Securities Act Release No. 5306

September 26, 1972

DIVISION OF CORPORATION FINANCE'S
INTERPRETATIONS OF RULE 144

Since Rule 144, which defines the term distribution for purposes of determining who is an underwriter under Sections 4(1) and 2(11) of the Securities Act of 1933 ("Act"), was adopted on January 11, 1972, the Commission's Division of Corporation Finance has received a number of requests for interpretations of various provisions of the Rule. Therefore, the Commission is releasing today certain of the Division's interpretations of the Rule in the interest of assisting holders of restricted securities, controlling persons, brokers, and others in complying with the Rule's provisions. Experience in administering the Rule and observing its operation has led to several modifications of interpretations previously expressed by the staff orally or in writing. The interpretations herein are deemed controlling at this time.

Since the Commission considers that Rule 144 is in the nature of an experiment, it intends to continue to monitor the Rule's operation for the protection of investors and the public interest. As a result of this monitoring additional interpretations may be released from time to time. Also, the Commission has adopted today an amendment to paragraph (h) of Rule 144 and clarifying amendments to certain provisions of Forms 10-K and 10-Q which relate to Rule 144. In addition the Commission published for comment a proposed amendment to paragraph (g) of Rule 144. (Release No. 33-5307)

Set forth below is a series of illustrations of certain interpretations of the Division in question and answer form.

All interested persons are invited to submit their views and comments on improving the operation of Rule 144 to Alan B. Levenson, Director, Division of Corporation Finance, Securities and Exchange Commission, Washington, D. C. 20549.

                TABLE OF CONTENTS

          I.    Availability of Rule 144 at Various Stages of the Registration Process

      II.    Securities Acquired by Finders and Underwriters in Connection with a Public Offering

      III.   Sales of Securities by an Affiliate

      IV.   Sales by a Subsidiary of its Parent's Securities

      V.    Definition of the Term "Person" in Rule 144: Rule 144(a)(2)(B)

      VI.   Current Public Information: Rule 144(c)

               A. Filing of Reports: Rule 144(c)(1)

               B. Other Public Information: Rule 144(c)(2)

      VII. Holding Period for Restricted Securities: Rule 144(d)

               A. Distributions by a Partnership to the Partners: Rule 144(d)(1)

               B. Identification of Securities Sold

               C. Promissory Notes, Other Obligations or Installment Contracts: Rule 144(d)(2)

               D. Short Sales, Puts or Other Options to Sell Securities: Rule 144(d)(3)

               E. Change of State of Incorporation: Rule 144(d)

               F. Change in Par Value: Rule 144(d)(4)(A)

               G. Conversions: Rule 144(d)(4)(B)

      VIII. Limitation on Amount of Securities Sold: Rule 144(e)

               A. Sales of Listed Securities: Rule 144(e)(1)(A) and (e)(2)

               B. Six Month Period, Rule 144(e)(1) and (e)(2)

               C. Determination of Amount: Rule 144(e)(3)(A)

               D. Concurrent Sales of Registered and Unregistered Securities: Rule 144(e)(3)(G)

      IX.    Brokers' Transactions: Rule 144(g)

               A. Broker's Commission: Rule 144(g)(1)

               B. Solicitation of Customers' Orders: Rule 144(g)(2)

      X.     Notice of Proposed Sale: Rule 144(h) and Form 144

      XI.    Miscellaneous

N. B. THE FOLLOWING INTERPRETATIONS ASSUME THAT ALL THE OTHER CONDITIONS OF RULE 144 CAN AND WILL BE MET.

I.    Availability of Rule 144 at Various Stages of the Registration Process

Illustration 1.

Facts:  X, pursuant to so-called "piggy back" provisions, has the contractual right to include his restricted securities in a future registration statement filed by the issuer, or has the contractual right to compel the issuer to file a registration statement covering his restricted securities. No such statement has been filed with the Commission to date.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X.

