On December 22, 2020, the SEC announced proposed amendments to Rule 144 under the Securities Act of 1933 that would revise the method for determining the holding period for securities acquired upon the conversion or exchange of certain “market-adjustable securities,” essentially eliminating tacking. This proposed change is intended to reduce the risk of unregistered distributions in connection with sales of those securities. Additionally, the SEC is proposing amendments to update and simplify the Form 144 filing requirements.
Currently, Rule 144(d)(3)(ii) considers 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. The proposed amendments would delay the holding period for the underlying securities acquired upon conversion or exchange of “market-adjustable securities” until conversion or exchange. This means that a purchaser would be required to hold the underlying securities for the applicable Rule 144 holding period before reselling them under Rule 144.
The amendment would not affect the use of Rule 144 for most convertible or variable-rate securities transactions. It would apply only to market-adjustable securities transactions in which:
- newly acquired securities were acquired from an issuer that does not have a class of securities listed, or approved for listing, on a national securities exchange registered pursuant to Section 6 of the Exchange Act; and
- convertible or exchangeable security contains terms that, prior to conversion or exchange, offset decreases in the market value of the underlying securities. These must be terms other than those that adjust for stock splits, dividends, or other issuer-initiated changes in its capitalization.
The proposed amendments would also:
- mandate the electronic filing of Form 144
- eliminate the Form 144 filing requirement for non-reporting companies
- amend the Form 144 filing deadline to coincide with the filing deadline for Form 4
- amend Forms 4 and 5 to add an optional check box to indicate that a reported transaction was intended to satisfy Rule 10b5-1(c)
The SEC intends to make an online fillable Form 144 available to simplify electronic filing and to streamline the electronic filing of Forms 4 and 144 reporting the same sale of an issuer’s securities. The proposal includes a six-month transition period to give first-time electronic filers sufficient time to apply for codes to make filings on EDGAR and familiarize themselves with the filing process.
The public comment period for these amendments will remain open for 60 days after publication in the Federal Register.
Source: https://www.sec.gov/news/press-release/2020-336
