits. We believe this proposed amendment would curb the 
occurrence of situations where purchasers of such instruments have a 
view to an unregistered public distribution. Restricting the underlying 
securities from being sold to the broader market during the proposed 
holding period would introduce greater risk to the holder of the 
market-adjustable securities. During the holding period, any decline in 
the price of the underlying securities would decrease the value of the 
investment. We expect that this proposed amendment would discourage 
parties from engaging in such transactions because they would no longer 
be able to immediately distribute the underlying securities on an 
unregistered basis to capture the discount feature of these 
instruments. Instead, such parties would now be exposed to economic 
risk for the requisite holding period following

[[Page 5074]]

conversion. To the extent that this would lead to fewer instances of 
significant, unregistered but public distributions of the underlying 
securities, it would enhance investor protection.
    However, we anticipate that the proposed amendment to Rule 
144(d)(3)(ii) may also impose costs on some market participants 
including, but not limited to, an increase in the cost of financing and 
a decrease in total access to financing for unlisted issuers. The 
proposed post-conversion holding period would reduce the liquidity of 
these investments. As a consequence, investors are likely to demand 
additional compensation for providing capital through market-adjustable 
securities to these issuers. Academic literature links the issuance of 
convertibles with a floating conversion rate, such as market-adjustable 
securities, to smaller, potentially higher growth issuers with elevated 
likelihoods of bankruptcy and less diversified sources of potential 
revenue that are in need of immediate financing.\84\ The same 
literature also suggests that such issuers have limited options to 
raise capital due to their characteristics and issue market-adjustable 
securities, as a ``last resort'' form of financing. To the extent that 
these issuers have limited options to raise capital, the proposed 
amendment may also trigger changes to the design of these contracts in 
order to provide additional compensation to investors for the increase 
in risk. For example, investors may demand a steeper upfront discount 
when investing in these securities.
---------------------------------------------------------------------------

    \84\ See Hillion & Vermaelen, supra note 73; Dwyer et al., supra 
note 73; Dong et al., supra note 76.
---------------------------------------------------------------------------

    The net effect of the proposed amendment on the affected issuers' 
other existing shareholders is unclear.\85\ The proposed amendment 
could affect existing shareholders of affected issuers if it changes 
the propensity of such issuers to issue unregistered market-adjustable 
securities or if it changes the terms of those securities. Conversion 
of these unregistered securities may dilute the holdings of existing 
shareholders, which may lead to a significant decline in the value of 
existing shareholders' holdings. If the proposed amendment changes the 
propensity of issuers to issue unregistered market-adjustable 
securities, it could also affect the likelihood of such effects on 
existing shareholders.
---------------------------------------------------------------------------

    \85\ See supra note 66 and accompanying text.
---------------------------------------------------------------------------

    Similarly, if as a result of the proposed amendment, potential 
buyers of unregistered market-adjustable securities demand a higher 
conversion rate, the proposed amendment may increase the potential 
dilutive effects of conversion. If shareholders are unaware of the 
existence of these contracts and plan of distribution, such as for non-
reporting issuers, or if shareholders are aware but not able to infer 
the consequences of these contracts, they may experience the negative 
effects of these unregistered distributions. Because of uncertainty 
surrounding how the proposed amendment would affect the issuance of 
unregistered market-adjustable securities across issuer types and the 
terms of such securities, the net effect of the proposed amendment on 
the affected issuers' other existing shareholders is unclear. Below we 
request comment on the effects of the proposal on non-converting, 
existing shareholders.
4. Effects on Efficiency, Competition, and Capital Formation
    As discussed above, the proposed amendment is likely to have an 
effect on capital formation. To the extent that the sales of underlying 
securities into the broader market following a conversion of market-
adjustable securities constitute a distribution of securities, the 
proposed amendment is likely to reduce the number of instances in which 
existing shareholders and new investors would not have the disclosure 
and liability protections that registration provides. In addition, 
investors in the underlying securities may be more willing to increase 
their investments in the issuer because they are less concerned about 
potential dilution of their holdings and therefore capital formation 
may be improved.\86\ However, if the costs to the issuers of these 
market-adjustable securities increase, issuers continuing to sell such 
securities may raise less capital. Other issuers may be required to 
seek other options for raising capital.
---------------------------------------------------------------------------

    \86\ See supra at note 30; see also supra Section II.B.3.
---------------------------------------------------------------------------

    Because total effects on efficiency and competition would aggregate 
across issuers, industries, and markets that the proposed changes may 
impact differentially, we anticipate that the unique impact of the 
amendment to the holding period requirements would not be readily 
observable or reliably quantified. We invite commenters to submit data 
or studies that would facilitate estimating such effects.
5. Reasonable Alternatives
    We could propose to amend the holding period for only a subset of 
unlisted issuers, either reporting or non-reporting. Such an 
alternative would create an asymmetry within the subset of unlisted 
issuers with regard to the required holding period, and accordingly 
provide a disincentive for transactions in market-adjustable securities 
that in effect may result in an unregistered distribution of securities 
for only a subset of unlisted issuers. Under such alternative, it is 
possible that currently observed unregistered distributions would 
continue to take place in the subset of unlisted issuers that would not 
be affected by the proposed amendments.
    We could, in addition to amending the start of the holding period, 
propose to increase the holding period for market-adjustable securities 
that are issued by reporting unlisted issuers from six months to one 
year to align with the holding period for such securities issued by 
non-reporting unlisted issuers. Such alternative would reduce the 
liquidity of these investments to the holder, and accordingly increase 
the issuers' financing costs. To the extent that market-adjustable 
securities are issued by reporting unlisted issuers to replicate the 
distribution of securities, it is possible that increasing the holding 
period could provide disincentives for potentially abusive practices.
6. Request for Comment
    30. What are the economic effects of the proposed amendments to 
Rule 144(d)(3)(ii)? To the extent possible, please provide any data, 
studies, or other evidence that would allow us to quantify or better 
qualitatively assess the costs and benefits of the proposed amendments 
to affected parties. In particular, have we assessed all of the costs 
and benefits to market participants who would be affected by the change 
in tacking provisions?
    31. We seek information on the prevalence of market-adjustable 
securities issued by non-reporting unlisted issuers. Please provide any 
data, studies, or other evidence that would allow us to quantify this 
component of the industry baseline.
    32. What is the impact of the proposed rule on efficiency, 
competition, and capital formation?

C. Proposed Amendments to Form 144, Form 4, and Regulation S-T

1. Broad Economic Considerations
    Existing Commission rules require the filing in paper of Form 144 
for securities of issuers not subject to Exchange Act reporting 
requirements, and allow for either paper or electronic filing of Form 
144 for securities of issuers subject to

[[Page 5075]]

Exchange Act reporting requirements.\87\ By requiring the electronic 
filing of all Forms 144, the proposed amendments seek to lower the cost 
of access to Form 144 information and to enable investors, market 
participants and other EDGAR users to access that information more 
quickly.\88\ The proposed amendments are expected to enable those 
filers that currently are permitted to file Form 144 either in paper or 
electronically to benefit from the technology and efficiency associated 
with electronic filing, thereby potentially lowering the cost and 
burden of existing compliance requirements. As discussed in more detail 
below, while some filers may incur an initial cost to transition to 
electronic filing, we expect that the proposed amendments to file Form 
144 electronically on EDGAR would result in cost savings on an ongoing 
basis and over the long term. Because we are additionally proposing a 
six-month transition period, filers for whom the initial costs of 
transition might otherwise be highest might reduce their transition 
costs by availing themselves of the additional time to adopt requisite 
technological changes to their submissions processes.
---------------------------------------------------------------------------