Illustration 2.

Facts:  The facts are the same as in Illustration 1 except there have been or are discussions between X and the issuer about registration.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X.

Illustration 3.

Facts:  The issuer has filed a registration statement covering the restricted securities owned by X. The registration statement is pending but has not been ordered effective.

Question A.  Can the issuer withdraw X's securities from registration by a pre-effective amendment?

Interpretative Response:  Yes.

Question B.  If such securities are in fact withdrawn from registration, will Rule 144 be available to X for sale of these restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X. The underlying policies and purposes of the Act are best served by encouraging registration of securities. The holder of restricted securities should not have to be concerned that he will be "locked in" if the registration statement does not become effective. X, in selling pursuant to Rule 144, should note especially the representation he must make in executing Form 144 that he does not know any material adverse information in regard to the current and prospective operations of the issuer which has not been publicly disclosed.

Illustration 4.

Facts:  A registration statement covering restricted securities owned by X has been ordered effective and is current under the requirements of the Act.

Question:  If the issuer deregisters X's securities, will Rule 144 be available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 will not be available to X. He has a means of selling his restricted securities pursuant to the "live" registration statement. To permit use of Rule 144 under such circumstances would be inconsistent with the broad remedial purposes of the Act and with public policy which strongly supports registration. The contention that Rule 144 should be available to X so that he may avoid possible Section 11 liability under the Act and the requirements of Rule 10b-6 under the Securities Exchange Act of 1934 ("Exchange Act") is contrary to those policies and purposes.

Illustration 5.

Facts:  The registration statement covering restricted securities owned by X has become effective, but due to the lapse of time or material changes in the affairs of the issuer is not current under the requirements of the Act.

Question:  If the issuer deregisters X's securities by a post-effective amendment, will Rule 144 be available to X for sale of his restricted securities?

Interpretative Response:  Yes, Rule 144 will be available to X. To provide otherwise would discourage persons from using the registration process for fear of becoming "locked in".

II.    Securities Acquired by Finders and Underwriters in Connection with a Public Offering

Illustration 1.

Facts:  An underwriter acquires securities in connection with a registered public offering.

Question:  Is Rule 144 available for sale of the securities acquired by the underwriter?

Interpretative Response:  No, Rule 144 is not available. The securities acquired by the underwriter are not restricted securities as defined in subparagraph (a)(3) of the Rule since they were not acquired by the underwriter "in a transaction or a chain of transactions not involving any public offering."  Guide 10 of the Guides for the Preparation and Filing of Registration Statements (Securities Act Release No. 4936, December 9, 1968) provides that transferable options, warrants or rights and the stock to be issued upon the exercise thereof, as well as stock, or securities convertible into another security, which are issued or sold to the underwriter in connection with a registered public offering are to be considered part of such public offering. Accordingly, as Guide 10 states, such securities must be registered along with the securities offered to the public, notwithstanding that it is represented that such securities have been acquired for investment and not with a view to distribution thereof.

Illustration 2.

Facts:  A finder receives securities in connection with a public offering as consideration for his services.

Question:  Can the finder sell such securities pursuant to Rule 144?

Interpretative Response:  No, Rule 144 is not available. Securities received by the finder do not fall within the definition of restricted securities set forth in subparagraph (a)(3) of the Rule since they were not acquired by the finder "in a transaction or chain of transactions not involving any public offering."  Guide 11 of the Guides for the Preparation of Filing Registration Statements states that if a finder receives securities for his services, such securities should be registered.

III.    Sales of Securities by an Affiliate

Illustration

Facts:  X is an affiliate of the issuer and wants to sell some securities of the issuer.

Question:  How can X sell his securities?

