The SEC on November 15 adopted rules designed to decrease the cost of capital for public and private issuers by providing lessened resale restrictions on investors who acquire restricted securities.
Restricted securities are securities acquired in transactions exempt from Securities Act registration requirements. SEC Rule 144 permits the resale of restricted securities without registration under the Securities Act. Purchasers of restricted securities sold pursuant to Rule 144 receive freely tradable shares.
The amendments to Rule 144 reduce the holding period for restricted securities from one year to six months. Non-affiliates (generally persons who are not directors, or executive officers, or 5% stockholders) can resell restricted securities as long as the issuer is current in its public reporting, and can resell such restricted securities after one year even if the issuer is not current in its public reporting.
Under revised Rule 144, affiliates remain subject to volume limits, manner of sale restrictions, and current public information requirements until 90 days after they cease to be affiliates.
Restricted securities issued by a non-reporting company may be sold under Rule 144 after a one-year holding period. After such holding period has expired, rules similar to those for reporting companies (noted above) apply.
The SEC also approved an amendment to Rule 145 to eliminate a presumptive underwriter doctrine. Under the doctrine, affiliates to a business combination transaction, even if the transaction was registered, were deemed to be underwriters and therefore subject to resale restrictions. Under the new rule, affiliates of the acquired company will no longer be subject to these resale restrictions.
The new rules become effective on February 15, 2008 and apply to all restricted securities of publicly-reporting companies whether acquired before or after the effective date.