    \87\ See supra Section I.C.1.
    \88\ See id.; see also 1972 Adopting Release, supra note 7, at 
595.
---------------------------------------------------------------------------

    Additionally, the proposed amendments would eliminate the filing 
requirement for affiliates of issuers not subject to Exchange Act 
reporting requirements, thus eliminating certain compliance costs for 
those affiliates.
    Finally, we are proposing to allow Form 4 and Form 5 filers, at 
their discretion, to include a check box to indicate that a sale or 
purchase of securities was made pursuant to Rule 10b5-1(c). Because 
this would be discretionary, we expect that filers will elect to do so 
when the anticipated benefits of doing so exceed the related costs and 
that this additional information may provide benefits to Form 144 data 
users.
    The discussion below addresses the potential economic effects of 
the proposed amendments, including their likely costs and benefits as 
well as the likely effects of the proposed amendments on efficiency, 
competition, and capital formation, relative to the economic baseline, 
which comprises the filing practices in existence today.
2. Economic Baseline
    Existing Commission rules permit Form 144 to be submitted either 
electronically via EDGAR or in paper form only for forms reporting 
proposed sales of reporting issuers. Regulation S-T does not provide 
for the electronic filing of Form 144 to report proposed sales of 
securities of issuers not subject to Exchange Act reporting 
requirements. Recently, in response to COVID-19 conditions, Commission 
staff announced a no-action position that temporarily affords Form 144 
filers a third option to submit paper Form 144s via email.\89\ In the 
period following this announcement, the Commission received 
approximately 13,400 Form 144 submissions: 52.9 percent in paper form, 
46.5 percent electronically via email, and 0.6 percent electronically 
on EDGAR.\90\ Thus, while when given the option, many paper filers have 
elected to submit their forms electronically via email, very few filers 
have opted to file Form 144 electronically on EDGAR.
---------------------------------------------------------------------------

    \89\ See supra note 34.
    \90\ Staff analysis is based on all Form 144 filings received by 
the Commission between April 13 and August 31, 2020. The average 
number of filings received during this same window of time in the 
four preceding years was approximately 11,800 Form 144s.
---------------------------------------------------------------------------

    Figures 1 and 2 provide examples to illustrate the lag time between 
when Form 144 is received by the Commission and when that information 
becomes available in a commercial database. As seen in Figure 1, in one 
commercial database, pre-COVID-19, most Form 144 filings became 
available in commercial databases six days after being received by the 
Commission. We further observe that in 2020, while the six-day lag time 
for availability of the majority of the filings remains true for the 
year on aggregate, after the additional ability to file via email was 
introduced, the majority of Form 144 filings have been processed and 
posted in that commercial database in fewer than five days (Figure 2). 
Overall, the number of records available via that commercial database 
is considerably lower in 2020 than in 2019, which may reflect increased 
difficulty and delays in integrating the paper form submissions into 
such databases under COVID-19 conditions. Thus, while access to data 
from paper submissions has been significantly reduced by the pandemic, 
we observe in Figure 2 that for transactions disclosed via a Form 144 
submitted electronically via email or EDGAR, data vendors and those who 
access Form 144 filing data from such sources now appear to receive 
that information with a shorter delay.
BILLING CODE 8011-01-P

[[Page 5076]]

[GRAPHIC] [TIFF OMITTED] TP19JA21.026

BILLING CODE 8011-01-C

[[Page 5077]]

a. Affected Parties 91 92
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    \91\ Based on Form 144 filings accessed via Thomson Reuters 
Insiders Data with the field ``SEC Receipt'' dated between January 
1, 2019 and August 31, 2020.
    \92\ Based on Form 144 filings accessed via Thomson Reuters 
Insiders Data with the field ``SEC Receipt'' dated between January 
1, 2020 and August 31, 2020.
---------------------------------------------------------------------------

    The main parties that would be affected by the proposed amendments 
are current and future filers of Form 144, specifically affiliates of 
an issuer subject to Exchange Act reporting requirements.\93\ It is our 
understanding that the majority of affected filers currently prepare 
and file these forms individually or with the assistance of a broker or 
personal counsel.\94\ Filings of Forms 144 from holders of securities 
of an issuer not subject to Exchange Act reporting requirements 
currently make up approximately one percent of all Form 144 
filings.\95\ As the majority of Form 144 filings are paper filings, 
most filers would have to modify their processes for submitting their 
Form 144 filings if the Commission adopts the proposed amendments. 
Based on past filings, we estimate that approximately 12,250 filers 
would be required to switch from paper filings to electronic filings 
and 313 filers would no longer be subject to filing Form 144.\96\
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    \93\ See supra Section I.C.1.
    \94\ See letter from Jesse Brill (dated Dec. 18, 2013), 
available at https://www.sec.gov/rules/petitions/2013/petn4-671.pdf.
    \95\ See supra Section I.C.2.b.
    \96\ These estimates assume that filers of Form 144 submissions 
in our data are not also affiliates of other issuers. Because we 
lack data on the holdings of filers in securities of issuers other 
than those disclosed in the Form 144, we are unable to identify any 
filers that are such affiliates.
---------------------------------------------------------------------------

    Additionally, the proposed change to electronic filing may affect 
the manner by which members of the public obtain these filings. 
Currently, the public can access these filings using EDGAR on the 
Commission's website or, for paper filings (under normal operating 
conditions), by visiting the Commission's public reference room in 
person, or, for either format, by subscribing to a third-party 
information vendor (such as private information aggregators that 
distribute the information obtained from EDGAR or the Commission's 
public reference room and records).\97\ While the proposed amendments 
would not change the general public's ultimate access to the Form 144 
information from affiliates selling securities of an issuer subject to 
Exchange Act reporting requirements, the public would no longer have 
access to similar information from the relatively small subpopulation 
of affiliates filing Form 144 to report sales (or potential sales) of 
securities of issuers not subject to Exchange Act reporting 
requirements.
---------------------------------------------------------------------------

    \97\ Paper filings submitted via email based on the staff's no-
action position are available at https://www.sec.gov/corpfin/form-144-email. See supra note 34.
---------------------------------------------------------------------------

b. EDGAR
    From 2016 to 2019, an average of 30,000 Form 144 filings were made 
each year, of which an average of approximately 250 were submitted 
electronically via EDGAR. As EDGAR submissions thus constitute less 
than one percent of all Form 144 submissions per year, the proposed 
amendments could be anticipated to significantly increase the volume of 
Form 144 filings made electronically on EDGAR.\98\
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    \98\ A rate of change based on the current one percent EDGAR 
submission rate may slightly overestimate the changes in volume to 
the extent that the proposed removal of a filing requirement for 
securities not subject to Exchange Act reporting requirements may 
simultaneously decrease total submissions. Further, based on the 
observed EDGAR filing behavior of affiliates who use an issuer's 
existing access to EDGAR, the number of new Form IDs required to be 
processed could be reduced, but would not otherwise affect the 
increase in submission volume.
---------------------------------------------------------------------------

