Chapter 5 - SEC RULE 144

Question 1

Eligible 144A debt securities are reported through ?

Answer 1

Eligible 144A debt securities are reported through TRACE.

Question 2

Block positioners

Answer 2

A firm may purchase as dealer under one additional exception. Block positioners are firms defined under SEC Rule 3b-8 as firms that purchase long or sell short blocks of stock worth $200,000 or more. These firms may be treated as market makers for Rule 144 transactions.

Question 3

Restricted securities

Answer 3

Restricted securities are those acquired through a Regulation D private placement or any means other than a registered public offering.

Question 4

Can a firm currently registered as a market maker in the Rule 144 stock, purchase for its inventory ?

Answer 4

If a firm is currently registered as a market maker in the stock, the firm can purchase for its inventory.

This is an exception from the rule that firms may act in an agent capacity only in Rule 144 transactions

Question 5

Rule 144 stock and call writing

Answer 5

Insiders are permitted, however, to write calls against a long stock position. On the other hand, a corporation cannot write calls against its own stock; for example,

stock held in its treasury. If exercised, the company must deliver shares, thereby increasing the number of shares outstanding. This would require shareholder approval.

Question 6

In any 90-day period, under Rule 144 an investor in restricted securities may sell :

Answer 6

In any 90-day period, an investor may sell the greater of:
■ 1% of the total outstanding shares of the same class at the time of sale; or

■ the average weekly trading volume in the stock over the past four weeks on all national securities exchanges or as reported through Nasdaq. When computing volume limitations under Rule 144, Canadian exchanges are not to be taken into account. They are not deemed national securities exchanges.

Question 7

Restricted stock held by an estate

Answer 7

Restricted stock held by an estate is exempt from both the holding period requirements and the volume limitations of Rule 144.

Question 8

Restricted Stock (unregistered) held by an affiliate (insider)

Answer 8

• six-month hold
• volume limits thereafter

Question 9

Control Stock (registered) held by an affiliate (insider)

Answer 9

• no hold
• volume limits always apply

Question 10

Reporting of 144A transactions

Answer 10

Ordinarily, trades in NMS and OTC equity securities must be reported within 10 seconds; but last sale reports in restricted equity securities are made to FINRA’s OTC Reporting Facility (ORF) by participants on the same business day.

Question 11

Rule 144 trasactions can be principal ?

Answer 11

False, all agency

Question 12

Holding period for a deceased person - Rule 144

Answer 12

Restricted stock has a six-month holding period unless the holder is the estate of a deceased person.

Question 13

Customer callbacks may be made to customers who expressed interest in the stock within ?

Answer 13

Customer callbacks may be made to customers who expressed interest in the stock within the past 10 business days.

Question 14

What does Rule 144 regulate ?

Answer 14

Rule 144 regulate the sale of both control and restricted securities.

Question 15

Report any trading of insider-owned securities to the SEC within….

Answer 15

Report any trading of insider-owned securities to the SEC within two business days of the transaction.

Question 16

T/F - The SEC restricts broker-dealers from actively soliciting buyers for control shares ?

Answer 16

True - The SEC restricts broker-dealers from actively soliciting buyers for control shares

Question 17

When required, Form 144 must be filed ?

Answer 17

When required, Form 144 must be filed no later than concurrently with the sale of the stock, and the filing is good for 90 days.

Question 18

After the six-month holding period, what are the volume restrictions for affiliates vs non-affiliates ?

Answer 18

After the six-month holding period, affiliated persons remain subject to the volume restrictions for as long as they are affiliates. For unaffiliated investors, the stock may be sold completely unrestricted after the six-month holding period has been satisfied.

Question 19

If the issuer is subject to the reporting requirements of the Exchange Act (e.g., 10Ks, 10Qs), its restricted securities may not be sold until

Answer 19

They have been held fully paid for a minimum of six months; otherwise the hold is one year. According to Rule 144, after holding restricted stock fully paid for six months, an affiliate may begin selling shares but is subject to the volume restriction rules.

Question 20

De minimis filing

Answer 20

If the intended sale during any 90-day period for an affiliate is small, the filing requirement is waived. This is known as the de minimis filing threshold for affiliates. Sales in amounts not exceeding 5,000 shares or $50,000 in sale proceeds are permitted without filing Form 144.

Question 21

Control securities

Answer 21

Control securities are those owned by people who are affiliated with the issuer, such as directors, officers, a spouse of an officer, or persons who own more than 10% of a company’s outstanding securities. Such persons are subject to volume limitations on the sale of these securities for if they are affiliated with the company.

Question 22

QIBs trading

Answer 22

QIBs can trade unregistered securities with each other without concern for a holding period and volume restrictions. Rule 144A provides a limited exemption for secondary market trading of unregistered securities among QIBs only.

Question 23

Requirement of non-affiliated seller

Answer 23

As previously mentioned, a nonaffiliated seller may sell privately placed securities to the public in unlimited amounts and without filing Form 144. However, following the six-month holding period and continuing for an additional six months, the seller must comply with the requirement that there be available adequate, current, public information about the issuer. This can be accomplished by verifying that the company is a reporting company that regularly files 10K and 10Q reports with the SEC.

Question 24

If an insider profits from the sale of securities held for less than

Answer 24

If an insider profits from the sale of securities held for less than six months, these short-swing profits are required to be disgorged (returned) to the company.

Question 25

Restricted Stock (unregistered) held by a non-affiliate (non-insider)

Answer 25

• six-month hold
• sell freely thereafter
• non-reporting co. then one-year hold

Question 26

Can insiders enter short sales ? speculative option trades ?

Answer 26

Insiders defined under Rule 144 are not allowed to enter short sales in the securities of companies in which they are insiders. They also are restricted from participating in speculative options transactions.

Question 27

Holding period on registered control stock

Answer 27

There is no holding period on registered control stock, but volume limits always apply.

Question 28

QIB

Answer 28

A QIB is an institution (pension fund, investment company, insurance company, and so forth) with a securities portfolio valued at $100 million or more. Member firms are considered QIBs if they have a securities portfolio valued at a less restrictive $10 million or more. QIBs cannot be individuals, no matter how wealthy they may be.

Question 29

Selling shares under Rule 144 effectively….

Answer 29

Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.

Question 30

Rule 144A

Answer 30

Rule 144A provides a safe harbor for those investors known as qualified institution buyers (QIBs). Rule 144A allows nonregistered foreign and domestic securities to be traded among QIBs in the United States without holding period requirements.

Question 31

Broker-dealer callbacks for Rule 144 stock may be made to those firms that expressed interest within the ?

Answer 31

Broker-dealer callbacks may be made to those firms that expressed interest within the past 60 calendar days.