What it means
Restricted securities are shares acquired in private deals, such as employee grants or private placements, that were not registered for public sale. Control securities are shares held by an affiliate, which means a director, senior officer or large shareholder who can influence the company.
Rule 144 gives these holders a safe route to sell without full registration, provided they meet conditions. The conditions include a holding period, the availability of current public information about the company, limits on the volume sold, and a manner-of-sale requirement for affiliates.
Form 144 is the notice that accompanies the plan. It is generally filed when the sale order is placed, if the amount to be sold in any three-month period is above modest thresholds in number of shares or dollar value.
The form names the seller, the company, the number of shares, their market value, the date they were acquired and how, and the broker handling the sale. It also records any sales made in the previous three months, which helps regulators and investors see the total pattern.
Filing the form does not mean the sale must go ahead, and it does not approve the sale. It is a disclosure, and the seller remains responsible for ensuring that the sale meets every condition of the rule.
Form 144 is separate from the insider ownership forms, such as Forms 3, 4 and 5, which report holdings and transactions after the fact. Many executives file both types for the same sale, and companies often have a legal team that handles the paperwork and pre-clears the trade.
In practice
Real-world examples.
Example
A chief financial officer holds 500,000 shares from vesting awards and wants to sell 100,000 shares to fund a home purchase. Her broker files Form 144 on the day the sale order is placed and sells within the volume limit. The broker confirms the volume figures before the order goes out.
Example
An early investor in a technology company, holding shares bought in a private round, wants to sell part of the stake after the company lists on an exchange. After the holding period has passed, he files Form 144 and sells in stages. Spreading the sales over several weeks helps to avoid pushing the share price down.
Example
A retiring director plans to sell shares over several weeks. She files Form 144 for the first tranche and tracks sales carefully to make sure the three-month total stays within the volume limit. She keeps a simple log of each sale date and number of shares.
Formula
Calculation
Volume limit for affiliates in a three-month period = the greater of (1% of shares outstanding) or (average weekly trading volume over the previous four calendar weeks)
Suppose a company has 20,000,000 shares outstanding, and its average weekly trading volume over the previous four weeks is 150,000 shares. One per cent of shares outstanding is 20,000,000 x 0.01 = 200,000 shares.
The greater of 200,000 and 150,000 is 200,000, so that is the volume limit for the period. A director who wants to sell 180,000 shares is within the limit, but a sale of 230,000 shares would exceed it by 30,000 shares and would not qualify for the safe route.Case study
Seen in the real world.
Cedar Point Technologies is an illustrative, fictional listed company with 20,000,000 shares outstanding. Its general counsel noticed that two directors had both asked to sell shares in the same month, and that their combined sales might exceed the limit.
Because affiliates acting together can have their sales added up, the lawyer asked both directors to coordinate. They agreed to sell in smaller amounts over two three-month periods, and each filed a Form 144 reflecting the schedule.
In this illustrative case, the sales went ahead without a problem, and the market saw them as routine. The lesson was that early planning avoids a rushed sale that breaches the limit. The general counsel now circulates a short calendar of open and closed trading windows so that directors can plan their sales well in advance.
Watch out
Common mistakes.
- Believing that filing the form gives permission to sell, when it is only a notice and the seller must still meet every condition.
- Ignoring sales made by related parties or a group acting together, when these may have to be added together for the volume limit.
- Selling before the holding period has passed, which removes the protection of the rule.
Questions
People also ask.
Who has to file Form 144?
Holders of restricted or control securities who intend to sell above the thresholds in a three-month period, usually through a broker who prepares and files it. The seller signs a representation that they know of no undisclosed material information about the company.
Is Form 144 the same as Form 4?
No, Form 144 is a notice of a planned sale, while Form 4 reports a transaction after it has happened.
How long must I hold restricted shares?
The holding period depends on whether the issuer is a reporting company and is set by the rule, so check the current requirement before selling. As a rough guide, the period is shorter for companies that file regular public reports and longer for those that do not.
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