Interpretative Response:  If X's securities are restricted, all the provisions of Rule 144 must be complied with. If X's securities are not restricted, all the provisions of Rule 144 must be complied with except for the holding period provision. Note, however, the short-swing profit recovery provisions of Section 16(b) under the Exchange Act. X also might sell his securities pursuant to a registration statement or a Regulation A offering circular or in some other exempt transaction, such as a private placement. This interpretation is applicable to securities acquired by an affiliate both before and after April 15, 1972.

IV.    Sales by a Subsidiary of its Parent's Securities

Illustration

Facts:  A subsidiary of the issuer owns restricted or other securities of that issuer.

Question:  Is Rule 144 available for sales of such securities by the subsidiary?

Interpretative Response:  No, Rule 144 is not available. The parent-issuer could not directly sell its own securities pursuant to the Rule. The Rule is not available to permit the parent-issuer to do indirectly through a subsidiary what it could not do directly. From the standpoint of substance over form, the subsidiary and parent must be deemed to be the same entity.

V.    Definition of the Term "Person"; Rule 144(a)(2)(B)

Illustration

Facts:  A foundation, organized as a corporation under a state non-profit corporation law, owns securities of Y company. X, a director of the foundation, is a large security holder of Y.

Question:  Is a director of a foundation deemed to act in a capacity similar to that of an executor or trustee within the meaning of subparagraph (a)(2)(B) of Rule 144 so that sales of Y's securities by X would be aggregated with those of the foundation?

Interpretative Response:  No, such a director is not deemed by analogy to serve as a trustee, executor, or in any similar capacity within the meaning of subparagraph (a)(2)(B) of Rule 144. Accordingly, sales of restricted securities by the foundation and X will not be aggregated. However, if the foundation and X agree to act in concert in connection with the sale of restricted securities of Y, such sales will be aggregated under subparagraph (e)(3)(F) of the Rule.

VI.    Current Public Information:  Rule 144(c)

A. Filing of Reports:  Rule 144(c)(1)

Illustration 1.

Facts:  Y, a nonpublic company, goes public through a 1933 Act registration statement on July 1, 1972. X owns restricted securities of Y which he wants to sell on July 5, 1972.

 Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No Rule 144 is not available because, to satisfy subparagraph (c)(1) of the Rule, Y must have 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 must have filed all reports required by those Sections. Thus, Rule 144 will not be available to X until at least 90 days after the effective date of Y's 1933 Act registration statement.

Illustration 2.

Facts:  Y, a non-public company, goes public through a 1933 Act registration statement on June 1, 1971. Y's fiscal year ends on December 31st. X owns restricted securities of Y and he wants to sell such securities in November 1971.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X if Y has filed the reports required to be filed under Section 13 or 15(d) of the Exchange Act. In November 1971, Y would not have been required to file its annual report on Form 10-K since its fiscal year ends on December 31st. Such report would be required to be filed by March 30, 1972.

Illustration 3.

Facts:  Y, a company subject to the reporting requirements of the Exchange Act, has failed to file its last three quarterly reports on Form 10-Q. The only report under the Exchange Act required to be filed by Y within the last 90 days was a current report on Form 8-K, which Y filed. X owns restricted securities of Y and wants to sell such securities.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 is not available to X. Y has not filed all the reports required under the Exchange Act, namely, its last three quarterly reports on Form 10-Q. In order to satisfy the requirements of subparagraph (c)(1) of the Rule, the issuer must have filed all the required reports under the Exchange Act and must have been subject to the reporting requirements of that Act for a period of at least 90 days immediately prior to the proposed sale.

Illustration 4.

Facts:  Y company has been subject to the reporting requirements of the Exchange Act for at least 90 days and its annual report on Form 10-K was due to be filed on March 30, 1972. Y was delinquent in filing such report but files a late report on July 1, 1972, at which time Y has filed all reports required to be filed under the Exchange Act. X owns restricted securities of Y and wants to sell such securities on July 15, 1972.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X. On July 15, 1972, Y had filed all required reports under the Exchange Act and had been subject to the reporting requirements under that Act for at least 90 days immediately prior thereto.