3. Benefits and Costs of Proposed Amendments to Form 144, Form 4, and 
Regulation S-T
    The proposed amendments would change some of the Commission's 
current practices related to making Form 144 information available to 
the public. First, holders of securities of an issuer subject to 
Exchange Act reporting requirements would be required to file Form 144 
electronically. In contrast, holders of securities of an issuer not 
subject to Exchange Act reporting requirements would no longer be 
required to file Form 144. Second, the deadline for filing a Form 144 
would be revised to coincide with the filing deadline of Form 4, which 
reports changes in beneficial ownership (purchases and sales of 
securities and derivatives and exercise of options) rather than have it 
due concurrently with either the placing of an order with a broker to 
execute the sale or the execution of a sale directly with a market 
maker, as currently required. As Form 4 is required to be submitted 
within two business days of a change in beneficial ownership, this 
could result in a delay of the reporting of an affiliate's sale of 
restricted or control securities on Form 144 by two business days.
    This proposed change in the Form 144 filing deadline could result 
in the information on Form 144 sales being made available later than 
under the current rule. However, because currently most Form 144 
filings are made in paper form and thus as a practical matter are 
generally accessible to most of the public only after a delay of a 
number of days (e.g., after being uploaded into electronic databases 
for purchase as in Figure 1), it is likely that any delay due to 
changing the deadline of Form 144 to align with Form 4 submissions 
would be offset by the proposed change to require electronic filing. 
Under the proposal, the public would be able to access the filing 
electronically via EDGAR upon submission rather than needing to wait 
for electronic access via a commercial database.\99\
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    \99\ Data users who continue to choose to access these filings 
via a commercial database rather than accessing EDGAR might also be 
able to access them more quickly than at present, depending on the 
interplay of the two-business-day-delay and the change from paper to 
electronic filing. We note that, as seen in Figure 2, electronic 
databases appear to incorporate email filings more quickly than 
paper submissions, which may indicate that electronic filings would 
also be processed more quickly.
---------------------------------------------------------------------------

    After initial transition costs, the proposed amendments are 
expected to benefit all Form 144 filers. Filers are expected to realize 
direct benefits in the form of reduced time required to file forms 
electronically, compared to a paper filing, and avoided copying and 
mailing expenses. Filers who make multiple submissions of Form 144 per 
year or longer submissions likely would benefit most. Electronic filing 
using EDGAR and the revised filing deadline are expected to make the 
filing process more efficient by making it easier and less costly for 
filers to assure timely receipt of the filing (e.g., filers would have 
no reason to pay for premium services such as delivery 
confirmation).\100\ We anticipate that the proposed amendments will 
also provide benefits to users of the Form 144 disclosures by 
significantly reducing both time and costs currently associated with 
obtaining the data contained in paper form submissions.\101\
---------------------------------------------------------------------------

    \100\ The proposed amendments also benefit filers by avoiding 
uncertainty about how to comply with paper filing obligations in 
events similar to the current COVID-19 pandemic.
    \101\ We estimate, for example, that annual subscription costs 
for access to Form 144 data from a third party vendor would approach 
$2,600 per person.
---------------------------------------------------------------------------

    The proposal would also modify the data format in which Form 144 
would be electronically submitted. Form 144 would be available on EDGAR 
as a fillable document, similar to other fillable forms that filers can 
use such as Forms D, 3, 4, and 5.\102\ An online fillable form would 
enable the convenient input of information and support the electronic 
assembly of such

[[Page 5078]]

information and transmission to EDGAR, without requiring a Form 144 
filer to purchase or maintain additional software or technology, thus 
minimizing the compliance costs. This modification of the data format 
of Form 144 would also benefit data users by standardizing the inputted 
data into a structured, machine-readable custom XML format and thus 
making it easier to extract and process that data.
---------------------------------------------------------------------------

    \102\ See supra Section I.C.2.c.
---------------------------------------------------------------------------

    The fillable form would be similar to other fillable forms that are 
currently available to file Forms D, 3, 4, and 5.
    We expect that filers who use EDGAR for purposes of complying with 
filing obligations under existing rules would not incur additional 
EDGAR access costs due to the proposed rules. If filers with EDGAR 
experience require time or specialized training to switch Form 144 from 
paper to EDGAR, then they may incur an additional initial transition 
cost. Given the experience of such filers with EDGAR filing, as well as 
the six-month transition period proposed, we expect such cost would be 
minimal.
    The proposed amendments also would result in the direct costs of 
transitioning to filing electronically using EDGAR for the large subset 
of filers who do not currently file electronically on EDGAR. Currently, 
52.9 percent of filers file paper forms and 46.5 percent file via 
email.\103\ In particular, such filers would need to prepare a Form ID 
as required by Rule 10(b) of Regulation S-T and submit the Form ID 
following the processes detailed in Volume I of the EDGAR Filer 
Manual.\104\ Once a Form ID has been successfully completed and 
processed, EDGAR establishes a Central Index Key (``CIK'') number, 
which permits each authorized user to create an EDGAR access code, 
enabling the filer to use EDGAR. We estimate that approximately 25 
percent of Form 144 filers have already prepared a Form ID and obtained 
a CIK number through other EDGAR filing obligations.\105\ Therefore, we 
estimate that at most 75 percent of Form 144 filers would need to file 
a Form ID as a result of the proposed amendments.\106\ For purposes of 
the PRA, we estimate that respondents require 0.15 hours to complete 
the Form ID and that 100 percent of the burden of preparation for Form 
ID is carried by the respondent. For purposes of the Paperwork 
Reduction Act of 1995 (``PRA'') \107\ discussed below, we estimate that 
the proposed amendments would result in an incremental increase of at 
1,378 annual burden hours for Form ID.\108\ We believe that such direct 
costs would be justified by the anticipated benefits from eliminating 
paper filing of Form 144.
---------------------------------------------------------------------------

    \103\ This estimate does not account for filers who previously 
filed via EDGAR but who currently submit via email pursuant to the 
staff no-action position, and may therefore include filers who would 
not incur new costs. Based on staff review of Form 144 submissions 
in 2020 by filers with filings both before and after April 10th, 
approximately 50 percent of filers who previously used EDGAR opted 
to submit their Form 144s via email after April 10, 2020.
    \104\ See 17 CFR 232.10(b); see also supra Section I.C.2.a.
    \105\ Specifically, we observe that approximately 23 percent of 
calendar year 2019 Form 144 filers also submitted Form 4 filings in 
EDGAR, while a remaining two percent without Form 4 filings in EDGAR 
submitted a miscellany of other forms related to beneficial 
ownership.
    \106\ This estimate represents an extreme upper bound because it 
assumes that each named individual who filed at least one Form 144 
in calendar year 2019 who is not currently associated with a unique 
CIK would need to file a Form ID. To the extent that some Form 144 
filers are affiliates of issuers who may use the issuer's CIK to 
file via EDGAR, the estimate likely overstates the required number 
of new Form IDs required and the burden hours associated with such 
applications.
    \107\ 44 U.S.C. 3501 et seq.
    \108\ See infra Section III.C.2.
---------------------------------------------------------------------------

    The remaining costs of transitioning to EDGAR, which would apply to 
all Form 144 filers that do not currently file using EDGAR, would be 
mitigated by the ease of filing Form 144. The revised Form 144 would be 
an online fillable form with a similar user interface to Form 4, and 
for simultaneous filings of Forms 4 and 144, the same user interface 
could be used to file both forms.\109\ Because current EDGAR filers 
represent such a small proportion of those who submit Form 144, our 
ability to generalize electronic filing behavior from this group to the 
full population of filers may be of limited reliability.\110\ However 
to the extent that behavior may be similar, we estimate that up to one-
third of affiliates submitting a Form 144 who do not currently access 
EDGAR may be able use an issuer's existing connection to EDGAR or rely 
upon other support by issuers in meeting their Form 144 electronic 
filing obligations. These filers likely will incur lower costs as a 
result of the proposed amendments than filers who cannot or will not 
use an issuer's existing connection to EDGAR. We lack the data to 
quantify the difference in costs.
---------------------------------------------------------------------------

    \109\ See supra Section I.C.2.c. Based on filings in calendar 
year 2019, we estimate that approximately 23 percent of Form 144 
filers are also Form 4 filers.
    \110\ See supra Section II.B.2.
---------------------------------------------------------------------------

