Securities Act Release No. 33-5223

January 11, 1972

NOTICE OF ADOPTION OF RULE 144 RELATING TO THE DEFINITION OF THE TERMS "UNDERWRITER" IN SECTIONS 4(1) AND 2(11) AND "BROKERS' TRANSACTIONS" IN SECTION 4(4) OF THE SECURITIES ACT OF 1933, ADOPTION OF FORM 144, AND RESCISSION OF RULES 154 AND 155 UNDER THAT ACT

The Securities and Exchange Commission today announced the adoption of Rule 144 under the Securities Act of 1933 ("Act"). The new rule relates to the application of the registration provisions of the Act to the resale of securities acquired directly or indirectly from issuers or from affiliates of such issuers in transactions not involving any public offerings ("restricted securities") and securities held by affiliates. The rule is designed to implement the purposes and policies underlying the Act and is based on the Commission's further reexamination of its interpretations in this area and on the comments received on previous proposals, the "160 Series" rules (Securities Act Release No. 4997) and Rule 144 (Securities Act Release Nos. 5087 and 5186). This notice contains a general discussion of the background, purpose and general effect of the rule to assist in a better understanding of it. A brief analysis of each section of the rule is also included. However, attention is directed to the rule itself for a more complete understanding of its provisions. Further, the rule the been adopted in the context of and in conjunction with several rules and amendments to rules and forms which the Commission has adopted or rescinded including: 

1. Form 144, Notice of Proposed Sale of Securities Pursuant to Rule 144; 

2. Amendments to Forms 10-K and 10-Q under the Securities Exchange Act of 1934 ("Exchange Act") (Exchange Act Release Nos. 9442 and 9443; 

3. Amendments to Regulation A under Section 3(b) of the Act (Securities Act Release No. 5225; 

4. Rule 15c2-11 under the Exchange Act (Exchange Act Release No. 9310; 

5. Rescission of Rule 155 under the Act; 

6. Rescission of Rule 154 under the Act; 

 7. Publication of a release relating to the applicability of the anti-fraud provisions of the securities acts to certain practices in connection with transactions by issuers and others not involving any public offering (Securities Act Release No. 5226 and Exchange Act Release No. 9444); and 

8. Rule 237--under Section 3(b) of the Act (Securities Act Release No. 5224).

The Commission is hereby specifically withdrawing its previously proposed "160 Series" of rules (Securities Act Release No. 4997).

Rule 144 will become effective on and after April 15, 1972.

In brief, the rule provides that any affiliate or other person who sells restricted securities of an issuer for his own account, or any person who sells restricted or any other securities for the account of an affiliate of the issuer, is not deemed to be engaged in a distribution of the securities, and therefore is not an underwriter as defined in Section 2(11) of the Act, if the securities are sold in accordance with all the terms and conditions of the rule. The rule requires, among other things, that the restricted securities must have been beneficially owned for a period of at least two years by the person for whose account they are sold; that the amount sold shall not exceed one percent of the class outstanding, or if traded on an exchange, the lesser of that amount or the average weekly volume on all such exchanges during the four weeks preceding the sale; and that the securities must be sold in brokers' transactions. In addition, there must be adequate information available to the public in regard to the issuer of the securities and notice of the sale (Form 144) must be filed with the Commission concurrently with the sale.

A number of persons have commented that it is not clear whether the rule, as proposed, was intended to be the exclusive means for selling restricted securities without registration under the Securities Act. In this connection, certain commentators asserted that the Commission does not have the statutory authority to adopt such an exclusive rule while others stated that the Commission had such power and urged it to adopt an exclusive rule. The Commission does not believe it is necessary to reach these questions relating to its statutory authority at this time, since the rule as adopted is not exclusive. However, persons who offer or sell restricted securities without complying with Rule 144 are hereby put on notice by the Commission that in view of the broad remedial purposes of the Act and of public policy which strongly supports registration, they will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers and other persons who participate in the transactions do so at their risk.

