Rule 144 Holding Period and Form 144 Filings, 5063-5086 [2020-28790]
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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Proposed Rules
List of Subjects
14 CFR Part 241
Air carriers, Reporting and
recordkeeping requirements, Uniform
system of accounts.
14 CFR Part 298
Air taxis, Reporting and
recordkeeping requirements.
Issued in Washington, DC.
Elaine L. Chao,
Secretary of Transportation.
Proposed Rule
Accordingly, the Department
proposes to amend 14 CFR parts 241
and 298 as follows:
PART 241—UNIFORM SYSTEM OF
ACCOUNTS AND REPORTS FOR
LARGE CERTIFICATED AIR CARRIERS
1. The authority citation for part 241
continues to read as follows:
■
Authority: 49 U.S.C. 329, 41101, 41708,
and 41709.
Sec. 19–7
■
■
[Removed]
2. Remove Sec. 19–7.
3. Add Sec. 19–8 to read as follows:
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Sec. 19–8 Passenger Origin—Destination
Survey applicability.
(a) All U.S. certificated and commuter
air carriers conducting scheduled
passenger services (except helicopter
carriers) shall participate in a Passenger
Origin-Destination (O&D) Survey
covering domestic and international air
carrier operations, as prescribed by the
Department’s Bureau of Transportation
Statistics (BTS), Office of Airline
Information (OAI).
(b) A statistically valid sample of
flight coupons shall be selected for
reporting purposes. The sample shall
consist of a selection of all Tickets
involving a Reporting Carrier that meet
the reporting criteria as defined in the
Instructions, or further defined in
Directives, except those participating
O&D carriers with nonstandard ticketing
procedures, or other special operating
characteristics, may propose alternative
procedures. Such departures from
standard O&D Survey practices shall not
be authorized unless approved in
writing by the Director, Office of Airline
Information under the procedures in
Sec. 1–2. The data to be recorded and
reported, as stipulated in the
Instructions and Directives, shall
include at a minimum the following
data elements: Reporting Carrier,
Reporting Month, Reporting Year,
Record Identification Number, Issuing
Carrier, Total Amount, Tax Amount,
Exchanged Ticket Indicator, Airport,
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Operating Carrier, Marketing Carrier,
Scheduled Flight Year, Scheduled
Flight Month, Dwell Time and Via
Airport(s).
(c) Any Ticket that is submitted that
involves a O&D Survey Reporting
Carrier providing service in whole or in
part under this part or 49 U.S.C. 41308
or 41309 and any data covering the
operations of foreign air carriers that are
similar to the information collected in
the Passenger Origin-Destination Survey
are generally not available to the
Department, the U.S. carriers, or U.S.
interests. Therefore, because of the
damaging competitive impact on U.S.
carriers and the adverse effect upon the
public interest that would result from
unilateral disclosure of the U.S. survey
data, the Department will not disclose
the international data in the Passenger
Origin-Destination Survey except:
(1) To an air carrier directly
participating in and contributing input
data to the Survey or to a legal or
consulting firm designated by an air
carrier to use on its behalf O&D data in
connection with a specific assignment
by such carrier;
(2) To parties to any proceeding
before the Department to the extent that
such data are relevant and material to
the issues in the proceeding upon a
determination to this effect by the
Administrative Law Judge or by the
Department’s decision-maker. Any data
to which access is granted pursuant to
this section may be introduced into
evidence subject to the normal rules of
admissibility of evidence.
(3) To agencies and other components
of the U.S. Government.
(4) To other persons upon a showing
that the release of the data will serve
specifically identified needs of U.S.
users which are consistent with U.S.
interests.
(5) To foreign governments and
foreign users as provided in formal
reciprocal arrangements between the
foreign and U.S. Governments for the
exchange of comparable O&D data.
(6) Or as otherwise determined by the
Department as consistent with its
regulatory functions and
responsibilities.
(d) Each O&D Survey Reporting
Carrier shall maintain its prescribed
reportable records in a manner and at
such locations as will permit ready
accessibility for examination by
representatives of DOT. The record
retention requirements are prescribed in
part 249 of this chapter.
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PART 298—EXEMPTIONS FOR AIR
TAXI AND COMMUTER AIR CARRIER
OPERATIONS
4. The authority citation for part 298
continues to read as follows:
■
Authority: 49 U.S.C. 329 and chapters 401,
411, and 417.
5. In § 298.60, revise paragraph (a) to
read as follows:
■
§ 298.60
General reporting instructions.
(a) Each commuter air carrier and
each small certificated air carrier shall
file the applicable schedules of Form
298–C, ‘‘Report of Financial and
Operating Statistics for Small Aircraft
Operators’’, Schedule T–100, ‘‘U.S. Air
Carrier Traffic and Capacity Data by
Nonstop Segment and On-Flight
Market’’, and the ‘‘Passenger Origin—
Destination Survey’’ prescribed in part
241, Sec. 19–8, of this subchapter.
*
*
*
*
*
[FR Doc. 2020–29229 Filed 1–15–21; 8:45 am]
BILLING CODE 4910–9X–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 232, 239, and 249
[Release Nos. 33–10911; 34–90773; File No.