    In addition, we estimate that the proposed amendment to eliminate 
the requirement to file a Form 144 to report the resale of securities 
of issuers that are not subject to Exchange Act reporting requirements 
would result in a one percent reduction of current filings of Form 
144.\111\
---------------------------------------------------------------------------

    \111\ This estimate is based upon the average number of Form 
144s submitted pertaining to such securities as a proportion of 
total Form 144 submissions in each of the four prior calendar years 
(2016-2019).
---------------------------------------------------------------------------

    For Form 144 filers, we do not expect that the proposed custom XML 
format would impose any incremental costs, because filers would be able 
to enter their disclosures directly into the online fillable form. We 
expect that completing this XML-based fillable form would not require 
any more time than any other fillable form and would generally require 
the same time as completing the paper form. Some filers may choose to 
file directly in custom XML format (pursuant to the Commission's custom 
XML schema) integrated into their software because it enables greater 
automation of reporting. Other filers without XML experience or 
software could simply use the online fillable form and would not be 
required to license any XML-based filing preparation software or 
establish any XML-based filing processes.
    The proposed amendments could reduce revenue for market information 
aggregators who currently aggregate the information from Form 144 
fillings into databases and provide access to such databases to various 
users of this data for a fee.\112\ The online filing of Form 144 may 
make it more cost-effective for some data users to extract the data 
themselves. The reduction in revenue could be mitigated by the lower 
cost of retrieving information from Form 144 filings that is filed in 
an electronic format. Data aggregators could sell fewer subscriptions 
to make the same profit or lower the fee that they charge which might 
make their services continue to be attractive even with the electronic 
availability of the filings.
---------------------------------------------------------------------------

    \112\ See supra Section II.C.2.a.
---------------------------------------------------------------------------

    We recognize that the potential costs and benefits of electronic 
filing are sensitive to various assumptions, including the number of 
affected filers; the effect of electronic filing using EDGAR on the 
time burden of filing Form 144; printing and mailing costs incurred 
today; and the type and cost of staff, if any, involved in the 
electronic filing of Form 144. The cost savings realized by individual 
filers may vary across all filers depending on variables such as filer 
size, number of filings submitted, existing filing practices (e.g., 
current reliance on electronic document preparation; current experience 
with using EDGAR; use of in-house staff, brokers, or outside counsel 
for the filing of Form 144; number, types, and cost of in-house staff 
involved in the paper

[[Page 5079]]

filing of Form 144; actual hours and printing and mailing costs 
required for paper filing today), and the amount of time required for 
filers to be trained in the use of EDGAR and any required related 
processes, and the amount of time to resolve any technical issues 
related to electronic filing on EDGAR.
4. Efficiency, Competition, and Capital Formation
    The proposed amendments are expected to increase the efficiency and 
decrease the costs of filing Form 144 and retrieving information from 
Form 144 filings. Electronic filing and the revised filing deadline in 
the proposed amendments are expected to make the filing process more 
efficient by making it easier and less costly for filers to assure 
timely receipt of the filing. Likewise, for investors currently using 
information from paper filings, the costs of accessing these filings 
are expected to be significantly reduced. In addition, replacing paper 
filing with electronic filing is expected to result in filer savings of 
labor, printing, and mailing costs.
    The proposed amendments should facilitate the efficient and rapid 
incorporation of price-relevant information in Form 144 filings into 
the market and enhance the sum of information available to investors. 
To the extent that there is value-relevant information in Form 144 
filings, prices may become more efficient, which should help to 
facilitate capital formation (e.g., by enhancing valuation quality).
    However, the proposal may reduce some investors' or market 
information aggregators' competitive advantages. Particularly, market 
information aggregators whose present role includes converting paper 
filings of Form 144 to an electronic information source may find that 
this service is less attractive to data users due to those users' 
ability to access these filings directly due to the proposed rule 
changes. These information aggregators' loss of competitive advantage 
in converting paper filings of Form 144 to an electronic information 
source may reduce their revenue and thus may affect their ability to 
offer other ancillary services that are valuable to data users.
    Aligning the reporting timeline of Form 144 with that of Form 4 
could cause up to a two-day delay in reporting, and thereby potentially 
delay the incorporation of information into markets. However, at the 
same time, the proposed electronic filing mandate could accelerate the 
incorporation of that information into the markets compared with the 
current system. We do not have adequate data with which to estimate the 
net effect of these two proposed changes. Since data users currently 
observe this delay with respect to filings of Forms 144 and 4 that are 
both publicly available immediately upon submission, such as via EDGAR, 
we have limited data with which to form an expected value of having 
Form 144 information in advance of a Form 4 filing, and consequently 
what related costs might be incurred by synchronizing submissions. We 
are therefore requesting comments and the submission of data or other 
information that would inform our estimates.
    We do not expect marked effects on either competition or capital 
formation as a result of allowing Forms 4 and 5 filers to check a box 
to indicate that a sale or purchase of securities was made pursuant to 
Rule 10b5-1(c). As discussed above, due to the discretionary nature of 
the checkbox inclusion, we expect filers to do so only when they 
perceive it will increase efficiency. As a result, there may be modest 
increases to efficiency for both such filers and data users who access 
their submissions.
5. Reasonable Alternatives
Eliminating the Form 144 Filing Requirement
    One alternative that we could have proposed is the elimination of 
the current Form 144 filing requirement for sales of securities by 
affiliates of issuers that are subject to Exchange Act reporting. Such 
an alternative would eliminate compliance costs for such affiliates. 
However, such an alternative would also prevent investors and various 
other data users from obtaining any information on such sales of 
securities. We are soliciting comment on the continued utility of Form 
144 filings.
Email Submissions
    Given the significant number of submissions via email in response 
to the temporary staff no-action position, we could have proposed 
making this manner of filing a permanent option for Form 144 filers. 
Such an alternative would allow filers to avoid the direct costs of 
transitioning to filing electronically using EDGAR. Such an 
alternative, however, would result in issuers incurring expenses in 
scanning the forms and emailing them to the Commission. Additionally, 
issuers would forgo potential direct benefits in the form of reduced 
time required to file forms electronically. Such costs could be higher 
for filers who make multiple submissions of Form 144 per year and for 
Form 144 filings with multiple pages.
    Data users might also incur higher costs under this alternative 
since the site used to access Form 144 email submissions is distinct 
from EDGAR.\113\ Specifically, under this alternative, a data user 
interested in obtaining the information from all Form 144 filings 
pertaining to a given issuer would be required to search both EDGAR and 
the daily folders posted to the Form 144 website. Furthermore, Form 144 
data submitted via email submissions is not structured, therefore 
analysis that would require aggregating data from multiple submissions 
would be more difficult or most costly to perform.
---------------------------------------------------------------------------

    \113\ See supra note 97.
---------------------------------------------------------------------------

Format Requirements
    While the proposed rule does not expressly prescribe a specific 
format for Form 144 that would be required for filing in EDGAR, Form 
144 would be made available as an online fillable form, similar to 
other fillable forms such as Forms D, 3, 4, and 5.\114\ As an 
alternative, we could require Form 144 to be filed in the Inline 
eXtensible Business Reporting Language (``Inline XBRL'') format, a 
derivation of XML that is designed for financial reporting and is both 
machine-readable and human-readable. Compared to the proposal, the 
Inline XBRL alternative for Form 144 would provide more sophisticated 
validation, presentation, and reference features for filers and data 
users. However, the Inline XBRL alternative would also impose initial 
implementation costs (e.g., learning how to prepare filings in Inline 
XBRL, licensing Inline XBRL filing preparation software) upon filers 
that do not have prior experience structuring data in the Inline XBRL 
format. By contrast, because the proposal would allow filers to submit 
Form 144 using an online fillable Form, filers that lack experience 
structuring data in a custom XML format would not incur implementation 
costs.
---------------------------------------------------------------------------

    \114\ See supra Section I.B.2.c.
---------------------------------------------------------------------------

D. Request for Comment

    33. What are the economic effects of the proposed amendments to 
Form 144, Form 4, and Regulation S-T? To the extent possible, please 
provide any data, studies, or other evidence that would allow us to 
better quantify or otherwise qualitatively assess the costs and 
benefits of the proposed amendments to affected parties.