Illustration 5.

Facts:  Y company has securities registered pursuant to Section 12 of the Exchange Act but has not filed the reports required to be filed by Section 13 of that Act. X owns restricted securities of Y and wants to sell such securities.

Question:  In determining whether Rule 144 is available to X, can paragraph (c) of the Rule be met by satisfying the provisions of subparagraph (c)(2) of the Rule?

Interpretative Response:  No, Rule 144 is not available because subparagraph (c)(2) is only applicable if the issuer is not subject to Section 13 or 15(d) of the Exchange Act. In this situation, Y is subject to Section 13 of the Exchange Act.

Illustration 6.

Facts:  On June 1, 1972, Y company files a registration statement on Form 10 under the Exchange Act. X owns restricted securities of Y and wants to sell such securities on July 1, 1972.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 is not available to X. Y's securities do not become registered under the Exchange Act until its Form 10 registration becomes effective on July 31, 1972, 60 days after it was filed.

Illustration 7.

Facts:  The facts are the same as in Illustration 6, but X wants to sell his restricted securities on August 15, 1972.

 Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 is not available to X. On August 15, 1972, the 90-day requirement contained in subparagraph (c)(1) of the Rule would not have been satisfied. This period starts on the effective date of the Form 10 registration statement--July 31, 1972--and will not be met until on or after October 29, 1972.

B. Other Public Information:  Rule 144(c)(2)

Illustration 1.

Facts:  Y company is not subject to Section 13 or 15(d) of the Exchange Act. Y has issued reports to its security holders containing the information specified in clauses (1) to (14) and (16) of subparagraph (a)(4) of Rule 15c2-11 under the Exchange Act. Y has also distributed such information to certain brokers and market makers. Financial information about Y is published by a recognized financial service. X owns restricted securities of Y and wants to sell such securities.

Question:  Is Rule 144 available to X for sale of his restricted securities?  Has the "other public information" condition contained in subparagraph (c)(2) of the Rule been met?

Interpretative Response:  Yes, Rule 144 is available to X in such situation and subparagraph (c)(2) has been met.

Illustration 2.

Facts:  Y company is not subject to Section 13 or 15(d) of the Exchange Act. X owns restricted securities of Y and wants to sell such securities. Y has furnished the information specified in Rule 15c2-11 under the Exchange Act to the broker for X.

Question:  Is Rule 144 available to X for sale of his restricted securities:

Interpretative Response:  No, Rule 144 is not available to X. Furnishing the specified information solely to the broker through whom X proposes to sell his restricted securities does not make such information publicly available.

VII.    Holding Period for Restricted Securities:  Rule 144(d)

A. Distributions by a Partnership to the Partners:  Rule 144(d)(1)

Illustration

Facts:  Y is a private limited partnership which was formed to make venture capital and other investments. On April 15, 1970, Y acquired 200,000 shares of restricted common stock of Z company. On April 15, 1972, Y distributed to its limited partners on a pro-rata basis its 200,000 shares of restricted common stock of Z. X, a limited partner in Y, wants to sell his restricted common stock of Z on August 1, 1972.

Question:  In computing the two-year holding period under Rule 144, can X tack to his holding period that period during which Y held the restricted securities?

Interpretative Response:  Yes, but X can tack to his holding period that of Y in computing the two-year holding period requirement under subparagraph (d)(1) of Rule 144. But, the restricted common stock of Z publicly sold by Y and by all the other limited partners of Y, including X, must be aggregated for two years for the purpose of determining the amount of securities which X, any of the other limited partners, or Y, may sell under the Rule.

B. Identification of Securities Sold

Illustration

Facts:  On July 1, 1970, X acquired 5,000 shares of restricted securities of Y company. On December 1, 1970, X acquired an additional 5,000 shares of restricted securities of Y. X wants to sell 4,000 shares of his restricted securities on August 1, 1972.