S7–24–20]
RIN 3235–AM78
Rule 144 Holding Period and Form 144
Filings
Securities and Exchange
Commission.
ACTION: Proposed rule.
AGENCY:
The Securities and Exchange
Commission (‘‘Commission’’) is
proposing to amend Rule 144 to revise
the holding period determination for
securities acquired upon the conversion
or exchange of certain market-adjustable
securities of issuers that do not have
securities listed on a national securities
exchange. Under the proposed
amendments, the holding period for
those securities would not begin until
the securities are acquired upon the
conversion or exchange of the marketadjustable security. The Commission is
also proposing to mandate electronic
filing of Form 144 with respect to
securities issued by issuers subject to
Exchange Act reporting requirements, to
amend the filing deadline for Form 144
to coincide with the filing deadline for
Form 4, and to streamline the filing
process in cases where both Form 4 and
Form 144 are required to report the
same transaction. Finally, the
Commission is proposing to eliminate
SUMMARY:
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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Proposed Rules
the requirement to file a Form 144 for
resales of securities of issuers that are
not subject to Exchange Act reporting.
DATES: Comments should be received on
or before March 22, 2021.
ADDRESSES: Comments may be
submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/submitcomments.htm).
Paper Comments
• Send paper comments to Vanessa
A. Countryman, Secretary, Securities
and Exchange Commission, 100 F Street
NE, Washington, DC 20549–1090.
All submissions should refer to File
Number S7–24–20. We will post all
submitted comments, requests, other
submissions and other materials on our
internet website (https://www.sec.gov/
rules/proposed.shtml). Typically,
comments are also available for website
viewing and printing in the
Commission’s Public Reference Room,
100 F Street NE, Washington, DC 20549,
on official business days between the
hours of 10 a.m. and 3 p.m. Due to
pandemic conditions, however, access
to the Commission’s public reference
room is not permitted at this time. All
comments received will be posted
without change. Persons submitting
comments are cautioned that we do not
redact or edit personal identifying
information. You should submit only
information that you wish to make
available publicly.
Studies, memoranda or other
substantive items may be added by the
Commission or staff to the comment file
during this rulemaking. A notification of
the inclusion in the comment file of any
such materials will be made available
on the Commission’s website. To ensure
direct electronic receipt of such
notifications, sign up through the ‘‘Stay
Connected’’ option at www.sec.gov to
receive notifications by email.
John
Fieldsend or Sean Harrison, at (202)
551–3430, in the Office of Rulemaking,
Division of Corporation Finance, U.S.
Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Commission reference
CFR citation
(17 CFR)
Regulation S–T [17 CFR 232.10 through 232.903] ...................................................................................
Securities Act of 1933 (‘‘Securities Act’’) [15 U.S.C. 77a et seq.] .............................................................
Securities Exchange Act of 1934 (‘‘Exchange Act’’) [15 U.S.C. 78a et seq.] ...........................................
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Table of Contents
I. Discussion of the Proposed Amendments
A. Overview of the Proposed Amendments
B. Proposed Amendment to Rule
144(d)(3)(ii)
1. Background
a. Rule 144 Safe Harbor
b. Rule 144 Holding Period Condition and
Tacking
c. Market-Adjustable Securities
Transactions
2. Proposed Amendment
C. Proposed Amendment to the Form 144
Filing Requirements
1. Background
2. Proposed Amendments
a. Mandatory Electronic Filing of Form 144
b. Eliminating Form 144 Filing
Requirement for Investors Selling
Securities of Non-Reporting Issuers
c. Filing Options for Form 4 and Form 144
d. Rule 10b5–1(c) Transaction Indication in
Forms 4 and 5
II. Economic Analysis
A. Introduction
B. Proposed Amendments to Holding
Period for Market-Adjustable Securities
1. Broad Economic Considerations
2. Economic Baseline
3. Benefits and Costs to Proposed
Amendment to Rule 144(d)(3)(ii)
4. Effects on Efficiency, Competition, and
Capital Formation
5. Reasonable Alternatives
6. Request for Comment
C. Proposed Amendments to Form 144,
Form 4 and Regulation S–T
1. Broad Economic Considerations
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2. Economic Baseline.
a. Affected parties
b. EDGAR
3. Benefits and Costs of Proposed
Amendments to Form 144, Form 4, and
Regulation S–T
4. Efficiency, Competition, and Capital
Formation
5. Reasonable Alternatives
D. Request for Comment
III. Paperwork Reduction Act
A. Summary of the Collections of
Information
B. Summary of the Proposed Amendments’
Effects on the Collections of Information
C. Incremental and Aggregate Burden and
Cost Estimates
D. Request for Comment
IV. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the
Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed
Rules
D. Proposed Reporting, Recordkeeping, and
other Compliance Requirements
E. Duplicative, Overlapping, or Conflicting
Federal Rules
F. Significant Alternatives
G. Request for Comment
V. Small Business Regulatory Enforcement
Fairness Act
VI. Statutory Authority
Text of the Proposed Amendments
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Rule 101 ..............
