Securities Act Release No. 33-6032

March 5, 1979

Resales of Securities

ACTION: Final rules.

SUMMARY: The Commission is amending two rules and rescinding a third for the purpose of relaxing certain restrictions relating to the resale of securities that may be more burdensome than necessary. The amendments to the two rules will permit persons who have held securities covered by the rules for a specified period of time to sell such securities without any amount limitation, provided they are not affiliates of the issuer of the securities. The rescission of the third rule will enable persons who hold certain convertible securities to resell them without the restrictions formerly imposed by the rule in question.

EFFECTIVE DATE: March 12, 1979.

FOR FURTHER INFORMATION CONTACT: Peter J. Romeo, Division of Corporation Finance, Securities and Exchange Commission, Washington, D.C. 20549 (202) 755-1240.

SUPPLEMENTARY INFORMATION: The Commission today announced the adoption of various amendments to Rule 144 17 CFR 230.144 and Rule 148 17 CFR 230.148 under the Securities Act of 1933 ("1933 Act") 15 U.S.C. 77a et seq. and the rescission of Rule 155 17 CFR 230.155 under the 1933 Act. Each of these actions will be discussed in detail in this release.

BACKGROUND

Rule 144 provides a safe harbor for the resale without registration under the 1933 Act of restricted securities ¹ and securities held by affiliates. ² Rule 148 similarly provides a safe harbor for the resale of securities acquired in bankruptcy proceedings. In Release No. 33-5979 (September 19, 1978) 43 FR 43709 the Commission substantially relaxed the volume limitation and manner of sale requirements of both rules. ³ In a companion release (No. 33-5980 dated September 20, 1978 43 FR 43726) the Commission solicited public comments on the proposed adoption of additional amendments to Rules 144 and 148 designed to further relax the volume limits of those rules as they apply to non-affiliates. The comments received from the public in response to the release were very helpful to the Commission and have resulted in some modifications to the proposed amendments and some other changes as well.

RULE 144

1. Removal of Volume Restrictions

The amendments proposed in Release No. 33-5980 would have permitted non-affiliates to sell unlimited amounts of restricted securities after the securities had been held for a minimum of five years. The Commission also invited comments on whether it would be appropriate to reduce the five-year holding period, depending on whether the issuer files periodic reports under the 1934 Act (in which case the holding period might be reduced to four years) or whether the issuers securities are listed on a national securities exchange (in which case the holding period might be reduced to three years).

The amendments described above were proposed primarily because Rule 144 does not permit holders of restricted securities to cumulate unsold amounts for later sale. Thus, a person who has held his securities for five years or more cannot sell any greater number of securities during a three-month period than a person who has held similar securities for only two years. The proposal attempted to provide some relief in circumstances such as the above by giving recognition to the fact that a non-affiliate who has held his securities for a considerable length of time has provided a substantial indication that he did not acquire his securities with a view to distribution and therefore is not an underwriter ⁴ who must register his securities for resale.

After consideration of the public comments, the Commission has determined to adopt the proposed amendments in a somewhat modified form. As amended, Rule 144 will now permit non-affiliates in certain circumstances to disregard the volume limitations of the rule after a holding period of either three or four years. The three-year holding period of will apply if the securities to be sold are those of a class which is listed on a national securities exchange or quoted on NASDAQ. ⁵ The four-year holding period will apply if securities are not exchange-listed or NASDAQ-quoted, but the issuer thereof nevertheless files periodic reports under Sections 13 or 15(d) of the Securities Exchange Act of 1934 ("1934 Act") 15 U.S.C. 78a et seq. in accordance with paragraph (c)(1) of Rule 144. ⁶

There are three major differences between the amendments announced above and those which were proposed for comment in Release No. 33-5980. First, the originally proposed holding period requirement of five years has been reduced to four or three years, depending on certain conditions being met. Second, unlike the proposed version, the securities of issuers which do not file periodic reports under the 1934 Act will not be able to be resold under the new provision. Finally, the adopted amendments contain a new condition that persons must have been non-affiliates for at least the three months preceding the sale of their securities.

The holding period requirement was reduced largely because all of the commentators who expressed a view on this issue thought that five years was a longer period than necessary to indicate investment intent under the 1933 Act. Although the Commission generally agrees with the commentators, it believes a distinction should be made, from a holding period standpoint, between securities which are exchange listed or NASDAQ-quoted and securities not so listed or quoted that are issued by entities which file periodic reports with the Commission pursuant to Sections 13 or 15(d) of the 1934 Act. There are several reasons for this. First, issuers which have securities listed on an exchange, and, to a lesser degree, quoted in NASDAQ, are subject to controls by self-regulatory authorities that are inapplicable to other reporting issuers. Second, there is a significant difference in the amount and quality of information available concerning both exchange-listed and NASDAQ-quoted securities. For example, with respect to exchange-listed securities, last-sale price and volume data are readily available, and with respect to NASDAQ-quoted securities, current quotations and end-of-the-day volume figures are available. No comparable information is available for the securities of other reporting issuers. Finally, the surveillance which the relevant self-regulatory organizations exercise over the trading on exchanges and the activity in NASDAQ securities is significant and not present with respect to other reporting issuers. Under the circumstances, the Commission believes it is appropriate to adopt the type of stratified holding period requirement mentioned above.