Moreover, with respect to restricted securities acquired after the effective date of the rule, the staff will not issue "no-action" letters relating to resales of such securities. Further, in connection with such resales, the Commission hereby puts all persons including brokers and attorneys on notice that the "change in circumstances" concept should no longer be considered as one of the factors in determining whether a person is an underwriter. The Commission recognizes that this concept has been in existence in one form or another for a long period of time. However, administrative agencies as well as courts from time to time change their interpretation of statutory provisions in the light of new considerations and changing conditions which indicate that earlier interpretations of such provisions are no longer in keeping with the statutory objectives. Thus, the "change in circumstances" concept in the Commission's opinion fails to meet the objectives of the Act, since the circumstances of the seller are unrelated to the need of investors for the protections afforded by the registration and other provisions of the Act.

Further, with respect to restricted securities acquired after the effective date of the rule but not sold pursuant to the provisions of the rule, the Commission hereby gives notice that in deciding whether a person is an underwriter, the length of time the securities have been held will be considered but the fact that securities have been held for a particular period of time does not by itself establish the availability of an exemption from registration.

In order to assist in a better understanding of this rule, the release contains a general discussion of its background, purpose and general effect.

Background and Purpose 

Congress, in enacting the federal securities statutes, created a continuous disclosure system designed to protect investors and to assure the maintenance of fair and honest securities markets. The Commission in administering and implementing the objectives of these statutes has sought to coordinate and integrate this disclosure system, and the rule and other related rules and amendments are a further effort in this direction.

Rule 144 is designed to implement the fundamental purposes of the Act as expressed in its preamble: 

"To provide full and fair disclosure of the character of the securities sold in interstate commerce and through the mails, and to prevent fraud in the sale thereof . . ." 

The rule would also operate to inhibit the creation of public markets in securities of issuers concerning which adequate current information is not available to the public. At the same time, where adequate current information concerning an issuer is available to the public, the rule would permit the public sale in ordinary trading transactions of limited quantities of securities owned by persons controlling, controlled by or under common control with the issuer (hereinafter "affiliate") and by persons who have acquired restricted securities of the issuer.

 This approach is consistent with the philosophy underlying the Act, that a disclosure law would provide the best protection for investors. In other words, if the investor had available to him all the material facts concerning a security, he would then be in a position to make an informed judgment whether or not to buy. In order to provide such information to investors, Congress determined that a distribution of securities requires the filing of a registration statement with the Commission and the delivery to investors of a prospectus containing accurate and current information concerning the issuer and its securities.

Exemptions from the registration requirements were provided for certain types of securities and securities transactions where there was no practical need for registration or where the benefits of registration were too remote. ¹ 

Among these exemptions is that provided by Section 4(2) of the Act for transactions by an issuer not involving any public offering ("private placements"). This exemption was originally intended to permit an issuer to make a specific or isolated sale of its securities to a particular person, ² such as an insurance company. The exemption is available for offerings to persons having access to substantially the same information concerning the issuer which registration would provide and who are able to fend for themselves. ³ 

Resales of securities acquired in private placements are frequently made under claims of an exemption pursuant to Section 4(1) of the Act, that is, a transaction by a person other than an issuer, underwriter, or dealer. This Section was intended to exempt only trading transactions between individual investors with respect to securities already issued and not to exempt distributions by issuers or acts of other individuals who engage in steps necessary to such distributions. ⁴ 

Generally, the majority of questions arising under this Section have dealt with whether the seller is an "underwriter."  The term underwriter is broadly defined in Section 2(11) of the Act to mean any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking. The interpretation of this definition has traditionally focused on the words "with a view to" in the phrase "purchased from an issuer with a view to . . . distribution."  Thus, an investment banking firm which arranges with an issuer for the public sale of its securities is clearly an "underwriter" under that Section. Not so well understood is the fact that individual investors who are not professionals in the securities business may be "underwriters" within the meaning of that term as used in the Act if they act as links in a chain of transactions through which securities move from an issuer to the public. It is difficult to ascertain the mental state of the purchaser at the time of his acquisition, and the staff has looked to subsequent acts and circumstances to determine whether such person took with a view to distribution at the time of his acquisition. Emphasis has been placed on factors such as the length of time the person has held the securities ("holding period") and whether there has been an unforeseeable change in circumstances of the holder. Experience has shown, however, that reliance upon such factors as the above has not assured adequate protection of investors through the maintenance of informed trading markets and has led to uncertainty in the application of the registration provisions of the Act.