[[Page 5080]]

    34. We expect that the proposed amendments may benefit Form 144 
data users by facilitating easier access to Form 144 data, potentially 
reducing the incentive to purchase such data from third-party data 
providers. At the same time, the proposed changes may affect the timing 
of the availability of such information. What are the economic effects 
of the proposed timing and format changes to Form 144? To the extent 
possible, please provide any data, studies, or other evidence that 
would allow us to better quantify or otherwise qualitatively assess the 
impact of these proposed changes, including the benefits and costs.
    35. We seek comment on the ways that Form 144 information is used 
by affected parties. In particular, what data uses of Form 144 data do 
not coincide with information available via Form 4? Are there currently 
any uses of Form 144 data in advance of Form 4 filings, and if so, 
would there be any costs incurred by losing such information in 
advance?
    36. Are there other methods or databases by which Form 144 data 
users currently access such information? If so, please provide 
information about those methods, including how many Form 144 filings 
may be accessed via those methods and how soon they are made available 
after they are filed with the SEC. To what extent might the 
availability and use of these alternative databases affect our analysis 
of the anticipated benefits and costs to our proposed amendments? 
Please provide data, studies, or other evidence.
    37. Should we adopt any of the alternative approaches outlined 
above instead of the proposed amendments, including requiring the use 
of XBRL for electronic submissions of Form 144? We considered requiring 
the use of XBRL as a possible alternative approach but have not 
proposed it for the reasons stated above. In addition or instead of 
XBRL, should the form provide for use of a format based on a new 
derivation of XML or another machine readable format that the 
Commission may determine is appropriate in the future? If so, what 
would be the attendant costs and benefits of such flexibility?
    38. Are there any other potential alternative approaches we should 
consider and what are their economic effects?
    39. Because we are proposing to allow Form 4 and Form 5 filers, at 
their discretion, to check a box to indicate that a sale or purchase of 
securities was made pursuant to Rule 10b5-1(c) we expect that filers 
will only elect to do so when their anticipated benefits of doing so 
exceed their related costs. Are there other anticipated benefits, 
costs, or economic effects related to this proposal that we should 
consider?

III. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules and forms that would be affected by 
the proposed amendments contain ``collection of information'' 
requirements within the meaning of the PRA.\115\ We are submitting the 
proposal to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA.\116\ An agency may not conduct or sponsor, and 
a person is not required to respond to, a collection of information 
requirement unless it displays a currently valid OMB control number. 
Compliance with the information collections is mandatory. Responses to 
the information collections are not kept confidential and there is no 
mandatory retention period for the information disclosed. The titles 
for the collections of information are:
---------------------------------------------------------------------------

    \115\ See supra note 107.
    \116\ See 44 U.S.C. 3507(d); see also 5 CFR 1320.11.
---------------------------------------------------------------------------

     Form ID (OMB Control Number 3235-0328);
     Form 144 (OMB Control Number 3235-0101);
     Form 4 (OMB Control Number 3235-0287);
     Form 5 (OMB Control Number 3235-0362) \117\
---------------------------------------------------------------------------

    \117\ We do not believe that the proposed amendments to permit 
Form 4 and Form 5 filers to indicate through a check box on the 
forms that a sale or purchase reported on the forms was made 
pursuant to Rule 10b5-1(c) would affect an issuer's burden hours or 
costs for PRA purposes. Filers must already determine whether their 
sale or purchase reported on the forms was made pursuant to Rule 
10b5-1(c), so adding a check a box on the forms would not 
substantively modify existing collection of information requirements 
or otherwise affect the overall burden estimates associated with 
Forms 4 or 5. Therefore, we are not adjusting any burden or cost 
estimates in connection with the check box for the proposed 
amendments.
---------------------------------------------------------------------------

    Form ID is used by registrants, individuals, third party filers, or 
their agents to request access codes that permit the filing of 
documents on EDGAR. Form 144 is used by security holders to disclose 
the proposed sale of securities by the holder and to indicate that the 
holder is not to be engaged in the distribution of the securities and 
therefore not an underwriter. Form 4 is used by an issuer's insiders to 
report the insider's changes in beneficial ownership of the issuer's 
equity securities. A description of the proposed amendments, including 
the need for the information and its proposed use, as well as a 
description of the likely respondents, can be found in Section I above, 
and a discussion of the economic effects of the proposed amendments can 
be found in Section II above.
    As described in more detail above,\118\ we are proposing to amend 
Rule 144 to provide that the holding period for securities acquired 
upon the conversion or exchange of certain, specific securities that 
are market adjustable and issued by unlisted issuers would not begin 
until the time of conversion or exchange.\119\ Also, as described 
above,\120\ we are proposing to mandate electronic filing of Form 144 
with respect to securities issued by companies subject to Exchange Act 
reporting requirements, eliminate the requirement to file a Form 144 
for resales of securities of issuers that are not subject to Exchange 
Act reporting, amend the filing deadline for Form 144 to coincide with 
the filing deadline for Form 4,\121\ and amend Form 4 to include a 
check box that would provide the filer with the option to indicate if 
securities were sold or purchased pursuant to a plan intended to 
satisfy the affirmative defense conditions of Exchange Act Rule 10b5-
1(c).
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    \118\ See supra Section I.B.
    \119\ Although the proposed amendments to the holding period are 
expected to reduce the number of market-adjustable securities 
transactions, we do not anticipate that these proposed amendments 
would affect the burdens and costs associated with Form 144. The 
requirement to file Form 144 only applies to affiliates of the 
issuer. The investors in these securities generally do not meet the 
definition of affiliate in our regulations and therefore are not 
required to file Form 144.
    \120\ See supra Section I.C.
    \121\ We do not believe that the proposed amendment to change 
the filing deadline for Form 144 to coincide with the filing 
deadline for Form 4 would affect an issuer's burden hours or costs 
for PRA purposes. The information in the form that must be filed 
would not change as a result of this amendment, so changing the 
filing deadline would not substantively modify existing collection 
of information requirements or otherwise affect the overall burden 
estimates associated with Form 144. Therefore, we are not adjusting 
any burden or cost estimates in connection with the deadline change 
for the proposed amendments.
---------------------------------------------------------------------------

B. Summary of the Proposed Amendments' Effects on the Collections of 
Information

    We anticipate that the proposed amendment to mandate the electronic 
filing of Form 144 would result in a number of filers using EDGAR to 
file their Form 144 electronically who do not currently do so. Filers 
who have not previously made an electronic filing on EDGAR are required 
to file a Form ID to obtain access codes that will enable them to file 
a document on EDGAR. As discussed above, we estimate that approximately 
12,250 filers would be required to switch from paper filings of their 
Form 144 to electronic filings of