The second major changes from the proposed version, as previously indicated, will have the effect of excluding the securities of non-operating issuers from the new provision. In this regard, the Commission notes that such issuers generally do not make available information about themselves and their activities that is as complete or as timely as that provided by reporting issuers. Thus, prospective investors in the securities of such issuers are at somewhat of a disadvantage from an informational standpoint in making investment decisions regarding such securities. In light of this fact, the Commission believes it would be best from an investor protection standpoint to proceed cautiously in regard to permitting unlimited resales of such securities under Rule 144. Accordingly, it has determined not to make the new provision available for resales of the securities of non-reporting issuers at this time.

Notwithstanding the above, the Commission is not foreclosing the possibility of extending the new provision to the securities on non-operating issuers at some future date. In this regard, it invites comments from the public on the feasibility of making the provision available for the securities of non-reporting issuers and on whether the continued non-availability of the provision for the securities of non-reporting issuers and on whether the continued non-availability of the provision for the securities of such issuers can be expected to have a serious adverse impact on their ability to raise capital. It is anticipated that such comments, together with the Commissions experience with the new provision as it applies to the securities of reporting issuers, will provide the Commission with a basis for reconsidering this issue in the future.

Although the new provision will not be available for the securities of non-reporting issuers, such securities may, of course, be resold under the other provisions of the rule if all applicable requirements are satisfied. Moreover, since Rule 144 is not the exclusive means for reselling restricted securities, the holder of such securities could sell unlimited amounts thereof in reliance upon any exemption from registration that may be available to him.

The third major change from the amendments proposed in Release No. 33-5980 will require persons who formerly were affiliates of an issuer to wait three months after their status as affiliates has terminated before utilizing the new provision. The purpose of this change is to minimize the possibility that the new provision will be used by such persons to effect distributions on behalf of the issuer. During the three month waiting period, however, former affiliates will be able to sell securities under the rule in amounts permitted by its volume limitations. Thus, the waiting period should not work an undue hardship on such persons, since they will be permitted to utilize the rule during the period for resales in the manner customarily allowed in the past.

2. Notice of Sale Requirements

The Commission also requested comments in Release 33-5980 on whether the notice of sale requirement in paragraph (h) of the rule should continue to apply to non-affiliates utilizing the new provision for resales. Of the commentators who addressed this issue, only one thought the form requirement should remain in force in such circumstances.

Notwithstanding the public comments, the Commission is of the view that the notice of sale requirement should continue to be applicable to resales under the new provision. The reason is that the provision is experimental in nature and therefore will have to be monitored in order to assess its impact. Once its effect on the market place has been observed through the examination of filings on Form 144 and other available sources, consideration can then be given to deleting the requirement that the form be filed.

On a separate but somewhat related matter, two commentators expressed the view that the threshold limits for filing Form 144 should be raised. (Currently, the form must be filed if the securities to be sold during any three-month period will exceed 500 shares or other units or have a market value in excess of $10,000.) The basis for this view lies in the fact that the threshold limits were initially established in 1972 at a time when the value of the dollar was considerably greater than at present.

While the view described above has some surface appeal, certain facts to the contrary should be noted. First, the threshold limits recently were amended to apply to sales within a three-month period, rather than the six-month period to which they originally were applicable. ⁷ As a result of this change, it seems likely that many sales under the rule which formerly would have been subject to the notice requirement will not be so subject now. Second, information provided by the Commissions Directorate of Economic and Policy Research suggests that a significant percentage of the transactions under Rule 144 were not required to be reported even when the threshold limits were applied to a six-month measuring period. ⁸ Finally, the Commission again notes that the changes in the volume limits of Rule 144 are experimental and need to be monitored closely, and Form 144 is the best available means for doing this. Accordingly, on the basis of the foregoing, the Commission does note believe it would be appropriate to change the threshold limits for filing Form 144 at this time, although this may be a matter for future consideration.