Moreover, the Commission hereby emphasizes and draws attention to the fact that the statutory language of Section 2(11) is in the disjunctive. Thus, it is insufficient to conclude that a person is not an underwriter solely because he did not purchase securities from an issuer with a view to their distribution. It must also be established that the person is not offering or selling for an issuer in connection with the distribution of the securities and that the person does not participate or have a participation in any such undertaking, and does not participate or have a participation in any such underwriting of such an undertaking.

Rule 144, together with the other related rules and amendments, is designed to provide full and fair disclosure of the character of securities sold in trading transactions and to create greater certainty and predictability in the application of the registration provisions of the Act by replacing subjective standards with more objective ones.

Explanation and Analysis of the Rule 

In view of the legislative history, statutory language and judicial interpretations of Sections 2(11), 4(1), and 4(2) of the Act, and in light of the many helpful suggestions and comments received on the proposed "160 Series" of rules and thereafter on proposed Rule 144, the Commission is of the view that "distribution" is the significant concept in interpreting the statutory term "underwriter."  In determining when a person is deemed not to be engaged in a distribution several factors must be considered.

First, the purpose and underlying policy of the Act to protect investors requires, in the Commission's opinion, that there be adequate current information concerning the issuer, whether the resales of securities by persons result in a distribution or are effected in trading transactions. Accordingly, the availability of the rule is conditioned on the existence of adequate current public information.

 Secondly, a holding period prior to resale is essential, among other reasons, to assure that those persons who buy under a claim of a Section 4(2) exemption 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. It should be noted that there is nothing in Section 2(11) which places a time limit on a person's status as an underwriter. The public has the same need for protection afforded by registration whether the securities are distributed shortly after their purchase or after a considerable length of time. ⁵ 

A third factor, which must be considered in determining what is deemed not to constitute a "distribution," is the impact of the particular transaction or transactions on the trading markets. It is consistent with the rationale of the Act that Section 4(1) be interpreted to permit only routine trading transactions as distinguished from distributions. Therefore, a person reselling securities under Section 4(1) of the Act must sell the securities in such limited quantities and in such a manner so as not to disrupt the trading markets. The larger the amount of securities involved, the more likely it is that such resales may involve methods of offering and amounts of compensation usually associated with a distribution rather than routine trading transactions. Thus, solicitation of buy orders or the payment of extra compensation are not permitted by the rule.

In summary, if the sale in question is made in accordance with all the provisions of the rule, as outlined below, any person who sells restricted securities shall be deemed not to be engaged in a distribution of such securities and therefore not an underwriter thereof. The rule also provides that any person who sells restricted or other securities on behalf of a person in a control relationship with the issuer shall be deemed not to be engaged in a distribution of such securities and therefore not to be an underwriter thereof, if the sale is made in accordance with all the conditions of the rule.

Synopsis of the Rule 

Preliminary Note.

A preliminary note has been added to the rule in order to provide a convenient reference to assist in understanding and interpreting its provisions.

Definitions 

The term "restricted security" is defined to mean securities acquired directly or indirectly from an issuer, or from a person in a control relationship with such an issuer (an affiliate) in a transaction or chain of transactions not involving any public offering.

The definition of the term "person" has been revised in light of comments received on the proposed rule. Broadly speaking, the term "person" is defined to include certain relatives of the seller, certain trusts and estates in which the seller and such relatives collectively own 10 percent or more of the beneficial interest and corporations or other organizations in which the foregoing, collectively, are the beneficial owners of 10 percent or more of any class of the equity securities or 10 percent or more of the equity interest. The specific definition in the rule should be borne in mind in construing the various provisions of the rule and in preparing the required notice on Form 144.