[[Page 5081]]

that form.\122\ Of those 12,250 filers, however, we estimate that 25 
percent have already filed a Form ID through other EDGAR filing 
obligations,\123\ so only approximately 75 percent of Form 144 filers 
would need to file a Form ID.\124\ As a result, we estimate that 
approximately 9,188 filers would be required to file a Form ID because 
of the proposed amendment to mandate the electronic filing of Form 
144.\125\ We estimate that respondents require 0.15 hours to complete 
the Form ID and, for purposes of the PRA, that 100 percent of the 
burden of preparation for Form ID is carried by the respondent 
internally. Therefore, we estimate that this proposed amendment would 
result in an incremental increase of 1,378 annual burden hours for Form 
ID.\126\
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    \122\ See supra note 96.
    \123\ See supra note 105.
    \124\ See supra note 106.
    \125\ 22,250 x 0.75 = 9,187.5.
    \126\ 9,188 x 0.15 = 1,378.2, which is rounded to 1,378.
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    We expect that the proposed amendment to eliminate the requirement 
to file a Form 144 to report the resale of securities of issuers that 
are not subject to the reporting requirements of Sections 13 or 15(d) 
of the Exchange Act would reduce the number of filings of the form. As 
discussed above, we estimate that 313 filers would no longer be subject 
to filing Form 144.\127\ We estimate that each notice on Form 144 
imposes a burden for PRA purposes of one hour and, for purposes of the 
PRA, that 100 percent of the burden of preparation for Form 144 is 
carried by the respondent internally. Therefore, we estimate that this 
proposed amendment would result in an incremental decrease of 313 
annual burden hours for Form 144.
---------------------------------------------------------------------------

    \127\ See supra note 96.
---------------------------------------------------------------------------

    PRA Table 1 summarizes the estimated effects of the amendments on 
the paperwork burdens associated with the affected collections of 
information listed in Section III.A.

    PRA Table 1--Estimated Paperwork Burden Effects of the Amendments
------------------------------------------------------------------------
                                   Proposed affected
   Proposed amendments and          collections  of       Estimated net
           effects                    information             effect
------------------------------------------------------------------------
Form ID:
     Amend Rules        Form ID........  
     101(a) and 101(b) of                                 Increase of
     Regulation S-T to                                    0.15 hour
     mandate the electronic                               compliance
     filing of all Form 144                               burden per
     filings for the sale of                              response to
     securities of Exchange                               the new
     Act reporting companies.                             collection of
                                                          information.
Form 144:
     Eliminate the      Form 144.......  
     requirement to file a                                Decrease of
     Form 144 for resales of                              1.0 hour
     securities of issuers                                compliance
     that are not subject to                              burden per
     Exchange Act reporting.                              response to
                                                          the new
                                                          collection of
                                                          information.
------------------------------------------------------------------------

C. Incremental and Aggregate Burden and Cost Estimates

    Below we estimate the incremental and aggregate changes in 
paperwork burden as a result of the amendments. These estimates 
represent the average burden for all issuers, both large and small. In 
deriving our estimates, we recognize that the burdens will likely vary 
among individual issuers based on a number of factors, including the 
nature of their business. We believe that the amendments will change 
the frequency of responses to the existing collections of information 
and the burden per response.
    PRA Table 2 below illustrates the incremental change to the total 
annual compliance burden of affected forms, in hours and in costs, as a 
result of the amendments' estimated effect on the paperwork burden per 
response. The number of estimated affected responses shown in PRA Table 
2 is based on the number of responses in the Commission's current OMB 
PRA filing inventory adjusted to reflect the change in the number of 
responses we estimate as a result of the proposed amendments.\128\
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    \128\ The OMB PRA filing inventory represents a three-year 
average.

                PRA Table 2--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Current burden                                         Proposed burden change
                                   ---------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Proposed     Proposed
                                      Current      Current                   Proposed     Proposed     Proposed      Proposed      Burden    Cost Burden
                                       annual       burden      Current     change in    change in     change in      annual     Hours for       for
                                     responses      hours     cost burden     annual       burden    professional    affected     Affected     Affected
                                                                            responses      hours         costs      responses    Responses    Responses
                                            (A)          (B)          (C)          (D)          (E)           (F)  (G) = (A) +    (H) = (B)    (I) = (C)
                                                                                                                           (D)        + (E)        + (F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form ID...........................       46,842        7,026           $0        9,188        1,378            $0       56,030        8,404           $0
Form 144..........................       33,725       33,725            0        (313)        (313)             0       33,412       33,412            0
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Request for Comment

    We request comments in order to evaluate: (1) 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) the accuracy of our estimate of the burden 
of the proposed collection of information; (3) whether there are ways 
to enhance the quality, utility, and clarity of the information to be 
collected; and (4) 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

[[Page 5082]]

or other forms of information technology.\129\
---------------------------------------------------------------------------

    \129\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of 
information requirements should direct their 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 send a copy of the comments to Vanessa A. 
Countryman, Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549, with reference to File No. S7-24-20. Requests 
for materials submitted to the OMB by us with regard to these 
collections of information should be in writing, refer to File No. S7-
24-20 and be submitted to the Securities and Exchange Commission, 
Office of FOIA Services, 100 F Street NE, Washington DC 20549. Because 
the OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication, a comment to the 
OMB is best assured of having its full effect if the OMB receives it 
within 30 days of publication.

IV. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Analysis (``IRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act 
(``RFA'').\130\ It relates to proposed amendments that would: (1) Amend 
Rule 144(d)(3)(ii) to provide that the holding period for securities 
acquired upon the conversion or exchange of certain, specific 
securities that are market adjustable and issued by unlisted issuers 
would not begin until the time of conversion or exchange; (2) mandate 
electronic filing of Form 144 with respect to securities issued by 
companies subject to Exchange Act reporting requirements; (3) eliminate 
the requirement to file a Form 144 for resales of securities of issuers 
that are not subject to Exchange Act reporting; (4) amend the filing 
deadline for Form 144 to coincide with the filing deadline for Form 4; 
and (5) amend Forms 4 and 5 to include a check box that would provide 
the filer with the option to indicate if a transaction intended to 
satisfy the affirmative defense conditions of Exchange Act Rule 10b5-
1(c). In addition, if we adopt the proposed amendments, we plan to 
simplify and streamline the electronic filing of Form 144 and Form 4.
---------------------------------------------------------------------------

    \130\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    One purpose of the proposed amendments is to mitigate the risk of 
unregistered distributions in connection with sales of market-
adjustable securities. The proposed amendments are also intended to 
facilitate more efficient transmission, dissemination, and analysis, of 
certain forms, and to reduce the costs of storing and retrieving 
documents that are currently filed in paper.

B. Legal Basis

    We are proposing the amendments under the authority set forth in 
Sections 4, 6, 7, 8, 10, 19(a) and 28 of the Securities Act, and 
Sections 3, 16, and 23(a) of the Exchange Act.

C. Small Entities Subject to the Proposed Rules

    The proposed amendments would affect small entities that issue 
securities as well as those that hold securities. The RFA defines 
``small entity'' to mean ``small business,'' ``small organization,'' or 
``small governmental jurisdiction.'' \131\ For purposes of the RFA, 
under our rules, a registrant, other than an investment company, is a 
``small business'' or ``small organization'' if it had total assets of 
$5 million or less on the last day of its most recent fiscal year and 
is engaged or proposing to engage in an offering of securities that 
does not exceed $5 million.\132\ An investment company, including a 
business development company,\133\ is considered to be a ``small 
business'' if it, together with other investment companies in the same 
group of related investment companies, has net assets of $50 million or 
less as of the end of its most recent fiscal year.\134\ We estimate 
that there are 1,056 issuers that file with the Commission, other than 
investment companies, which may be considered small entities and are 
potentially subject to the final amendments.\135\ In addition, we 
estimate that there are 37 investment companies that would be subject 
to the proposed amendments that may be considered small entities.\136\
---------------------------------------------------------------------------