Question:  Is Rule 144 available to X for the sale of 4,000 shares of restricted securities of Y?

Interpretative Response:  Yes, Rule 144 is available to X, but X must sell the particular restricted securities acquired on July 1, 1970 in order to meet the two-year holding period requirement. Thus, X must be able to trace the specific securities.

C. Promissory Notes, Other Obligations or Installment Contracts:  Rule 144(d)(2)

Illustration 1.

Facts:  X purchases 100,000 shares of restricted securities of Y company and gives the person from whom he purchases such securities a promissory note for the purchase price. The note is secured by collateral in the form of the restricted securities of Y that X purchased having a fair market value at least equal to the purchase price. The note is a non-recourse note. Two years later X wants to sell these restricted securities. The note has not been paid.

 Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 is not available to X for the reason that he does not satisfy the conditions of subparagraph (d)(1) of the Rule. The full payment requirement has not been satisfied in that the note did not provide for full recourse against X, the purchaser, as required by subparagraph (d)(2)(A) of the Rule. Even if the note did provide for full recourse against X, the requirement would not be satisfied because the note, in order to satisfy the conditions of subparagraph (d)(2)(B), must be secured by collateral, other than the securities purchased, having a fair market value at least equal to the purchase price of the securities purchased. The holding period requirement is tolled during the period that the conditions of subparagraph (d)(2)(A) or (d)(2)(B) are not met. Assuming that it was a full recourse note and there was collateral meeting the conditions set forth in subparagraph (d)(2)(B) of the Rule, the requirement would only be satisfied if X discharged his obligation under the note by payment in full prior to the sale of his restricted securities as specified in subparagraph (d)(2)(C) of the Rule.

Illustration 2.

Facts:  X purchases 100,000 shares of restricted securities of Y company and gives the person from whom the securities were purchased a promissory note for the purchase price. The note provides for full recourse against X. The note is secured by collateral, other than the securities purchased, having a fair market value at the time of purchase at least equal to the purchase price of the securities. Two months after X purchases the securities, the fair market value of the collateral increases to $50,000 in excess of the outstanding obligation on the note. The purchase agreement permits the withdrawal of collateral.

Question:  Can X withdraw the excess collateral without affecting the holding period under paragraph (d) of Rule 144?

Interpretative Response:  Yes.

Illustration 3.

Facts:  The facts are the same as in Illustration 2, except that after two months the fair market value of the collateral decreases to $50,000 less than the outstanding obligation on the note. X does not deposit additional collateral.

Question:  Is the holding period in paragraph (d) of Rule 144 tolled in this situation?

Interpretative Response:  Yes, the fair market value of the collateral for the note for the purchase price must at all times be equal to the outstanding obligation. If the fair market value of the collateral falls below the amount of the outstanding obligation, the holding period in paragraph (d) of Rule 144 will be tolled until the fair market value of the collateral is at least equal to the amount of the outstanding obligation.

D. Short Sales, Puts or Other Options to Sell Securities:  Rule 144(d)(3)

Illustration 1.

Facts:  On April 15, 1970, X acquired 10,000 shares of restricted common stock of Y company. On January 1, 1972, X acquired 2,000 shares of common stock of Y in the open market. On February 1, 1972, X sold short "against the box" 2,000 shares of common stock of Y. On July 1, 1972, X covered his short with the securities that he purchased in the open market.

Question:  Is the holding period in paragraph (d) of Rule 144 affected by X having sold short common stock of Y and then having covered the short with the securities purchased in the open market?

Interpretative Response:  Yes, X's short sale does affect the two-year holding period requirement of paragraph (d) of Rule 144 even though X's short sale was "against the box" and he covered his short with securities purchased in the open market. The five months during which X had a short position in Y's common stock would be excluded from the computation of the two-year holding period, pursuant to subparagraph (d)(3)(A) of the Rule.

Illustration 2.