Rule 144(b)(3) ......
Rule 144(d)(3)(ii) ..
Rule 144(h) ..........
Form 144 ..............
Form 4 .................
Form 5 ..................
§ 232.101.
§ 230.144(b)(3).
§ 230.144(d)(3)(ii).
§ 230.144(h).
§ 239.144.
§ 249.104.
§ 249.105.
I. Discussion of the Proposed
Amendments
A. Overview of the Proposed
Amendments
We are proposing to amend Rule 144,
Form 144, Form 4, Form 5 and Rule 101
of Regulation S–T. We propose to
amend Rule 144(d)(3)(ii) to revise the
holding period determination for
securities acquired upon the conversion
or exchange of certain market-adjustable
securities of an issuer that does not have
a class of securities listed, or approved
to be listed, on a national securities
exchange registered pursuant to Section
6 1 of the Exchange Act (‘‘unlisted
issuer’’) so that the holding period
would not begin until the conversion or
exchange. As used in this release, a
‘‘market-adjustable security’’ is a
convertible or exchangeable security
that provides for a conversion rate,
conversion price, or other terms that, in
each case, would have the effect of
offsetting, in whole or in part, declines
in value of the underlying securities that
may occur prior to conversion or
exchange.
We are proposing this amendment to
mitigate the risk of unregistered
distributions in connection with sales of
market-adjustable securities. As
1 15
Frm 00029
We are
proposing amendments to:
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discussed below, the application of the
‘‘tacking’’ provisions of Rule 144 to
market-adjustable securities undermines
one of the key premises of Rule 144,
which is that holding securities at risk
for an appropriate period of time prior
to resale can demonstrate that the seller
did not purchase the securities with a
view to distribution 2 and, therefore, is
not an underwriter for the purpose of
Securities Act Section 4(a)(1).3
Amending the Rule 144 holding period
for the securities received on conversion
or exchange of market-adjustable
securities so that it will not commence
until the time the underlying securities
are acquired would help maintain the
effectiveness of this key aspect of the
Rule 144 safe harbor.
We are also proposing amendments to
update and simplify the Form 144 filing
requirements by mandating the
electronic filing of all Form 144 notices
related to the resale of securities of
issuers that are subject to the reporting
requirements of Section 13 or 15(d) of
the Exchange Act, and eliminating the
filing requirement for Form 144 notices
related to the resale of securities of
issuers that are not subject to Exchange
Act reporting. Additionally, we are
proposing to eliminate two unnecessary
data fields and intend to create an
online fillable document for entering the
information required by Form 144. In
connection with these amendments, we
are planning to streamline filing
procedures for individuals who are
subject to notice filing requirements
under Rule 144 and reporting
requirements under Section 16 4 of the
Exchange Act. These amendments
would also change the filing deadline
for Form 144 to coincide with the filing
deadline for Form 4. In addition, we are
proposing to amend Forms 4 and 5 to
add a check box to permit filers to
indicate that a sale or purchase reported
on the form was made pursuant to a
transaction that satisfied 17 CFR
240.10b5–1(c) (‘‘Rule 10b5–1(c)’’).
We welcome feedback and encourage
interested parties to submit comments
on any or all aspects of the proposed
2 The term ‘‘underwriter’’ is broadly defined to
mean any person who has purchased from an issuer
with a view to, or offers or sells for an issuer in
connection with, the distribution of any security, or
participates, or has a direct or indirect participation
in any such undertaking, or participates or has a
participation in the direct or indirect underwriting
of any such undertaking. See Securities Act Section
2(a)(11) [15 U.S.C. 77b(a)(11)]. The interpretation of
this definition traditionally has focused on the
words ‘‘with a view to’’ in the phrase ‘‘purchased
from an issuer with a view to . . . distribution.’’ For
simplicity, in this release we often only refer to the
‘‘with a view to’’ prong of the underwriter
definition.
3 15 U.S.C. 77d(a)(1).
4 15 U.S.C. 78p.
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rule amendments. When commenting, it
would be most helpful if you include
the reasoning behind your position or
recommendation.
B. Proposed Amendment to Rule
144(d)(3)(ii)
1. Background
a. Rule 144 Safe Harbor
Securities Act Section 5 requires
registration of all offers and sales of
securities in interstate commerce or by
use of the United States mails, unless an
exemption from the registration
requirement is available.5 Securities Act
Section 4(a)(1) provides an exemption
for ‘‘transactions by any person other
than an issuer, underwriter, or dealer.’’