    \131\ 5 U.S.C. 601(6).
    \132\ See 17 CFR 240.0-10(a).
    \133\ Business development companies are a category of closed-
end investment company that are not registered under the Investment 
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53--64].
    \134\ 17 CFR 270.0-10(a).
    \135\ This estimate is based on staff analysis of issuers, 
excluding co-registrants, with EDGAR filings of Form 10-K, 20-F and 
40-F, or amendments filed during the calendar year of January 1, 
2019 to December 31, 2019. This analysis is based on data from XBRL 
filings, Compustat, and Ives Group Audit Analytics.
    \136\ This estimate is based on staff review of Forms N-CEN 
filed with the Commission as of November 5, 2020 and is based on the 
definition of small entity under Investment Company Act Rule 0-10. 
See 17 CFR 240.0-10.
---------------------------------------------------------------------------

D. Proposed Reporting, Recordkeeping, and Other Compliance Requirements

    As noted above, the proposed amendment to Rule 144(d)(3)(ii) would 
provide that the holding period for securities acquired upon the 
conversion or exchange of certain, specific securities that are market 
adjustable and issued by unlisted issuers would not begin until the 
time of conversion or exchange. We expect the proposed amendment to 
reduce the number of market-adjustable securities transactions. As 
noted in Section III, we do not anticipate that the proposed amendments 
would affect the reporting or compliance burdens associated with Form 
144, including those for small entities, because the requirement to 
file the form only applies to affiliates of the issuer and the 
investors in these securities generally do not meet the definition of 
affiliate in our regulations. Affected parties may decide to adjust 
their recordkeeping methods if needed to account for the change in the 
start date for the holding period.
    Additionally, the proposed amendments would mandate electronic 
filing of Form 144 with respect to securities issued by companies 
subject to Exchange Act reporting requirements. We anticipate that this 
proposed amendment would cause a number of filers, including small 
entities, using EDGAR to file their Form 144 electronically who do not 
currently do so, thereby modestly increasing their compliance 
obligations.
    Further, the proposed amendments would eliminate the requirement to 
file a Form 144 to report the resale of securities of issuers that are 
not subject to the reporting requirements of Sections 13 or 15(d) of 
the Exchange Act. As a result, some filers, including small entities 
would no longer be required to file Form 144, which would reduce their 
compliance obligations.
    The proposed amendments to revise the filing deadline for Form 144 
and to include an optional check box in Forms 4 and 5 would not change 
the reporting, recordkeeping, or compliance requirements or otherwise 
affect the overall compliance burden for small entities.
    Compliance with the proposed amendments may require the use of

[[Page 5083]]

professional skills, including legal skills.
    Section I discusses the proposed amendments in detail. Sections II 
and III discuss the economic impact, including the estimated costs and 
benefits, of the proposed amendments to all affected entities.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The proposed amendments would not duplicate, overlap, or conflict 
with other Federal rules.

F. Significant Alternatives

    The RFA directs us to consider alternatives that would accomplish 
our stated objectives, while minimizing any significant adverse impact 
on small entities. In connection with the proposed amendments, we 
considered the following alternatives:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    We are proposing to amend Rule 144(d)(3)(ii) to provide that the 
holding period for the securities acquired upon conversion or exchange 
of certain market-adjustable securities issued by unlisted issuers 
would not begin until conversion or exchange. We recognize that the 
proposal could disproportionately affect small issuers because it is 
those entities that typically issue market-adjustable securities \137\ 
but we believe this proposal would benefit issuers and investors by 
mitigating the risk of unregistered distributions in connection with 
sales of market-adjustable securities. The features of certain market-
adjustable securities, combined with the tacking provisions of Rule 
144, can undermine one of the key premises of Rule 144, which is that 
holding securities at risk for an appropriate period of time prior to 
resale can demonstrate that the seller did not purchase the securities 
with a view to distribution and, therefore, is not an underwriter. We 
could propose to exempt the securities of small entities from the 
proposed amendment or establish a different holding period for their 
securities, but doing so would not address the risk that holders may 
participate in unregistered distributions of the market-adjustable 
securities of these issuers.
---------------------------------------------------------------------------

    \137\ See supra note 73 and accompanying text.
---------------------------------------------------------------------------

    The proposed amendments to mandate the electronic filing of Form 
144 clarify and streamline the filing requirements for the form and 
should benefit all filers, as well as benefit users of the information 
in Form 144 by facilitating easier access to, and faster retrieval of 
such information. We do not believe that it is necessary to partially 
or completely exempt small entities from the proposed amendments to 
require the electronic filing of Form 144 because the amendments are 
expected to result in cost benefits on an ongoing basis compared to 
paper filing, and increased efficiencies for all filers who would be 
required to file Form 144, including small entities that are filers. We 
preliminarily believe that it is not necessary to establish different 
compliance timetables for small entities or to further clarify, 
consolidate, or simplify the proposed amendments' requirements. But we 
are proposing a six-month transition period after the effective date of 
the amendments to Regulation S-T to give Form 144 paper filers who 
would be first-time electronic filers, including any small entities, 
sufficient time to apply for codes to make filings on EDGAR. In 
addition, we solicit comment on whether we should provide a different 
timetable for paper Form 144 filers to transition to electronic filing.
    We have used design rather than performance standards in connection 
with the proposed filing revisions to Form 144 in order to promote 
uniform filing requirements and also to facilitate a simpler and less 
costly filing method for Form 144 filers.

G. Request for Comment

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
     The number of small entity issuers that may be affected by 
the proposed amendments;
     The existence or nature of the potential impact of the 
proposed amendments on small entity issuers discussed in the analysis;
     How the proposed amendments could further lower the burden 
on small entities; and
     How to quantify the impact of the proposed amendments.
    Please describe the nature of any impact and provide empirical data 
supporting the extent of the impact. Such comments will be considered 
in the preparation of the Final Regulatory Flexibility Analysis, if the 
proposed amendments are adopted, and will be placed in the same public 
file as comments on the proposed amendments themselves.

V. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\138\ the Commission must advise OMB as to 
whether the proposed amendments constitute a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results, 
or is likely to result, in:
---------------------------------------------------------------------------

    \138\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on whether the proposed amendments would be a 
``major rule'' for purposes of SBREFA. We solicit comment and empirical 
data on: (a) The potential effect on the U.S. economy on an annual 
basis; (b) any potential increase in costs or prices for consumers or 
individual industries; and (c) any potential effect on competition, 
investment or innovation. Commenters are requested to provide empirical 
data and other factual support for their views to the extent possible.

VI. Statutory Authority

    The amendments contained in this release are being proposed under 
the authority set forth in Sections 4, 6, 7, 8, 10, 19(a), and 28 of 
the Securities Act, and Sections 3, 16, and 23(a) of the Exchange Act.

List of Subjects in 17 CFR Parts 230, 232, 239, and 249

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    For the reasons set out in the preamble, the Commission is 
proposing to amend Title 17, chapter II of the Code of Federal 
Regulations as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read as follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L.

[[Page 5084]]

112-106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless 
otherwise noted.

0
2. Amend Sec.  230.144 by:
0
a. Removing the Preliminary Note;
0
b. Adding introductory text and paragraph (b)(3);
0
c. Revising paragraphs (d)(3)(ii) and (h); and
0
d. Adding Notes 1 through 5 to Sec.  230.144.
    The additions and revisions to read as follows:

Sec.  230.144   Persons deemed not to be engaged in a distribution and 
therefore not underwriters.