Facts:  X acquired 10,000 shares of restricted common stock of Y company on August 2, 1969. In connection with such acquisition, X obtained an option to sell 5,000 shares back to the seller. On August 2, 1972, X wants to sell his restricted securities under Rule 144.

Question:  Is Rule 144 available to X for sale of his restricted securities?

Interpretative Response:  No, Rule 144 is not available to X because he does not meet the two-year holding period requirement. Such holding period is tolled during the time X holds the option, pursuant to subparagraph (d)(3)(A) of the Rule.

 Illustration 3.

Facts:  X acquired 10,000 shares of restricted common stock of Y company on August 2, 1970. On July 1, 1972, X purchased 2,000 shares of common stock of Y in the open market. X sells short 1,500 shares of common stock of Y on August 5, 1972.

Question:  Do the provisions of subparagraph (d)(3) of Rule 144 affect the computation of X's required holding period under the Rule?

Interpretative Response:  No, X had satisfied the holding period for his restricted securities of Y on August 2, 1972. A short sale after that date does not affect the holding period of X's 10,000 shares of restricted common stock.

E. Change of State of Incorporation:  Rule 144(d)

Illustration

Facts:  Y company, incorporated in state A, changes its domicile to state B by organizing company Z for this purpose. The percentage of ownership of stock of Z is identical to that of Y. There is no change in the nature of the business or control of the management of Y. X owned 10,000 shares of restricted securities of Y and now owns 10,000 shares of restricted securities of Z.

Question:  Can X in computing the holding period for his restricted securities of Z tack to such period the time he held his restricted securities of Y?

Interpretative Response:  Yes, tacking is permitted when there is solely a change of state of incorporation.

F. Change in Par Value:  Rule 144(d)(4)(A)

Illustration

Facts:  X owns 10,000 shares of restricted common stock of Y company which he acquired on July 1, 1970. On August 1, 1971, there is a recapitalization of Y to change the par value of the common stock. X wants to sell his restricted securities on July 5, 1972.

Question:  Does the recapitalization affect X's holding period under Rule 144?

Interpretative Response:  No, X's holding period is not affected by a recapitalization to change the par value of the common stock, under subparagraph (d)(4)(A) of the Rule. The security that X acquired as a result of the recapitalization is deemed to have been acquired by X at the time--July 1, 1970--he acquired the 10,000 shares of restricted securities of Y. Tacking of holding period also will be permitted if there were a recapitalization that changed par value to no par or vice versa.

G. Conversions:  Rule 144(d)(4)(B)

Illustration

Facts:  On July 1, 1970, X acquires restricted notes and restricted warrants. On July 2, 1972, X exercises his warrants for the underlying common stock and surrenders a partial amount of his notes in payment. On July 10, 1972, X wants to sell the restricted common stock which he acquired upon the exercise of his restricted warrants.

Question:  Is Rule 144 available to X for sale of his restricted common stock?

Interpretative Response:  No, Rule 144 is not available to X because he has not satisfied the two-year holding period requirement of Rule 144. The exercise by X of his warrants for common stock constituted the acquisition by X of a new restricted security and tacking of the time period during which he held the warrants is not permitted. Subparagraph (d)(4)(B) of the Rule pertains only to a convertible security and not to a warrant.

VIII.    Limitation on Amount of Securities Sold:  Rule 144(e)

A. Sales of Listed Securities:  Rule 144(e)(1)(A) and (e)(2)

Illustration

Facts:  On June 30, 1972, X files Form 144 relating to the sale of his restricted common stock of Y company. The common stock of Y is listed on a national securities exchange. The average weekly reported volume of trading in the common stock of Y on all securities exchanges was 20,000 shares during the four calendar weeks preceding the filing of the Form. By July 30, 1972, 10,000 shares of X's restricted common stock have been sold. The trading volume in Y's common stock during the month of July increased over that in June. X wants to sell additional restricted shares of common stock of Y on August 1, 1972.