Availability of Public Information 

The rule provides that there shall be available adequate current public information with respect to the issuer of the securities. This provision is deemed satisfied if an issuer has been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for a period of at least 90 days immediately preceding the sale of the securities and has filed all reports required by that Act and the rules and regulations thereunder and in addition has filed the most recent annual report required to be filed thereunder.

Under concurrently adopted amendments to Forms 10-K and 10-Q, issuers are required to state in their annual and quarterly reports whether they have filed all the reports required by Section 13 or 15(d) of the Exchange Act during the 90-day period preceding the date of the report and in addition have filed the most recent annual report required to be filed.  In light of comments received, the rule has been revised to provide that the person proposing to sell securities or the broker through whom they are to be sold shall be entitled to rely upon the issuer's statement in the latest such report that all required reports have been filed or upon a written statement from the issuer that all such reports have been filed, unless he knows or has reason to believe that the issuer has not complied with such requirements.

The Commission recognizes that small companies may experience difficulty in complying with the registration requirements of the Exchange Act, particularly in furnishing audited financial statements for three fiscal years as required by Form 10. The Commission, however, believes that it would be in the interest of protection of investors for such issuers to be reporting companies under the Exchange Act, and therefore, encourages such issuers to register securities voluntarily, if they are in a position to otherwise comply and continue to comply with the provisions of the Exchange Act. In this regard, Rule 12b-21 and Instruction 15 of Instructions to Financial Statements in Form 10 under the Exchange Act permit omission of certain information subject to specified conditions.

In case of companies which are not subject to the reporting requirements of Section 10 or 15(d) of the Exchange Act, the information requirement is deemed to be met if there is publicly available with respect to the issuer, the information required by clauses (1) to (14), inclusive, and clause (16) of paragraph (a)(4) of Rule 15c2-11 under the Exchange Act. (Release No. 9310). This information includes among other things, the exact name of the issuer, the address of its principal executive offices, the exact title and class of the security, the number of shares or total amount of the security outstanding, the nature and extent of the issuer's facilities and the product or service offered, and financial information concerning the issuer including its most recent balance sheet and profit and loss statement, which shall be reasonably current. In addition, the rule, as adopted, has been revised to provide that in the case of insurance companies which are not subject to the reporting requirements of Section 13 or 15(d), the information requirement is deemed to be met if the reports required are filed with the regulatory authority of the company's state of domicile.

Holding Period 

Securities sold in reliance upon the rule must have been beneficially owned and fully paid for by the seller for a holding period of at least two years prior to his sale as specified below. This condition is designed to assure that the registration provisions of the Act are not circumvented by persons acting, directly or indirectly, as conduits for an issuer in connection with resales of restricted securities. In order to accomplish this, the rule provides that such persons be subject to the full economic risks of investment during the holding period. Accordingly, the rule provides that giving the person from whom the securities were purchased promissory notes or other obligations to pay the purchase price, or entering into an installment purchase contract with such person, will not constitute payment of the purchase price unless certain conditions are met. These conditions are that the promissory note, obligation or contract must provide for full recourse against the purchaser of the securities, must be adequately secured by collateral other than the securities purchased and must have been discharged by payment in full prior to the sale of the securities.

 There have been various holding periods provided for in proposed rules and applied over the years by administrative interpretations. After reexamination and reconsideration, the Commission believes, in keeping with the purposes of the Act in preventing the distribution of unregistered securities to the public, that the holding period should be two years in the context of the other provisions of the rule. The definitive holding period provided in the rule may be relied on only in connection with sales made pursuant to the rule.

For the purpose of the rule, the doctrine of "fungibility" will not apply. That is, the acquisition during the two-year period of other securities of the same issuer, whether restricted or nonrestricted, will not start the holding period running anew. However, a new provision has been added to the rule dealing with short sales, puts or other options to sell securities. The provision requires that if the securities sold are equity securities there shall be excluded in determining the holding period any period during which the seller had a short position in, or any put or other option to dispose of, any securities of the same class or any securities convertible into securities of such class. If the securities sold are nonconvertible debt securities, there must be excluded any period during which the seller had a short position in, or any put or other option to dispose of, any nonconvertible debt securities of the same issuer.

