Rule 144

What Is Rule 144?

Rule 144 is a rule issued by the U.S. Securities and Exchange Commission (SEC) under the Securities Act of 1933. That law generally requires securities offered to the public to be registered with the SEC. Shares sold in private deals, or granted to employees and insiders outside a public offering, are often not registered in this way. These are known as restricted securities, and they cannot simply be sold on a public exchange. Rule 144 provides a safe harbor, meaning a set of conditions under which holders can resell restricted shares, and shares held by company insiders, without a separate registration.

How the Rule Works

The conditions depend on who is selling and what they hold. The main ones include:

• A holding period that must pass after the shares were acquired from the company or an affiliate. For companies that regularly file reports with the SEC, this period is generally six months. For companies that do not, it is generally one year.
• Current public information about the company must be available, which is usually supplied by the company's ongoing reporting.
• Sales by affiliates, meaning executives, directors and large shareholders, are limited in volume over a rolling three-month period. The limit is tied to either a percentage of the company's outstanding shares or its recent average weekly trading volume, whichever is greater.
• Sales must generally be carried out in ordinary brokerage transactions or directly with market makers, and affiliates selling above a set size must file a notice on Form 144.

Holders who are not affiliates and have held their shares for the full period generally may sell without meeting the volume and manner-of-sale requirements.

Why It Matters to Investors

Rule 144 affects how much stock can reach the market. When large blocks of restricted or insider-held shares become eligible for resale, the added supply can influence trading prices. This is one reason investors watch for the end of a lock-up period, the contractual window during which insiders agree not to sell after a public offering. Sales made under the rule are not hidden, because they are reported to the SEC in filings the public can review. Sellers still remain subject to federal anti-fraud rules, so the rule does not permit misleading statements or trading on material nonpublic information.