Portfolio 46-3rd: Resales of Restricted Securities Under SEC Rules 144 and 144A

I. Introduction

II. Rule 144
. Introductory Material
A. Introduction to Rule 144
B. Definitions
1. Restricted securities
a. Generally
b. Securities acquired in a foreign public offering
c. Underwriter’s or finder’s securities
d. Securities acquired in Section 3(a)(9), 3(a)(10), and 3(a)(11) transactions
e. Securities received in a Bankruptcy Code proceeding
f. Securities acquired in a Section 4(6) transaction
g. Unregistered securities of an issuer distributed to its employees under an employee benefit plan
h. Stock dividends and stock splits
i. Changes in par value
j. Spin-offs
k. Transfers to a former spouse under a divorce settlement agreement
l. Pre-paid forward contracts
2. Affiliate
a. Generally
b. Relatives of affiliates
c. Trusts and estates
d. Employee benefit plans
e. Persons controlled by the issuer
C. Conditions of Rule 144
1. Current public information—Rule 144(c)
a. Generally
b. Reporting issuers
c. Non-reporting issuers
2. Holding period for restricted securities—Rule 144(d)
a. General rule
b. When the holding period begins
(1). Generally
(2). Promissory notes, other obligations to pay the purchase price, and installment contracts
(3). Securities acquired under an employee benefit plan or stock option plan
(4). Rule 145(a) transactions
c. Shortening of the holding period
(1). Stock dividends, stock splits, and recapitalizations
(2). Conversions
(3). Contingent issuance of securities
(4). Securities pledged by an affiliate
(5). Gift of securities by an affiliate
(6). Trust established by an affiliate
(7). Estate of an affiliate
(8). Transfers of securities of another issuer by an affiliate-partnership
(9). Transfers of restricted securities by a person to a corporation in exchange for outstanding securities
(10). Certain reorganizations effected to change the legal form of an entity
(11). Securities of another issuer
(12). Portfolio restricted securities
(13). Securities acquired in connection with a divorce
d. Tracing to a particular transaction
3. Volume limitation—Rule 144(e)
a. Generally
b. The three-month period
c. The 1 percent limitation
d. The average weekly trading volume limitation
e. Sales by certain persons that must be aggregated with sales by the seller
(1). Persons deemed to be the same person as the seller
(2). Persons whose sales must be aggregated with sales by the seller
(a). Sales by a pledgee (or a purchaser of the pledged securities)
(b). Sales by a donee (or donor)
(c). Sales by a trust
(d). Sales by a decedent’s estate or estate beneficiary
(e). Sales by limited partners or by shareholders of a closely-held limited partnership
(3). Persons agreeing to act in concert with the seller
(a). Sales by trusts with the same trustee
(b). Sales by persons with the same investment manager
(c). Sales by persons who have special agreements
(d). Sales by divorced persons
(e). Sales by officers and directors of an issuer
f. Aggregation of convertible securities sales and securities of the class into which they are convertible
g. Sales excluded from the volume computation
4. Manner of sale limitation—Rule 144(f) and (g)
a. Generally
b. Brokers’ transactions
(1). Broker may act as agent for buyer as well as seller
(2). Broker may receive a service fee
(3). Activities not deemed solicitations by broker
(4). What constitutes reasonable inquiry by the broker
(5). Riskless principal brokers’ transactions
c. Sales directly to market makers
(1). What constitutes a ‘block’
(2). Who qualifies as a ‘block positioner’
d. Prohibition against solicitation of buy orders
5. Notice of proposed sale—Rule 144(h)
6. Bona fide intention to sell—Rule 144(i)
D. Rule 144(k): Termination of Rule 144 Restrictions on Resales by Non-Affiliates
E. Simultaneous Sales Under Rules 144(k) and 144(e)
F. Applying Rule 144 to Certain Hedging Activities
1. Short sales ‘against the box'
2. Writing exchange-traded call options
3. Purchasing exchange-traded put options
G. Mechanics of Rule 144 Sales
1. Sales of restricted securities
a. Generally
(1). Broker’s compliance procedures
(2). Issuer’s compliance procedures
(3). Transfer agent’s compliance procedures
b. Sales under Rule 144(k)
c. Sales of Rule 701 stock
d. Sales of restricted stock registered for public resale
2. Sales of unrestricted securities
H. Other Uses of Rule 144
1. Public resales of restricted and control securities acquired under an employee benefit plan
2. Public resales of securities acquired in a registered Rule 145(a) transaction
3. Public resales of securities acquired in a transaction exempt from registration under Section 3(a)(9), Section 3(a)(10), or Regulation A

III. Section 4(11/2)—Private Resales

IV. Rule 144A
A. Introduction to Rule 144A
B. Rule 144A
C. Conditions of Rule 144A
1. Issuer cannot be subject to Investment Company Act
2. Eligible securities—nonfungible securities
3. Eligible purchasers—Qualified Institutional Buyers
a. Most entities
b. Registered broker-dealers
c. Calculating the qualifying amount
d. Proof of eligibility
e. Purchasers on behalf of third parties
4. Information requirement
5. Notice
6. No general solicitation
D. Issues Related to Rule 144A
1. Rule 144A’s interaction with Regulation S
2. Investment Company Act issues
a. Touche, Remnant
b. Liquidity of Rule 144A securities
3. Broker-dealer issues
a. Net capital rule
b. Section 11(d)(1)
4. Side-by-side offerings
5. The PORTAL Market
a. Trading
b. Clearance and settlement of PORTAL securities
6. Regulation M (anti-manipulation rules concerning securities offerings)