Securities Act Section 2(a)(11) defines
an ‘‘underwriter’’ to mean any person
who has purchased from an issuer with
a view to, or offers or sells for an issuer
in connection with, the distribution of
any security or participates or has a
direct or indirect participation in any
such undertaking.6
In 1972,7 the Commission adopted
Rule 144 to provide a non-exclusive safe
harbor from the statutory definition of
‘‘underwriter’’ to assist security holders
in determining whether the Section
4(a)(1) exemption is available for their
resale of restricted or control securities.8
Rule 144 sets forth objective criteria on
which security holders seeking to resell
such securities may rely to be assured
they would not be deemed to be
engaged in a distribution and, therefore,
not be considered an underwriter under
Section 2(a)(11). A selling security
holder that seeks to rely on the safe
harbor for the resale of securities must
satisfy the following conditions: 9
5 15
U.S.C. 77e.
used in Section 2(a)(11), the term ‘‘issuer’’
includes any person directly or indirectly
controlling or controlled by the issuer, or any
person under direct or indirect common control
with the issuer. An affiliate of an issuer is a person
that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is
under common control with, such issuer. See 17
CFR 230.405 and 17 CFR 230.144(a)(1).
7 See Definition of Terms ‘‘Underwriter’’ and
‘‘Brokers’ Transactions,’’ Release No. 33–5223 (Jan.
11, 1972) [37 FR 591 (Jan. 14, 1972)] (‘‘1972
Adopting Release’’).
8 Restricted securities are securities acquired
pursuant to one of the transactions listed in
Securities Act Rule 144(a)(3), such as securities
issued in a private placement. Although not defined
in Rule 144, the term ‘‘control securities’’
commonly refers to securities held by an affiliate of
the issuer, regardless of how the affiliate acquired
the securities. See Rule 144(b)(2).
9 In general, these are the conditions that a selling
security holder must satisfy when seeking to rely
on the safe harbor for the resale of securities.
However, a person seeking to rely on the safe harbor
when reselling securities of certain types of
companies must satisfy different conditions. See 17
CFR 230.144(i).
6 As
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• There must be adequate current
public information available about the
issuer if the selling security holder is an
affiliate of the issuer; 10
• The selling security holder must
have held the securities for a specified
holding period if the securities being
sold are restricted securities; 11
• The resale must be within specified
sales volume limitations if the selling
security holder is an affiliate of the
issuer; 12
• The resale must comply with the
manner of sale requirements if the
selling security holder is an affiliate of
the issuer; 13 and
• The selling security holder must file
a Form 144 if the selling security holder
is an affiliate of the issuer and the
amount of securities being sold exceeds
specified thresholds.14
b. Rule 144 Holding Period Condition
and Tacking
One of the conditions of Rule 144 for
restricted securities is that a selling
security holder must have held the
securities for a specified period of time
prior to resale. This condition helps to
ensure that a holder who claims an
exemption under Section 4(a)(1) has
assumed the full economic risks of
investment and, therefore, is not acting
as a conduit, directly or indirectly, on
behalf of the issuer for the sale of
unregistered securities to the public.15
Under Rule 144(d)(1)(i), restricted
securities acquired from an issuer that
has been subject to Exchange Act
reporting for at least 90 days before the
sale (a ‘‘reporting issuer’’) must be held
for a minimum of six months. If the
issuer is not subject to Exchange Act
reporting, or has not been for a period
of at least 90 days immediately before
the sale (a ‘‘non-reporting issuer’’), the
restricted securities must be held for a
minimum of one year pursuant to Rule
144(d)(1)(ii).
As originally adopted, Rule 144
required a two-year holding period
before a security holder could make
10 See 17 CFR 230.144(c). A sale by a non-affiliate
also must satisfy the current public information
condition if the non-affiliate is selling securities of
a reporting issuer and has held the securities for
less than one year.
11 See 17 CFR 230.144(d).
12 See 17 CFR 230.144(e).
13 See 17 CFR 230.144(f) and (g).
14 See Rule 144(h).
15 See 1972 Adopting Release, supra note 7, at
594 (noting that the holding period condition in
Rule 144 was designed to assure that the
registration provisions of the Securities Act are not
circumvented by persons acting, directly or
indirectly, as conduits for an issuer in connection
with resales of restricted securities and that to
accomplish this, the rule provides that such persons
be subject to the full economic risks of investment
during the holding period).
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limited sales of restricted securities.16
Later changes to the rule established a
separate three-year holding period for
unlimited sales of restricted securities
by non-affiliates of the issuer.17 In 1997,
the Commission shortened the holding
periods for restricted securities to oneyear and two-year periods,
respectively.18 In 2007, the Commission
adopted the current holding periods of
six months for reporting issuers and one
year for non-reporting issuers based on
its observations of Rule 144’s
application since 1997 and its desire
that the holding period be no longer
than necessary nor impose any
unnecessary costs or restrictions on
capital formation.19 By reducing the
holding periods for restricted securities,
the Commission intended to help
companies to raise capital more easily
and less expensively.20
Rule 144 contains ‘‘tacking’’
provisions in specified situations that
allow holders to count other holding
periods—either of prior owners of the
securities or of different securities
owned by the holders—to satisfy their
holding period requirement. One
situation where Rule 144 permits
tacking of the holding period involves
convertible securities. Rule 144(d)(3)(ii)
allows securities acquired solely in
exchange for other securities of the same
issuer to be deemed to have been
acquired at the same time as the
securities surrendered for conversion or
exchange. A variation of this provision
has existed since 1972,21 and the
16 See
id.