Certain securities acquired in connection with, or as a result of, ownership or acquisition of other securities, are deemed to have been acquired when such other securities were acquired. These include stock dividends (including stock dividends on securities initially acquired as stock dividends), stock splits, stock acquired in recapitalizations, conversions or contingent issuances of securities. The rule, as adopted, includes provision for contingent issuance of securities in a stock for stock transaction as well as in the stock for assets transaction provided for in the rule as proposed. In view of the fact that the rule covers resales of restricted convertible securities and the restricted securities issued on their conversion, Rule 155 pertaining to convertible securities has been rescinded except with respect to securities acquired prior to the effective date of the rule and not sold in accordance with all the provisions of the rule.

Tacking of holding periods will be permitted for bona fide pledgees, donees, and trusts since it is considered that such persons when they sell the securities stand in the place of their respective pledgors, donors or settlors. In the case of an estate which is an affiliate, tacking of the holding period will be permitted; but as set forth below, there would be a limitation on the amount resold. In the event the estate is not an affiliate, there will be no holding period requirement and no limitation on the amount, but provisions of the rule relating to current public information, manner of sale, notice of sale and bona fide intention to sell shall apply.

 A purchaser in a private placement or series of private placements would not be permitted to tack the holding period of the prior owner. In addition, there would be limitations on the amount of restricted securities resold as indicated below.

Limitation on Amount of Securities Sold 

If the securities are traded on a registered national securities exchange, the amount which may be sold in any 6-month period shall not exceed the lesser of one percent of the amount of the class outstanding as shown in the most recent report or statement published by the issuer, or the average weekly reported volume of trading on all such exchanges over the four-week period prior to the date of the required notice of sale described below. The average weekly reported volume standard has been selected for purposes of computing the amount rather than the largest aggregate reported volume during any week within the four calendar weeks preceding the receipt of the order which is the standard in Rule 154. This standard was selected because the Commission believes that the increase in reported "block" trades may result in substantial fluctuations in reported volume in any one week of a four-week period. Accordingly, one week's trading volume would not necessarily provide a meaningful indication of regular trading volume. If the securities are not traded on an exchange, the amount which may be sold in any 6-month period shall not exceed one percent of the amount of the class outstanding as shown in the most recent report or statement published by the issuer. In computing the limitation on that amount, the securities sold in private placements or covered by a registration statement under the Act or pursuant to an exemption under Regulation A under the Act are not included. However, any sales pursuant to Rule 237, discussed below, would be aggregated.

In light of the comments received on the provisions of the rule, as proposed, relating to aggregation of the sales of restricted securities by various persons, the aggregation provisions of the rule, as adopted; have been revised. The rule provides that, if a holder of restricted securities sells such securities in a private placement, the purchaser's resales can only be made following a new two-year holding period and need not be aggregated with any amount of securities sold by the seller after that period. However, resales of restricted securities by all persons agreeing to act in concert shall be aggregated. Amounts sold by a donee or trust, during any period of six months within two years after the acquisition of the securities by the donee or trust, shall be aggregated with those sold by the donor or settlor. Amounts of securities sold for the account of a pledgee or purchaser of pledged securities during any period of six months within two years after a default in the obligation secured by the pledge, shall be aggregated with the amount of securities sold by the pledgor. Since the donee, trust and pledgee stands in the "shoes" of the donor, settlor, and pledgor, the former persons are subject to the latter persons' limitations under the rule. The purpose of limited aggregation is consistent with the objectives of the Act, for otherwise a distribution or redistribution may be effectuated by such means as gifts, pledges and trusts.

 In computing the amount of securities an affiliate may sell pursuant to the rule, sales of nonrestricted securities would be aggregated with sales of restricted securities. Further, resales of securities by affiliates who agree to act in concert with respect to such securities shall be aggregated.

