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gertrudeauthorSEC Rule 144: A Closer Look at the Regulation of Securities
Securities and Exchange Commission (SEC) Rule 144 is a key regulation that governs the resale of securities, including stock, bonds, and other financial instruments. Implemented by the SEC to maintain the stability and integrity of the securities market, Rule 144 provides a framework for the resale of securities after a certain holding period. In this article, we will explore the main principles of Rule 144, its purpose, and how it affects investors and market participants.
Principles of Rule 144
Rule 144 governs the resale of securities that have been acquired in a "qualified purchase" or through a "qualified investor." A qualified purchase refers to a transaction where the securities are acquired in a public offering or through a registered investment broker. A qualified investor refers to an individual or entity that meets specific financial requirements, such as having a net worth of at least $1 million or generating annual income of at least $250,000 for the previous two years.
Rule 144 provides for two main categories of resale restrictions: 1) the holding period requirement and 2) the form of resale.
Holding Period Requirement
Rule 144 requires a holder of securities to hold them for a period of at least six months before they can be resold. This holding period can be shortened to as little as 90 days if the securities were acquired through a qualified purchase or from a qualified investor. The holding period is calculated from the date of original issuance or the date of acquisition, whichever is later.
Form of Resale
Rule 144 also stipulates the form of resale. Securities acquired through a qualified purchase or from a qualified investor can be resold only through a registered investment broker or through a private transaction with another qualified investor. Private transactions involve the sale of securities between unaffiliated parties without the involvement of a broker or intermediary.
Exceptions to Rule 144
There are several exceptions to Rule 144, including:
1. 35-day exemption: This exception allows for a 35-day grace period after the end of the holding period during which resales can be made without complying with the form requirements.
2. 90-day exemption: As mentioned earlier, this exemption allows for a 90-day grace period during which resales can be made without complying with the form requirements if the securities were acquired through a qualified purchase or from a qualified investor.
3. 180-day exemption: This exception allows for an 180-day grace period during which resales can be made without complying with the form requirements if the securities were acquired through a qualified purchase or from a qualified investor and the resale is not part of a plan or scheme to defraud or deceive.
SEC Rule 144 is a crucial regulation that governs the resale of securities and provides a framework for the resale of securities after a certain holding period. By understanding the principles of Rule 144 and its exceptions, investors and market participants can better navigate the securities market and comply with the relevant laws and regulations.