Rule 144

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Rule 144: Resale of Restricted and Control Securities Explained

What Rule 144 Covers

Rule 144 (SEC) sets conditions under which restricted, unregistered, and control securities may be resold without registration. It promotes market transparency and helps prevent manipulative insider selling by requiring time-based restrictions, public information availability, volume limits, and specified sales procedures.

Key takeaways

  • Rule 144 can provide an exemption from SEC registration for resales of restricted or control securities when certain conditions are met.
  • Primary conditions include a holding period, adequate current public information, volume limits, manner-of-sale rules, and, for affiliates, Form 144 filing in some cases.
  • For reporting companies the statutory holding period is typically six months; for non‑reporting issuers it is generally one year.
  • Some cryptocurrency-related tokens or products may be treated as securities and fall under Rule 144, but most cryptocurrencies (e.g., Bitcoin) are not presently classified as securities.

Who and what are covered

  • Restricted securities — typically acquired in private placements, employee benefit plans, or other non‑public offerings — that are not registered for resale.
  • Control securities — shares held by insiders or affiliates (officers, directors, large shareholders) who can influence the issuer.
  • Rule 144 applies to both affiliates and non‑affiliates, but the required conditions and practical effects differ.

Five core conditions to resell under Rule 144

  1. Holding period
  2. Reporting companies: commonly six months from acquisition.
  3. Non‑reporting companies: commonly one year.

  4. The holding period applies mainly to restricted securities; control securities remain subject to the other Rule 144 requirements even after the holding period.

  5. Adequate current public information

  6. Sufficient publicly available information about the issuer (financials, management, business description) must exist so buyers can make informed decisions.

  7. Volume limitations

  8. For exchange‑listed securities: sale limited to the greater of 1% of outstanding shares or the average reported weekly trading volume during the four calendar weeks preceding the notice of sale.
  9. For over‑the‑counter (OTC) securities: generally limited to 1% of outstanding shares.

  10. These limits apply to sales by affiliates.

  11. Manner of sale

  12. Sales must be handled in the ordinary market fashion: brokers may not solicit orders, and commissions must be customary.

  13. Form 144 filing (for affiliates)

  14. An affiliated seller must file Form 144 with the SEC if proposed sales exceed 5,000 shares or $50,000 in aggregate market value within any three‑month period.

Notable exceptions and practical notes

  • Non‑affiliates who have held restricted securities for more than one year generally may resell without complying with Rule 144’s conditions.
  • For restricted securities of reporting issuers, shorter holding periods can apply (commonly six months), but other conditions (public information, volume limits, etc.) must still be met before an affiliate’s resale.
  • Volume limitations and Form 144 requirements are aimed at preventing market disruption from large insider sales.

Restricted vs. control securities — why the difference matters

  • Restricted securities are constrained by how they were acquired (e.g., private placement) and by the holding period requirement.
  • Control securities are constrained because the holder has influence over the issuer; even if the securities are not “restricted,” affiliates must follow Rule 144’s volume, manner, information, and filing rules when selling.

Application to cryptocurrencies and digital assets

  • Rule 144 applies only if a crypto token or product is legally treated as a security. Many cryptocurrencies (like Bitcoin) have not been classified as securities, but some tokens and crypto-based investment products may be.
  • The SEC has increased scrutiny of certain crypto exchanges and interest‑bearing crypto products, alleging some offerings may constitute unregistered securities offerings. If a token or crypto product is determined to be a security, resale rules (including Rule 144 when applicable) may apply.

Why Rule 144 exists

The rule balances investor protection and capital market efficiency: it allows secondary trading of certain securities without full registration while reducing the risk of insider manipulation and ensuring buyers have sufficient public information.

Bottom line

Rule 144 provides a framework for reselling restricted and control securities without SEC registration when specific conditions are met. Sellers — especially affiliates — must pay attention to holding periods, public information requirements, volume limits, sales procedures, and filing thresholds. As regulatory views on digital assets evolve, some crypto products may become subject to the same resale constraints if legally classified as securities.