Resales of Securities, Release No. 33–6032
(Mar. 5, 1979) [44 FR 15610 (Mar. 14, 1979)] and
Resales of Securities, Release No. 33–6286 (Feb. 6,
1981) [46 FR 12195 (Feb. 13, 1981)] (‘‘1981
Adopting Release’’).
18 See Revision of Holding Period Requirements
in Rules 144 and 145, Release No. 33–7390 (Feb.
20, 1997) [62 FR 9242 (Feb. 28, 1997)]. In that
adopting release, the Commission stated that it was
shortening the holding to reduce the cost of capital,
lower the illiquidity discount given by companies
raising capital in private placements, and increase
the usefulness of the Rule 144 safe harbor. See id.
at 9242. Additionally, the Commission stated that
it did not believe that the shorter holding periods
would diminish investor protection because the
holding periods were still sufficiently long to
ensure that resales under Rule 144 would not
facilitate indirect public distributions of
unregistered securities by issuers or affiliates.
19 See Revisions to Rules 144 and 145, Release
No. 33–8869 (Dec. 6, 2007) [72 FR 71546 (Dec. 17,
2007)] (‘‘2007 Adopting Release’’). In the 2007
Adopting Release, the Commission eliminated the
bifurcated holding periods for affiliates and nonaffiliates, and added different holding periods for
reporting and non-reporting issuers because nonreporting issuers are not obliged to file periodic
reports with updated financial information that are
publicly available on EDGAR.
20 See id.
21 See 1972 Adopting Release, supra note 7, at
597.
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17 See
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current version of this provision was
adopted in 2007.22
c. Market-Adjustable Securities
Transactions
A typical convertible security, for
example a convertible bond, a
convertible promissory note, or
convertible preferred stock, can be
converted into a different security, such
as shares of the issuer’s common stock,
under specified terms and conditions.23
In a conventional convertible security
transaction, the conversion formula is
generally fixed, such that the
convertible security converts into
common stock based on a conversion
price that is fixed at the time the
convertible security is sold and remains
at that fixed price through its
conversion. Convertible securities may
contain mechanical adjustments to the
number of underlying shares and the
conversion price upon the occurrence of
events such as splits, dividends, or
other distributions on the underlying
securities. They also may contain antidilution provisions designed to protect
the holder’s economic interest if the
issuer subsequently issues shares of the
underlying securities at a price below
their current market value or below the
holder’s original purchase price. The
terms of market-adjustable securities,
however, go beyond these typical
adjustments and anti-dilution
provisions to adjust for, and protect the
holder against, general decreases in
market value of the underlying
securities.24
While the holder of a typical
convertible security is at substantial
economic risk upon conversion with
respect to the underlying security if the
underlying security fails to appreciate or
declines in value, this is not the case in
market-adjustable securities transactions
where the conversion or exchange price
and/or the amount of securities received
on conversion are not fixed at the time
of the initial transaction. In these
transactions, holders have the right to
convert the securities into the
underlying securities (often shares of
common stock) at a conversion price
that yields a substantial discount to the
market price of the underlying securities
at the time of conversion or exchange.
If the securities are converted or
exchanged after the Rule 144 holding
period is satisfied, the underlying
securities may be sold quickly into the
public market at prices above the price
at which they were acquired.
Accordingly, initial purchasers or
subsequent holders have an incentive to
purchase the market-adjustable
securities with a view to distribution of
the underlying securities following
conversion to capture the difference
between the built-in discount and the
market value of the underlying
securities. As noted above, when a
holder purchases with a view to
distribution, it is acting as an
underwriter and is unable to rely on the
Section 4(a)(1) exemption from
registration.
A holding period is essential to assure
that purchasers have assumed the
economic risks of investment, and
therefore, are not acting as conduits for
sale to the public of unregistered
securities, directly or indirectly, on
behalf of an issuer.25 The discounted
conversion or exchange features in
market-adjustable securities typically
provide holders with protection against
investment losses that would occur due
to declines in the market value of the
underlying securities prior to
conversion or exchange. As a result,
these holders are not exposed to the
market risk associated with holding the
underlying security prior to conversion
or exchange; 26 they are only exposed to
that market risk during the time that
they hold the underlying security after
the conversion or exchange.27 In these
circumstances, holders that convert and
promptly resell the underlying security
in order to secure a profit on the sale
based on the built-in discount have not
assumed the economic risks of
investment of the underlying security.
Therefore, under Rule 144’s current
25 See
1972 Adopting Release, supra note 7.
to conversion or exchange, a holder of
market-adjustable securities is at risk of bankruptcy
of the issuer. However, this risk is borne for a
briefer duration currently than when Rule 144 was
originally adopted because of the shortened holding
periods.
27 This period of time can be very limited because
the discounted equity securities acquisition,
through conversion or exchange, and the marketpriced sales can occur almost simultaneously. For
example, when the applicable holding period ends,
the holder may demand that the issuer issue the
required number of underlying securities at the
discounted conversion or exchange price and
concurrently sell those securities at market prices.