Should reliable volume figures become publicly available through the automated quotation service of NASD, Inc. (NASDAQ),the Commission will consider amending the rule relating to over-the counter companies to base the amount of securities which may be sold on such volume, as in the case of securities listed on exchanges.

The rule permits sales within successive 6-month periods, but no accumulation would be permitted. For example, the holder of restricted securities of an over-the-counter company may sell up to one percent in every successive 6 months, subject to the aggregation provisions where applicable, but he cannot skip 6 months and then sell an accumulated two percent in the following 6 months.

Manner of Sale 

The rule provides that the securities shall be sold in brokers' transactions within the meaning of Section 4(4) of the Act, and that the person selling the securities shall not solicit or arrange for the solicitation of buy orders or make any payment in connection with the sale other than to the broker who executes the sell order.

Brokers' transactions are defined in the rule to include transactions in which a broker does no more than execute a sell order as agent and receives no more than the usual and customary commission. The broker may not solicit buy orders, but he may inquire of other brokers or dealers who have indicated an interest in the securities within the preceding 60 days. ⁶ 

In addition, the rule provides that the broker shall make a reasonable inquiry to ascertain whether the seller is engaged in a distribution. Reasonable inquiry should include, among other matters, inquiry as to the length of time the seller has held the securities; the amount of securities the seller and "chargeable" persons have sold in the past six months; whether he intends to sell securities of the same class through any other means; the number of shares of the class outstanding or the relevant trading volume; and whether the seller has solicited or made any arrangement for the solicitation of buy orders, or has made any payment to any other person in connection with the proposed transaction.

 Because Rule 144 covers "brokers' transactions" in Section 4(4) of the Act, Rule 154 has been rescinded.

Notice of Offering 

The rule requires that a person desiring to sell securities in reliance upon the rule must file with the Commission a notice to that effect. The notice must be transmitted to the Commission concurrently with the placing with a broker of an order for the sale of the securities. A form of notice is attached. If all of the securities mentioned in the notice are not sold within 90 days after the filing of the notice, an amended notice must be transmitted to the Commission concurrently with the commencement of any further sales of the securities. The notice will be a public document. A notice is not required to be filed with respect to transactions during any period of six months involving not more that 500 shares or other units or $10,000 whichever is less.

Bona Fide Intention to Sell 

In order to avoid persons filing any notice of offering "for the shelf," the rule provides that a person shall have a bona fide intention to sell the securities within a reasonable time after the filing of the notice.

Operation of the Rule 

The rule will apply on a prospective basis to transactions in restricted securities acquired after the effective date of the rule. With respect to restricted securities acquired by a non-controlling person prior to the effective date of the rule, such persons would have the choice of complying with the new rule or the administrative interpretations in effect at the time of his resale. Brokers who act as agents for controlling persons in connection with the sale of restricted and other securities acquired prior to the effective date of the rule, will be required to comply with the provisions of the new rule in order for their transactions to be exempt from registration pursuant to Section 4(4) of the Act. The provisions of the rule would be strictly construed and persons selling pursuant to the rule would have the burden of proving its availability.

The staff will not issue no-action letters with respect to resales of securities acquired after the effective date of the rule, but would issue interpretative letters to assist persons in complying with the new rule. In connection with securities acquired prior to the adoption of the rule, the staff would continue to issue no-action letters. In this regard, Release No. 5186 proposing Rule 144 stated that the staff would no longer give weight to the "change in circumstances" concept in issuing "no-action" letters. This has been reconsidered and it has been determined that solely with respect to securities acquired prior to the adoption of the rule, the staff will continue to consider "changes in circumstances" in issuing "no-action" letters for to do otherwise at this time appears unfair due to the retroactive effect. As to the application of the "change in circumstances" concept to resales of restricted securities acquired subsequent to the effective date of this rule, attention is drawn to the Commission's position previously stated on page 3 of this release.