Question:  In computing the limitation on amount of securities sold, is such number fixed as of the date X filed his Form 144?

 Interpretative Response:  No, but.  In determining the limitation on amount of securities sold as specified in subparagraphs (e)(1)(A) and (e)(2) of Rule 144, X, on August 1, 1972, is not limited to the average weekly reported volume of trading during the four calendar weeks which immediately preceded the filing of his Form 144 on June 30, 1972. X may recompute such average on August 1, but, in determining the new limitation on amount, X must exclude from the computation that amount of securities which he sold during the new period. In addition, X must file an amended Form 144 indicating the amount of additional securities he wants to sell. In no event may X sell during any six-month period an amount of securities in excess of 1% of the shares of common stock of Y outstanding.

B. Six-Month Period:  Rule 144(e)(1) and (e)(2)

Illustration

Facts:  X owns restricted common stock of Y company. The common stock of Y is not listed on any national securities exchange. On May 1, 1972, X files Form 144 covering 1% of the outstanding common stock of Y and on June 1, 1972, such stock is sold.

Question:  Can X sell additional shares of restricted common stock of Y on November 1, 1972 pursuant to Rule 144?

Interpretative Response:  No, Rule 144 would not be available to X. In computing the six-month period in subparagraphs (e)(1) and (e)(2) of Rule 144, all sales by X in the six-month period preceding November 1, 1972 must be included. The date of the sale, i.e., June 1, 1972, and not the date of filing Form 144, i.e., May 1, 1972, is determinative in this regard. Thus, Rule 144 would only be available to X for additional sales on or after December 1, 1972.

C. Determination of Amount:  Rule 144(e)(3)(A)

Illustration

Facts:  X acquired restricted convertible debentures of Y company. The debentures and common stock of Y are listed for trading on a national securities exchange. In computing the amount of the securities that can be sold pursuant to Rule 144, X realizes that if the quantity limitations of subparagraph (e)(3)(A) of the Rule were to apply he would be able to sell a greater quantity of debentures than if the limitations of subparagraph (e)(1)(A) of the Rule applied. Accordingly, X devises a plan to convert one of his debentures and sell a few shares of the underlying common at the same time that he sells his debentures.

Question:  In determining the amount of debentures that X can sell, is the limitation of subparagraph (e)(3)(A) or (e)(1)(A) of Rule 144 applicable?

Interpretative Response:  The quantity limitation as provided in subparagraph (e)(1)(A) of Rule 144 would be applicable. X's device to convert a debenture and sell a few of the underlying common shares concurrently with the debentures is a plan to circumvent the quantity limitations provided for in subparagraph (e)(1)(A) of Rule 144 and is not permissible under the Rule.

D. Concurrent Sales of Registered and Unregistered Securities:  Rule 144(e)(3)(G)

Illustration

Facts:  X proposes to sell 10,000 shares of restricted common stock pursuant to Rule 144 and at the same time sell 10,000 shares of restricted common stock pursuant to a registration statement under the Act.

Question:  Is Rule 144 available to X for the sale of these restricted securities?

Interpretative Response:  Yes, Rule 144 is available to X. Subparagraph (e)(3)(G) of the Rule provides that securities sold pursuant to an effective registration statement need not be included in determining the amount of securities which may be sold under the Rule. This provision does not preclude the simultaneous sale of securities under a registration statement and the sale of restricted securities under Rule 144.

IX.    Brokers' Transactions:  Rule 144(g)

A. Broker's Commission:  Rule 144(g)(1)

Illustration 1.

Facts:  X acts as broker for both the seller of restricted securities and the buyer and charges each side no more than the usual and customary commission for the transaction.

Question:  Is Rule 144 available for the sale of the restricted securities?