The underlying securities are received from the
issuer in time to settle the sales at market prices
made earlier.
26 Prior
22 See
2007 Adopting Release, supra note 19, at
71555.
23 See infra Section II.B.1; see also, Convertible
Securities, U.S. Sec. & Exchange Commission (last
visited Dec. 18, 2020), available at https://
www.sec.gov/fast-answers/
answersconvertibleshtm.html.
24 For example, the conversion or exchange rate
of the overlying convertible securities into the
underlying equity securities may be discounted
from a weighted average price of the publicly traded
class of securities, typically, common stock,
calculated for a period leading up to the date of
conversion or exchange. Therefore, the conversion
price provides a discount from the recent market
price that can be realized at the time sales of the
underlying equity securities begin.
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formulation, holders are able to
purchase market-adjustable securities
with a view to distribution while still
satisfying the holding period
requirements and tacking period
provisions of Rule 144.
Permitting the holding period of the
underlying securities to be ‘‘tacked’’
onto the holding period of the
convertible or exchangeable security
allows the initial holders of marketadjustable securities to structure
transactions without significant
economic risk prior to conversion. The
structure of these transactions
incentivizes purchases with a view to
distribution because, by selling the
underlying securities into the market
promptly after conversion, holders of
market-adjustable securities can capture
the value of the built-in discount to the
then-current market value. This is
inconsistent with the purpose of Rule
144 to provide a safe harbor for
transactions that are not distributions of
securities. These unregistered
transactions pose the risk that
distributions of securities will reach the
public markets without the same level
of disclosure and liability protections
that registration provides to investors.
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2. Proposed Amendment
We are proposing to amend Rule
144(d)(3)(ii) to provide that the holding
period for the securities acquired upon
conversion or exchange of certain
market-adjustable securities issued by
unlisted issuers would not begin until
conversion or exchange.28 The proposed
amendment would be limited to
unlisted issuers because national
securities exchanges registered pursuant
to Section 6 of the Exchange Act have
certain listing requirements, such as
requiring shareholder approval of an
issuance of 20 percent or more of a
company’s common stock. Because
market-adjustable securities have the
potential to result in highly dilutive
issuances of large amounts of the
issuer’s securities, these required
approvals are not likely to be granted in
the situations the amendment is
intended to address.29
28 Nothing in this proposed amendment is
intended to impact the availability of the Securities
Act Section 3(a)(9), 15 U.S.C. 77c(a)(9), exemption
from registration for such conversions or exchanges
as long as the requirements of Section 3(a)(9) are
otherwise met.
29 See, e.g., Section 312.03(c) of the New York
Stock Exchange LLC Listed Company Manual
(requiring shareholder approval of any issuance of
securities in any transaction or related transactions
relating to 20 percent or more of a listed company’s
stock before the issuance) and Nasdaq Stock Market
LLC Listing Rule 5635(d) (requiring shareholder
approval prior to an issuance or potential issuance
by a company of common stock (or securities
convertible into or exercisable for common stock),
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We have also observed that issuers
that are able to satisfy the listing criteria
of these exchanges have generally not
been engaging in these transactions. The
proposed amendment is intended to
avoid the potential under the current
Rule 144 safe harbor for holders to
acquire market-adjustable securities
with a view to an unregistered
distribution of the underlying securities
acquired upon their conversion or
exchange, resulting in significant resales
of the underlying securities without
investors having the benefit of
registration.30
The proposed amendment would not
affect the use of Rule 144 for most
convertible or variable-rate securities
transactions. The proposed amendment
would apply only to market-adjustable
securities transactions where:
• The newly acquired securities were
acquired from an issuer that, at the time
of the conversion or exchange, 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
• The convertible or exchangeable
security contains terms, such as
conversion rate or price adjustments,
that offset, in whole or in part, declines
in the market value of the underlying
securities occurring prior to conversion
or exchange, other than terms that
adjust for stock splits, dividends, or
other issuer-initiated changes in its
capitalization.
We believe the proposed amendment
would reduce the potential for
unregistered distributions because after
the conversion or exchange of the
overlying convertible securities, the
underlying securities would need to be
held for the applicable Rule 144 holding
period before they would be eligible for
resale under the Rule 144 safe harbor. A
holder who has held the underlying
securities for the entire six months or
one year, as applicable, during which
period market adjustments are no longer
available, is generally appropriately
excluded from the definition of an
underwriter.
While we believe the proposed
amendment would mitigate the risk of
unregistered distributions in connection
with market-adjustable securities
which alone or together with sales by officers,
directors, or certain other shareholders equals 20
percent or more of the common stock or 20 percent
or more of the voting power outstanding before the
issuance at a price that is less than the certain,
minimum price).
30 In addition to lacking the disclosure and
liability protections that registration provides,
market-adjustable securities may result in extreme
dilution to holders of the underlying securities,
especially when the conversions or exchanges occur
in tranches at subsequently lower market prices.
