Table of Contents
- What Is Rule 144?
- Key Takeaways
- The Cryptocurrency Exception
- How Rule 144 Impacts Resale of Securities
- Notable Exceptions to SEC Rule 144
- Essential Conditions for Reselling Rule 144 Securities
- Important Note on Holding Periods
- Applying Rule 144 to Cryptocurrency Securities
- Are Cryptocurrencies Securities?
- What Are Restricted Securities Pursuant to Rule 144?
- What Are Control Securities and Why Are They Subject to Rule 144?
- Why Was SEC Rule 144 Created?
- Are Cryptocurrencies Subject to Rule 144?
- The Bottom Line
What Is Rule 144?
Let me explain Rule 144 directly to you: it's a regulation enforced by the SEC that lays out specific conditions for reselling restricted, unregistered, and control securities. This ensures transparency and stops insider trading, while offering exemptions from registration if you meet the criteria. It applies to all sellers, including issuers, underwriters, and dealers. The core purpose is to block insider trading and make sure buyers get enough information about these securities.
Key Takeaways
You should know that SEC Rule 144 gives an exemption from registration for selling restricted, unregistered, and control securities, but only if you satisfy certain conditions. It's built to stop insider trading and boost transparency through required disclosures. Control securities, which insiders own, come with extra rules to prevent manipulation and unauthorized sales. There's a required holding period: six months for reporting companies and up to two years for non-reporting ones. Right now, cryptocurrencies aren't seen as securities under Rule 144, but the SEC is ramping up oversight on crypto exchanges.
The Cryptocurrency Exception
Cryptocurrency remains lightly regulated at the moment. Bitcoin, for instance, isn't classified as a security, but that could shift. The SEC is actively pushing to bring cryptocurrency trading under its regulatory umbrella.
How Rule 144 Impacts Resale of Securities
Rule 144 directly affects transactions involving restricted, unregistered, and control securities—those held by insiders or people with major influence over the issuer. You often acquire these through over-the-counter deals or private sales, and sometimes they represent a controlling interest in a company. Restricted securities might come from private placements or employee stock plans. The SEC bars resale of these unless they're registered or exempt, and for exemption, you must meet five key conditions.
Notable Exceptions to SEC Rule 144
If you're not affiliated with the issuing company and have held the securities for over a year, you can skip the five conditions and sell without restrictions. Non-affiliates can also sell after six months if public information requirements are met, rather than waiting a full year.
Essential Conditions for Reselling Rule 144 Securities
For reselling restricted, unregistered, or control securities, you need to meet five conditions. First, satisfy the holding period: six months for public companies starting from purchase and payment, or one year for non-filing companies. This mainly applies to restricted securities, while control securities follow other Rule 144 rules. Second, ensure there's adequate current public information available, like financial statements, officer details, and business descriptions. Third, if you're an affiliate, don't resell more than 1% of outstanding shares in any three-month period; for exchange-listed stocks, it's the greater of 1% or the four-week average volume, but OTC sticks to 1%. Fourth, all standard trading conditions apply—brokers can't solicit buys or take excessive commissions. Fifth, affiliates must file a sale notice if the value exceeds $50,000 or involves over 5,000 shares in three months.
Important Note on Holding Periods
Remember, the holding period under Rule 144 varies by issuer type. It's generally one year minimum, but reporting companies can have it as short as six months, while non-reporting ones go up to two years.
Applying Rule 144 to Cryptocurrency Securities
Rule 144 covers unregistered securities tied to cryptocurrencies or blockchain tokens. Bitcoin itself isn't a security under this rule, but products offering interest or dividends on crypto might be. The SEC is investigating exchanges like Kraken, Gemini, and Genesis after FTX's collapse, checking if they illegally offered unregistered securities to U.S. customers.
Are Cryptocurrencies Securities?
If a crypto asset is deemed a restricted security under Rule 144, you can only resell it after meeting time requirements, filing Form 144, and following quantity limits. The SEC sued Genesis and Gemini in January 2023 for unregistered securities sales via interest-bearing products, showing their growing enforcement in crypto.
What Are Restricted Securities Pursuant to Rule 144?
Restricted securities under Rule 144 are those sold privately and not freely tradable on exchanges. They face resale restrictions, often requiring SEC registration.
What Are Control Securities and Why Are They Subject to Rule 144?
Control securities belong to corporate insiders or those with significant issuer influence, known as affiliates. They're subject to extra Rule 144 restrictions due to their potential for control.
Why Was SEC Rule 144 Created?
The SEC created Rule 144 to provide a clear framework for reselling restricted and control securities, preventing manipulation through insider selling and ensuring public disclosure to protect investors.
Are Cryptocurrencies Subject to Rule 144?
Cryptocurrencies aren't subject to Rule 144 yet, with light overall regulation. However, the SEC believes major exchanges trading 99% of crypto likely handle securities and should register. Events like FTX's collapse are pushing for more regulation.
The Bottom Line
In summary, SEC Rule 144 controls the resale of restricted and control securities, exempting them from registration if you meet conditions like holding periods and reporting. It prevents insider trading and protects investors through transparency. While focused on traditional securities, crypto regulations are evolving, potentially bringing some products under similar rules.
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