Interpretative Response:  Yes, Rule 144 is available. Subparagraph (g)(1) of Rule 144, requiring that the broker "receives no more than the usual and customary broker's commission," does not preclude the receipt of a commission by the broker from both the buyer and seller in a cross transaction when the commissions received in such transaction are usual and customary.

Illustration 2.

Facts:  X owns restricted common stock of Z company. Z's common stock is listed on a national securities exchange. X wants to sell his restricted common stock of Z and negotiates a portion of the commission with the broker in accordance with the rules of the securities exchange.

Question:  Is Rule 144 available for sale of X's restricted securities?

Interpretative Response:  Yes, Rule 144 is available. Subparagraph (g)(1) of the Rule does not preclude the receipt of negotiated commissions if such commissions are negotiated in the usual and customary manner.

B. Solicitation of Customer's Orders:  Rule 144(g)(2)

Illustration

Facts:  X, a broker, receives an order from a person who wishes to sell restricted securities. X telephones his customer, Y, who had previously indicated an unsolicited interest in that security.

Question:  Is Rule 144 available for the sale of restricted securities to Y?

Interpretative Response:  Yes, if.  Rule 144 is available if the prior indication of interest by Y was received in the last 10 business days, was unsolicited, was bona fide, and was not part of plan to evade the provisions of subparagraph (b)(2) of Rule 144. X, the broker, should maintain written records of such prior indications of interest to establish the bona fide nature of the indication. Subparagraph (g)(2) of Rule 144, which requires that X "neither solicits nor arranges for the solicitation of customers' orders to buy the securities in anticipation of or in connection with the transaction," does not preclude inquiries by X of customers who in the prior 10 business days have indicated without any solication a bona fide interest in the securities.

X.    Notice of Proposed Sale:  Rule 144(h) and Form 144

Illustration 1.

Facts:  X sells 600 shares of restricted common stock at $1 per share.

Question:  Must X file Form 144?

Interpretative Response:  Yes, paragraph (h) of Rule 144 requires that Form 144 "need not be filed if the amount of securities to be sold during any period of six months does not exceed 500 shares or other units, and the aggregate sale price thereof does not exceed $10,000." emphasis added Since the number of shares exceeds 500, the Form must be filed.

Illustration 2.

Facts:  X pledges restricted securities as collateral for a loan. The pledgor defaults and the pledgee proposes to sell the restricted securities pursuant to Rule 144 to satisfy the debt.

Question:  Can Form 144 be signed by the pledgee?

Interpretative Response:  Yes, the pledgee can sign Form 144. To require that the pledgor sign the Form would create practical difficulties since the pledgor is in default and may be uncooperative. Therefore, the pledgee can sign and file the Form subject to the other provisions of the Rule, keeping in mind that sales by the pledgor and pledgee will be aggregated for purposes of determining the amount of securities which may be sold.

Illustration 3.

Facts:  X sells some of the restricted securities covered by a notice on Form 144 that identifies A and B as brokers. X wants to place his order for the sale of the remaining restricted securities covered by the Form with a different broker, C.

Question:  Can X use a broker other than A or B for sale of his remaining restricted securities?

Interpretative Response:  Yes, But.  X is not limited to brokers A and B and may use the services of broker C, but X must file an amendment to his Form 144 identifying broker C.

XI.    Miscellaneous

Illustration

Facts:  X acquired 10,000 shares of restricted common stock of Y company on July 1, 1970. On January 1, 1972, X acquired an additional 10,000 shares of restricted common stock of Y. On August 1, 1972, X wants to sell short 10,000 shares of Y for tax reasons and wants to cover the short with the restricted securities he acquired on July 1, 1970. The broker for X wants the flexibility to cover the short with any available common stock of Y.

Question:  Is Rule 144 available to X for such purpose?

Interpretative Response:  Yes, but. Rule 144 would be available to X for this purpose, but only if X delivers to the broker the specific securities he had acquired on July 1, 1970, and those specific securities are eventually used by the broker to cover the short.