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transactions, we also emphasize that the
Rule 144 safe harbor is not available to
any person with respect to any
transaction or series of transactions that
is part of a plan or scheme to evade the
registration requirements of the
Securities Act, as currently stated in the
Preliminary Note to Rule 144. We
propose to move this statement to new
paragraph (b)(3) of Rule 144 so that the
statement is explicitly included in the
rule text.31
Request for Comment
1. Should we amend Rule 144(d)(3)(ii)
as proposed?
2. Should the rule only apply if the
issuer is an ‘‘unlisted issuer’’ at the time
of conversion or exchange, as proposed?
Or should the determination of whether
an issuer is unlisted be made at the time
the holder buys the market-adjustable
security, the time of the resale of any of
the underlying equity securities, or
some other time? Should the
determination be made both at the time
of the purchase of the market-adjustable
security and at the time of the
conversion or exchange, or some other
combination of times?
3. Is the description of marketadjustable securities in proposed Rule
144(d)(3)(ii) sufficient to achieve the
purpose of the proposal? If not, how
should we modify the description?
4. Should we define the securities that
would be subject to the proposed rules
more narrowly or more broadly? If so,
how? We do not intend for adjustments
for recapitalizations, stock or cash
dividends, or other anti-dilution
adjustments that apply to issuerinitiated actions, to be considered the
type of adjustments that would cause a
security to be considered a marketadjustable security. However, are there
specific additional factors or
clarification that we should provide in
the rule to indicate when a transaction
may be considered a market-adjustable
securities transaction?
5. As an alternative to the proposed
amendment to Rule 144(d)(3)(ii), should
we amend Rule 144(d)(1)(i) to increase
from six months to one year (or some
other period) the holding period that
would apply to the market-adjustable
securities that are issued by reporting,
unlisted issuers? Should we amend Rule
144(d)(1)(i) to increase the holding
period to one year (or some other
period) for these market-adjustable
31 In addition to this amendment, due to current
Federal Register formatting requirements we are
also proposing a technical change to move the rest
of Rule 144’s Preliminary Note to a note that
immediately follows the rule. Neither new Rule
144(b)(3) nor this technical change would alter the
substance of the Preliminary Note.
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securities in addition to amending Rule
144(d)(3)(ii) as proposed?
6. Are there alternative approaches
that we should consider that would
better mitigate the risk of unregistered
distributions of securities acquired upon
the conversion or exchange of marketadjustable securities?
7. Should market-adjustable securities
of both listed and unlisted issuers be
covered by the amendment to Rule
144(d)(3)(ii) rather than only those of
unlisted issuers, as proposed? Do an
exchange’s listing criteria provide
sufficient safeguards against the type of
transaction that the proposal seeks to
address? If not, are there alternatives
that we should consider?
8. Should the proposed amendment to
Rule 144(d)(3)(ii) only apply to issuers
that do not have a class of equity
security listed on an exchange, rather
than to issuers that do not have any
class of security listed on an exchange,
as proposed?
9. Are there any additional
amendments or changes to the proposed
amendments that we should consider
that would help achieve the purposes of
the proposal?
C. Proposed Amendment to the Form
144 Filing Requirements
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1. Background
Form 144 is a notice form that must
be filed with the Commission by an
affiliate of an issuer who intends to
resell restricted or control securities 32
of that issuer in reliance upon Securities
Act Rule 144.33 Under Securities Act
Rule 144(h), an affiliate who intends to
resell securities of the issuer during any
three-month period in a transaction that
exceeds either 5,000 shares or has an
aggregate sales price of more than
$50,000 must file a Form 144
concurrently with either the placing of
an order with a broker to execute the
sale or the execution of a sale directly
with a market maker.
Rule 101(b) of Regulation S–T permits
Form 144 to be filed electronically or in
paper if the issuer of the securities is
subject to Exchange Act reporting
requirements. If the issuer of the
securities is not subject to Exchange Act
reporting requirements, Rule 101(c)(6)
of Regulation S–T requires Form 144 to
be filed in paper.34 During the 2019
32 See
Rule 144(h).
Rule 144(a)(1) (defining ‘‘affiliate of the
issuer as a person who directly, or indirectly
through one or more intermediaries, controls, or is
controlled by, or is under common control with, the
issuer).
34 In April 2020, in recognition of several
logistical difficulties related to the submission of
Form 144 in paper pursuant to Rules 101(b)(4) or
101(c)(6) of Regulation S–T, as well as ongoing
33 See
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calendar year, the Commission received
over 31,000 Form 144 filings. Based on
an analysis of these filings, Commission
staff estimates that approximately 99
percent related to the resale of securities
of issuers subject to Exchange Act
reporting requirements. Although most
of these Form 144 filings can be made
electronically, during the 2019 calendar
year, only 221 Form 144 filings were
made electronically and the vast
majority were filed in paper.35
2. Proposed Amendments
a. Mandatory Electronic Filing of Form
144
Since the Commission’s
implementation of the Electronic Data
Gathering, Analysis, and Retrieval
system (‘‘EDGAR’’), we have sought to
make the system more comprehensive
by subjecting more filings to our
mandated electronic filing
requirements. The mandated electronic
submission of documents required to be
filed with the Commission has enabled
investors, market participants, and other
EDGAR users to access more quickly the
information contained in registration
statements, periodic reports, and other
filings made with the Commission. We
are proposing rule amendments that
would mandate the electronic filing of
Form 144 and eliminate the paper filing
option. Specifically, we propose to
amend Rules 101(a) and 101(b) of
Regulation S–T to mandate the
electronic filing of all Form 144 filings
for the sale of securities of Exchange Act
reporting companies.