In view of the objectives and policies underlying the Act, the rule shall not be available to any individual or entity with respect to any transaction which, although in technical compliance with the provisions of the rule, is part of a plan by such individual or entity to distribute or redistribute securities to the public. In such case, registration is required.

While Rule 144 relates to transactions exempted by Sections 4(1) and 4(4) of the Act from the registration provisions of Section 5, it would not provide an exemption from the anti-fraud provisions of the securities laws or the civil liabilities provisions of Section 12(2) of the Act or other provisions of the securities laws.

It should be recognized that the rule is in the nature of an experiment and the Commission will observe its operation to determine whether it is consistent with the objectives of the Act. If experience with the rule indicates that it is not operating for the protection of investors, it will be rescinded or appropriately amended.

Related Rules and Other Amendments 

Rule 237 

The Commission recognized that noncontrolling persons owning restricted securities of issuers which do not satisfy all of the conditions of Rule 144 might have difficulty in selling those securities due to circumstances beyond their control. Accordingly, in order to avoid unduly restricting the liquidity of such investments, the Commission has adopted Rule 237 under Section 3(b) of the Act. Under that rule any person satisfying the conditions of the rule will be permitted to sell an amount of securities not exceeding the lesser of the gross proceeds from the sale of one percent of the securities of the class outstanding or $50,000 during any twelve month period, reduced by the amount of any other sales pursuant to an exemption under Section 3(b) of the Act or Rule 144 during the period. Those conditions are: 

1. The person ⁷ is not an issuer, an affiliate of the issuer or a broker or dealer; 

2. The person has owned and fully paid for the securities for five or more years; 

3. The issuer is a domestic organization which has been actively engaged in business as a going concern for at least the last five years; 

4. The securities are sold in negotiated transactions otherwise than through a broker or dealer; and 

5. The person files the required notice with the appropriate regional office of the Commission at least 10 days before the sale, indicating, among other things, his name, the name of the issuer, the amount of securities to be sold and the amount sold within the past 12 months.

Regulation A 

The Commission has adopted amendments to Regulation A so that an offering not to exceed $100,000 can be made by non-controlling persons, or an aggregate of $300,000 by all such persons, during any one year without offsetting such amounts against the amount available to the issuer under a Regulation A offering. This broadening of the availability of Regulation A will provide a means by which noncontrolling investors in small businesses may resell their restricted securities.

Amendments to Form 10-K and Form 10-Q

As mentioned previously, the Commission has adopted amendments to Forms 10-K and 10-Q to require a statement by the registrant that all filings required to be made have been made during the preceding 90 days and in addition that the registrant has filed the most recent annual report required to be filed.

The Commission has adopted further amendments to these forms requiring certain information relating to the issuance of unregistered securities in reliance upon an exemption from registration under the Act.

Applicability of the Anti-Fraud Provisions to Sales of Restricted Securities 

Although private offerings are exempt from the registration provisions of the Act by virtue of Section 4(2), that exemption does not apply to a public resale of the securities by the purchaser. The Commission is particularly concerned about the position in which purchasers of such securities find themselves when they later desire to resell the securities. The anti-fraud provisions of the Securities Act, including Section 17(a) of the Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, make it unlawful, in connection with the purchase or sale of a security, to make misleading statements or to omit the disclosure of material facts, and prohibit other fraudulent or deceptive practices. The Commission is of the opinion that these provisions are violated when an issuer, an affiliate of the issuer, or other persons, in connection with a private placement of securities, fail to inform the purchaser fully as to the circumstances under which he is required to take and hold the securities and the limitations upon their resale. A more detailed release concerning these matters has been issued in connection with the adoption of Rule 144 and the related rules and amendments.

Use of Legends and Stop-Transfer Instructions 

Precautions by issuers are essential to assure that a public offering does not result from resale of securities initially purchased in transactions claimed to be exempt under Section 4(2) of the Act. (Attention is directed to Securities Act Release No. 5121 which discusses the use of legends and stop-transfer instructions as evidence of a non-public offering.)  Although such assurance cannot be obtained merely by the use of an appropriate legend on stock certificates or other evidences of ownership, or by appropriate instructions to transfer agents, these devices serve a useful policing function, and the use of such devices is strongly suggested by the Commission and will be considered a factor in determining whether in fact there has been a private placement.