3. Other Changes

In addition to the revisions previously mentioned, some commentators suggested that certain amendments of a clarifying nature be made to Rule 144. One felt that the rule should clearly state that it is non-exclusive in nature. Although the Commission has expressly stated in several releases in the past few years that the rule is non-exclusive and that it does not affect the availability of any exemption for resales under the 1933 Act that a person may be able to rely upon, ⁹ it nevertheless has inserted a new paragraph (i) in the rule for the purpose of removing any doubt that may exist on this issue.

Some other commentators thought that the rule should be revised to specifically state that the provisions of paragraph (d)(4) thereof, which permit the tacking of holding periods under certain circumstances, are applicable to the computation of holding periods under the new provision. Again, the remove any doubt regarding the application of paragraph (d)(4), the Commission has inserted the requested statement in the rule.

Finally, the Commission wishes to take note of the many suggestions that were made by the commentators for further relaxing the unlimited resale provision proposed in Release 33-5980. Some of the more frequent of these were: (1) make the provision available to affiliates as well as non-affiliates; (2) revise it to permit solicitations of orders to buy the securities in being sold; and (3) expand it so that all restrictions in the rule (rather than just the volume restrictions) are inapplicable after the requisite holding period.

Although the Commission welcomes suggestions for improving its rules, it does not believe it would be appropriate at this time to relax the new resale provision in the respects mentioned above. With regard to the suggestion that affiliates should be able to avail themselves of the new provision, the Commission is not inclined to do this, primarily because the control relationship which affiliates have with an issuer increases the likelihood that such persons might attempt to utilize the provision for distributions on the issuers behalf rather than routine trading transactions. As for the second and third suggestions, which involve eliminating some or all of the other restrictions of the rule, the Commission believes that experience with the removal of some or all of the other restrictions. The elimination of the volume limitations after a specified holding period is a significant change by itself, and its effects should first be assessed before other methods of relaxing the rule can be considered.

RULE 148

Rule 148 is the counterpart to Rule 144 with respect to resales of bankruptcy-related securities. ¹⁰ The Commission has stated in the past that to the extent it amends the volume limitation provision of Rule 144, it will make corresponding changes in Rule 148. ¹¹ As a consequence, it has amended the volume limitation provisions of Rule 148 in essentially the same manner as it has amended Rule 144.

RULE 155

Rule 155 under the 1933 Act relates to convertible securities. It provides in essence that a person who acquires such securities in a private offering under Section 4(2) of the Act becomes an underwriter, and the issuer loses its private offering exemption, if the securities are reoffered to the public, or if conversion occurs without investment intent and the underlying securities are then reoffered to the public.

The rule was partially rescinded in 1972 at the time Rule 144 was adopted. ¹² It has remained in effect only with respect to securities acquired prior to the effective date of Rule 144 and not sold thereafter in accordance with all of the provisions of that rule. At this point in time, the rule applies only to securities that have been held a minimum of 6-3/4 years. Such a lengthy holding period belies the notion that the holder of such securities did not have an investment intent at the time he acquired them, particularly considering the fact that the new amendments to Rule 144 previously discussed herein would permit certain restricted securities to be sold after a holding period of 3 or 4 years. Under the circumstances, the Commission has determined to terminate the partial status of Rule 155 and rescind it completely.

TEXT OF THE AMENDMENTS

I. 17 CFR 230.144 is amended to read as follows:

§240.144 Person deemed not to be engaged in a distribution and therefore not underwriters.

* * * * *

(e) * * *

(2) Sales by persons other than affiliates. The amount of restricted securities sold for the account of any person other than an affiliate of the issuer, together with all other sale of restricted securities of the same class for the account of such person within the preceding three months, shall not exceed the amount specified in paragraphs (e)(1)(i), (1)(ii), or (1)(iii) of this section, whichever is applicable. The limitation in this paragraph (e)(2), however, shall not apply to restricted securities sold for the account of a person who is not an affiliate of the issuer at the time of the sale and has not been an affiliate during the preceding three months, Provided: (1) the securities have been beneficially owned by the person for a period of at least three years prior to their sale and are part of a class that is either listed on a national securities exchange or quoted in the National Association of Securities Dealers, Inc.s electronic interdealer quotation system known as NASDAQ, or (ii) the securities have been beneficially owned by the person for a period of at least four years prior to their sale and the issuer thereof is in compliance with the requirements of paragraph (c)(1) of this rule regarding the filing of reports under Sections 13 or 15(d) of the Securities Exchange Act of 1934. In computing the holding period for purposes of this provision, reference should be made to paragraph (d)(4) of this rule. Further, in regard to securities that were purchased, the full purchase price or other consideration shall have been paid or given at least three or four years, respectively, prior to their sale in order to satisfy the beneficial ownership requirements of (i) or (ii) of this paragraph.