    A Notes section appears at the end of this rule to assist in 
understanding its provisions.
* * * * *
    (b) * * *
    (3) Not part of a scheme to evade: Section 230.144 (Rule 144) is 
not available to any person with respect to any transaction or series 
of transactions that, although in technical compliance with this Sec.  
230.144, is part of a plan or scheme to evade the registration 
requirements of the Act.
* * * * *
    (d) * * *
    (3) * * *
    (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, unless:
    (A) The newly acquired securities were acquired from an issuer 
that, at the time of conversion or exchange, does not have a class of 
securities listed, or approved for listing, on a national securities 
exchange registered pursuant to Section 6 of the Exchange Act (15 
U.S.C. 78f); and
    (B) The convertible or exchangeable security contains terms, such 
as conversion rate or price adjustments, that offset, in whole or in 
part, declines in the market value of the underlying securities 
occurring prior to conversion or exchange, other than terms that adjust 
for stock splits, dividends or other issuer-initiated changes in its 
capitalization.
    Note 1 to paragraph (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.3
* * * * *
    (h) Notice of sale or proposed sale. (1) If 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 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, a 
notice on Form 144 (Sec.  239.144 of this chapter) shall be filed 
electronically with the Commission.
    (2) The Form 144 shall be signed by the security holder and shall 
be filed before the end of the second business day following the day on 
which the subject transaction has been executed. Provided however, if 
the transaction satisfies the affirmative defense conditions of Sec.  
240.10b5-1(c) of this chapter, and the security holder does not select 
the date of execution, the date on which the executing broker, dealer 
or plan administrator notifies the security holder of the execution of 
the transaction is deemed the date of execution for a transaction. 
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 security 
holder filing the notice required by this paragraph shall have sold or 
have a bona fide intention to sell the securities referred to in the 
notice within a reasonable time after the filing of such notice.
    Note 1 to Sec.  230.144. 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. 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. Section 4(a)(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(a)(1) exemption from registration is available for the sale of the 
securities.
    Note 2 to Sec.  230.144. Section 2(a)(11) of the Securities Act 
defines the term ``underwriter'' broadly 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.
    Note 3 to Sec.  230.144. 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.
    Note 4 to Sec.  230.144. 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(a)(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: Any affiliate or other person 
who sells

[[Page 5085]]

restricted securities will be deemed not to be engaged in a 
distribution and therefore not an underwriter for that transaction; 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 
the purchaser in such transaction will receive securities that are not 
restricted securities.
    Note 5 to Sec.  230.144. 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.

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
3. The general authority citation for part 232 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c), 
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350, 
unless otherwise noted.

0
4. Amend Sec.  232.101 by adding paragraph (a)(1)(xxii), and removing 
and reserving paragraphs (b)(4) and (c)(6), to read as follows:

Sec.  232.101   Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (xxii) Form 144 (Sec.  239.144 of this chapter), where the issuer 
of the securities is subject to the reporting requirements of Section 
13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 78o(d), 
respectively).
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
5. The general authority citation for part 239 continues to read as 
follows:

    Authority:  15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 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; and sec. 107, Pub. L. 112-106, 
126 Stat. 312, unless otherwise noted.

0
6. Amend Sec.  239.144 by revising paragraphs (a) and (b) to read as 
follows:
    (a) Except as indicated in paragraph (b) of this section, each 
person who intends to sell securities in reliance upon Sec.  230.144 of 
this chapter shall file this form in electronic format by means of the 
Commission's Electronic Data, Gathering, Analysis, and Retrieval system 
(EDGAR) in accordance with the EDGAR rules set forth in Regulation S-T 
(17 CFR part 232 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.
* * * * *
0
7. Amend Form 144 (referenced in Sec.  239.144) by:
0
a. Removing the title text ``NOTICE OF PROPOSED SALE OF SECURITIES 
PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933'' and add in its 
place ``NOTICE OF SALE OR PROPOSED SALE OF SECURITIES PURSUANT TO RULE 
144 UNDER THE SECURITIES ACT OF 1933'';
0
b. Removing the text ``ATTENTION: Transmit for filing 3 copies of this 
form concurrently with either placing an order with a broker to execute 
sale or executing a sale directly with a market maker.'' and add in its 
place ``ATTENTION: This form must be filed in electronic format by 
means of the Commission's Electronic Data Gathering, Analysis, and 
Retrieval system (EDGAR) in accordance with the EDGAR rules set forth 
in Regulation S-T (17 CFR part 232). For assistance with technical 
questions about EDGAR or to request an access code, call the EDGAR 
Filer Support Office at (202) 551-8900.'';
0
c. Removing the text ``INSTRUCTION: The person filing this notice 
should contact the issuer to obtain the I.R.S. Identification Number 
and the SEC. File Number.'' and add in its place ``INSTRUCTION: The 
filer should contact the issuer to obtain the SEC. File Number.'';
0
d. Removing the data field box ``1(b)'';
0
e. Redesignating the data field boxes 1(c) through 1(e) as 1(b) through 
1(d);
0
f. Removing the data field box ``2(c)'';
0
g. Removing Instructions 1(b) and 2(c);
0
h. Redesignating Instructions 1(c) through 1(e) as 1(b) through 1(d); 
and
0
i. Removing ``(d) Aggregate market value of the securities to be sold 
as of a specified date within 10 days prior to the filing of this 
notice'' and add in its place ``(d) Aggregate market value of the 
securities to be sold as of a specified date within 10 days prior to 
the filing of this notice. For completed sales, provide instead the 
total sales proceeds (amount of securities sold multiplied by the price 
per share)''.

    Note: The text of Form 144 does not and this amendment will not 
appear in the Code of Federal Regulations.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
8. The general authority citation for part 249 continues to read as 
follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat. 
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 
107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001 Pub. L. 
114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
0
9. Amend Form 4 (referenced in Sec.  249.104) by:
0
a. Adding new General Instruction 10; and
0
b. Adding text and a check box at the top of the first page immediately 
below the text ``Check this box if no longer subject to Section 16. 
Form 4 or Form 5 obligations may continue. See Instruction 1(b).''
    The additions to read as follows:

    Note: The text of Form 4 does not, and this amendment will not, 
appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 4

* * * * *
General Instructions
* * * * *

10. Optional Rule 10b5-1(c) Transaction Indication

    If a transaction was made pursuant to a contract, instruction or 
written plan for the purchase or sale of equity securities of the 
issuer that satisfies the conditions of Rule 10b5-1(c) under the 
Exchange Act [Sec.  240.10b5-1(c) of this chapter], a reporting person 
may elect to check the Rule 10b5-1 box appearing on this Form. 
Additional information, such as the date of a Rule 10b5-1 plan, may be 
provided at the filer's option in the ``Explanation of Responses'' 
portion of the Form.
* * * * *
    [square] Check this box to indicate that a transaction was made 
pursuant to Rule 10b5-1(c). See Instruction 10.
* * * * *
    10. Amend Form 5 (referenced in Sec.  249.105) by:
    a. Adding new General Instruction 10; and
    b. Adding text and a check box at the top of the first page 
immediately below the text ``Form 4 Transactions Reported''.
    The additions to read as follows:

[[Page 5086]]

    Note: The text of Form 5 does not, and this amendment will not, 
appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 5

* * * * *
General Instructions
* * * * *

10. Optional Rule 10b5-1(c) Transaction Indication

    If a transaction was made pursuant to a contract, instruction or 
written plan for the purchase or sale of equity securities of the 
issuer that satisfies the conditions of Rule 10b5-1(c) under the 
Exchange Act [Sec.  240.10b5-1(c) of this chapter], a reporting person 
may elect to check the Rule 10b5-1 box appearing on this Form. 
Additional information, such as the date of a Rule 10b5-1 plan, may be 
provided at the filer's option in the ``Explanation of Responses'' 
portion of the Form.
* * * * *
    [square] Check this box to indicate that a transaction was made 
pursuant to Rule 10b5-1(c). See Instruction 10.
* * * * *

    By the Commission.

    Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28790 Filed 1-15-21; 8:45 am]
BILLING CODE 8011-01-P