SEC Proposes Amendments to Rule 144 and Form 144

December 29th | 2020

The SEC recently proposed amendments to Rule 144 under the Securities Act of 1933 to revise the holding period determination for securities acquired upon the conversion or exchange of certain "market-adjustable securities." The SEC also voted to propose amendments to update and simplify the Form 144 filing requirements, including an electronic filing mandate.

Rule 144 currently deems securities acquired solely in exchange for other securities of the same issuer to have been acquired at the same time as the securities surrendered for conversion or exchange. This creates an incentive to purchase the market-adjustable securities, hold them for the applicable period, and then convert the market-adjustable securities and sell the underlying into the public market. As SEC Chairman Jay Clayton’s comments suggest, it can essentially amount to Rule 144 being used as “a conduit for an unregistered sale of securities to the public on behalf of an issuer.”

Under the amendments, the holding period for the underlying securities acquired upon conversion or exchange of "market-adjustable securities" would not begin until the conversion or exchange, meaning that a purchaser would need to hold the underlying securities for the applicable Rule 144 holding period before reselling them.

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