* * * * *

(j) Non-exclusive rule. Although this rule provides a means for reselling restricted securities and securities held by affiliates without registration, it is not the exclusive means for reselling such securities in that manner. Therefore, it does not eliminate or otherwise affect the availability of any exemption for resales under the Securities Act that a person or entity may be able to rely upon.

II. 17 CFR 230.148 is amended to read as follows:

§230.148 Persons deemed not to be underwriters of securities issued or sold in connection with bankruptcy proceedings.

* * * * *

(b) * * *

(1) * * *

(A) Exception. the limitations in paragraph (b)(1) on the amount of securities that may sold shall not apply to securities sold for the account of a person who is not an affiliate of the issuer at the time of the sale and has not been an affiliate during the preceding three months, Provided: (1) the securities have been beneficially owned by the person for a period of at least three years prior to their sale and are part of a class that is either listed on a national securities exchange or quoted in the National Association of Securities Dealers, Inc.s electronic interdealer quotation system known as NASDAQ, or (2) the securities have been beneficially owned by the person for a period of at least four years prior to their sale and the issuer thereof is in compliance with the requirements of §230.144(c)(1) regarding the filing of reports under Sections 13 or 15(d) of the Securities Exchange Act of 1934. In computing the holding period for purpose of this provision, reference should be made to §230.144(d)(4). Further, in regard to securities that were purchased, the full purchase price or other consideration shall have been paid or given at least three of four years, respectively, prior to their sale in order to satisfy the beneficial ownership requirements of (1) or (2) of this paragraph.

* * * * *

Secs. 2(11), 4(1), 4(4), 19(a), 48 Stat. 74, 77, 85; secs. 201, 203, 209, 210, 48 Stat. 904, 906, 908; secs. 1-4, 6, 68 Stat. 683, 684; sec. 12, 78 Stat. 580; sec. 308(a)(2), 90 Stat. 58 (15 U.S.C. 77b(11), 77d(1), 77d(4), 77s(a)).

III. 17 CFR 230.155 is rescinded in its entirety.

Sec. 19(a), 48 Stat. 85; sec. 209, 48 Stat. 908; sec. 308(a)(2), 90 Stat. 48 (15 U.S.C. 77s(a)).

STATUTORY BASIS

The amendments to Rule 144 and Rule 148 have been adopted by the Commission pursuant to the Securities Act of 1933, particularly Sections 2(11), 4(1), 4(4) and 19(a) thereof. Rule 155 has been rescinded by the Commission pursuant to the Securities Act of 1933, particularly Section 19(a) thereof.

By the Commission.

George A. Fitzsimmons

Secretary

¹ The term "restricted securities" includes securities acquired in non-public offerings, such as those under Section 4(2) of the 1933 Act, as well as securities acquired in offerings made in reliance upon Rule 240 17 CFR 230.240 under the Act.

² An "affiliate" of an entity is defined in Rule 405 17 CFR 230.405 under the 1933 Act as "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the entity."

³ The revision to the volume limitation provisions more than doubled the amount of securities that formerly could be sold under the rules. The amendments to the manner of sale requirements permitted sales under the rules to be made directly to a market maker in lieu of selling through a broker. In addition, estates and beneficiaries thereof not affiliated with the issuer were relieved of compliance with the manner of sale requirements of Rule 144.

⁴ The term "underwriter" is broadly defined in Section 2(11) of the 1933 Act and includes person who acquire securities "with a view to.. distributions."

⁵ NASDAQ is an electronic interdealer quotation system which is owned and operated by the National Association of Securities Dealers, Inc.

⁶ Paragraph (c)(1) states that the issuer must have been subject to the reporting requirements of the 1934 Act for at least 90 days and must have filed all reports required to have been filed within the past 12 months, or such shorter period that the issuer was subject to the reporting requirements.

⁷ See Release No. 33-5995 (November 8, 1978).

⁸ The Information indicates that during the years 1975-1977 proposed sales under Rule 144 of 500 or fewer shares were 10% of all sales, and sales of $10,000 or less were 26% of all sales.

⁹ See, e.g., Release No. 33-5980 (September 20, 1978) and Release No. 33-5918 (March 29, 1978) 43 FR 14445.

¹⁰ It should be noted that in late 1978 Congress enacted legislation which deals in part with some of the matters covered by Rule 148. See in this regard Section 1145 of the Bankruptcy Reform Act of 1978 Public Law No. 95-598 dated November 6, 1978. The new legislation will not go into effect until October 1, 1979, and the Commission expects to consider prior to that date whether to modify or rescind Rule 148 in light of the existence of Section 1145.

¹¹ Release No. 33-5918 (March 29, 1978).

¹² Release No. 33-5223 (January 11, 1972) 37 FR 596.