Contractual Registration or Other Rights for Resale of Restricted Securities 

Issuers, brokers, dealers, private placees and other holders of restricted securities are hereby put on notice that the Commission deems it appropriate that such persons when acquiring such securities, should consider contracting for registration or other rights, so that, if they desire to distribute their securities rather than resell in trading transactions pursuant to the rule, they can do so in a manner consistent with the provisions of the Act, i.e., by filing a registration statement or a notification under Regulation A. If the issuer does not file reports pursuant to Sections 13 or 15(d) of the Exchange Act, such persons should consider obtaining an agreement by the issuer to register voluntarily under that Act so that Rule 144 may be available.

Business Combinations 

On October 9, 1969, the Commission gave notice of proposed revisions to Rule 133 and Form S-14, of proposed new Rules 153A and 181 under the Act (Release No. 5012) and of a proposed amendment to Rule 14a-2 of Regulation 14A under the Exchange Act (Release No. 8711). Comments have been received and the staff is currently preparing its recommendations for submission to the Commission for decision in the near future.

Short Form Registration Under the Securities Act.

The Commission has amended Form S-7 to expand its coverage and has recently proposed amendments to Form S-16 which simplifies registration of securities offered by persons other than the issuer, securities offered in certain conversions and securities to be issued on the exercise of certain warrants. The Commission is observing the operation of these forms, and may at a later date broaden their availability if it appears to be in the public interest and consistent with the protection of investors.

The text of Rule 144 and Form 144 are attached hereto. The rule is effective on and after April 15, 1972.

The Commission hereby rescinds Rule 154 under the Act effective on and after April 15, 1972.

The Commission hereby rescinds Rule 155 under the Act except that it remains in effect with respect to securities acquired prior to the effective date of Rule 144 and not sold thereafter in accordance with all the provisions of Rule 144. This action shall be effective on and after April 15, 1972.

The Commission, acting pursuant to the Securities Act of 1933, particularly Sections 2(11), 4(1), 4(2), 4(4) and 19(a) thereof, hereby adopts Rule 144 effective April 15, 1972.

By the Commission.

²  Id. at 15-16.

³  SEC v. Ralston Purina Co., 346 U.S. 119 (1953).

⁴  Securities and Exchange Commission v. Chinese Consol. Benev. Ass'n. 120 F. 2d 738 (2nd Cir. 1941), Certiorari denied, 314 U.S. 618.

⁵  The Commission is aware that certain commentators have asserted that the absence of a cut-off period would constitute an unreasonable restraint on the alienation of personal property. Generally speaking, the Commission does not concur in this view. As mentioned below, the rule would operate prospectively and permits limited resales of securities in trading transactions consistent with the purposes of the Act. Such limitation is reasonable since the holder of unregistered securities may resell his securities to persons who have access to adequate and current information concerning the issuer, and who do not need the protection of registration or he may contract for registration or for filing under Regulation A for subsequent resales, if he desires to distribute his restricted securities. In addition, as discussed below, the Commission has adopted Rule 237 under Section 3(b) of the Act which permits non-controlling persons who have owned for five years or more securities of an issuer, which is actively engaged in business as a going concern, to make offerings of such securities in amounts not exceeding the lesser of the gross proceeds from the sale of one percent of the securities of the class outstanding or $50,000 in aggregate gross proceeds during any twelve-month period by filing a simple notification with the appropriate regional office of the Commission, provided the securities are sold in negotiated rather than trading transactions.

⁶  The "160 Series" and Rule 144, as initially proposed, would also have permitted the broker to insert quotations in an inter-dealer quotation service. However, such a provision would raise questions of conflict with the anti-manipulative provisions of Rule 10b-6 under the Exchange Act and accordingly has been deleted.

⁷  Defined as in Rule 144(a)(2) above.