Mandating the electronic filing of
Form 144 would facilitate more efficient
health and safety concerns related to COVID–19, the
Division of Corporation Finance provided
temporary no-action relief that specified that it
would not recommend enforcement action to the
Commission if Forms 144 for the period from and
including April 10, 2020 to June 30, 2020 were
submitted as a complete PDF attachment and
emailed to the Commission in lieu of filing the form
in paper. Subsequently, on June 25, 2020, the
Division of Corporation Finance updated this noaction relief by indefinitely extending it from the
period beginning on April 10, 2020. See Division of
Corporation Finance Statement Regarding
Requirements for Form 144 Paper Filings in Light
of COVID–19 Concerns, U.S. Sec. & Exchange
Comm’n (June 25, 2020), available at https://
www.sec.gov/corpfin/announcement/form-144paper-filings-email-option-update.
35 The paper filings of Form 144 are retained in
the Commission’s public reference room for a
period of 90 days. Investors or other interested
parties wishing to access and review a Form 144
filed in paper must do so in person at our public
reference room or subscribe to a third party
information service that records and distributes the
information electronically after a paper Form 144 is
filed. Due to pandemic conditions, prospective data
users cannot, at this time, access the Commission’s
public reference room. Therefore, access to paper
filings is limited to those records which have been
obtained and incorporated by vendor databases.
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storage and retrieval of the transaction
information and facilitate analysis of
this information. In addition, as
described in more detail below, Form
144 filers would benefit from the
planned EDGAR changes to make the
form an online fillable document that
would make electronic filing easier.
Under the proposed amendments,
affiliates of an issuer that is subject to
Exchange Act reporting who resell or
expect to resell securities in reliance
upon Rule 144 in an amount exceeding
the Form 144 filing thresholds would be
required to file a Form 144
electronically on EDGAR.36 Any Form
144 filer who has not previously made
an electronic filing on EDGAR would
need to apply for EDGAR access in
accordance with the EDGAR Filer
Manual in order to file documents on
EDGAR. We are also proposing to
provide a six-month transition period
after the effective date of the
amendments to Regulation S–T to give
Form 144 paper filers who would be
first-time electronic filers sufficient time
to apply for codes to make filings on
EDGAR.
In addition, we propose to amend
Rule 144(h)(1) to delete the requirement
that an affiliate send one copy of the
Form 144 notice to the principal
exchange, if any, on which the restricted
securities are admitted to trading. This
provision was designed for Form 144
filings made in paper and will no longer
be needed if we mandate the electronic
filing of Form 144.37
We are also proposing minor changes
to Form 144 to update the form and
eliminate certain personally identifiable
information (‘‘PII’’) and immaterial
information fields that are unnecessary.
Specifically, we propose to delete the
fields requiring the home address of the
person for whose account the securities
are to be sold and the IRS identification
number of the issuer of the securities.38
36 An affiliate, however, would be able to file the
form in paper pursuant to a temporary hardship
exemption under 17 CFR 232.201 (Rule 201 of
Regulation S–T) if the affiliate experiences
unanticipated technical difficulties preventing the
timely preparation and submission of the electronic
filing.
37 Many exchanges have rules or guidance that
specify that it is not necessary for a company listed
on the exchange to provide it with physical copies
of any documents that the company has filed on
EDGAR. See, e.g., New York Stock Exchange Listed
Company Regulation Guidance Memo, N.Y. Stock
Exch. (Feb. 20, 2018), available at https://
www.nyse.com/publicdocs/nyse/regulation/nyse/
2018_Listed_Company_Regulation_Guidance_
Memo.pdf.
38 For purposes of Form 144, we have determined
that we can achieve our regulatory objectives
without the PII. Furthermore, the IRS identification
number of the issuer is redundant as this
information is required to be disclosed on the cover
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We intend to provide an online
fillable document on EDGAR for
entering information required by Form
144 and to streamline the electronic
filing process for those filing both a
Form 144 and a Form 4 to report the
same sale of equity securities, as
discussed in more detail below. In
connection with these changes, we are
also proposing to amend the Form 144
filing deadline to coincide with the
Form 4 filing deadline.39 Specifically,
we propose to amend Securities Act
Rule 144(h)(2) to revise the filing
deadline to require that a Form 144 be
filed before the end of the second
business day following the day on
which the sale of securities has been
executed or the deemed date of
execution 40 rather than have it due
concurrently with either the placing of
an order with a broker to execute the
sale or the execution of a sale directly
with a market maker, as currently
required.
The proposed amendment to the Form
144 filing deadline would facilitate this
new filing process. This filing deadline
would apply to all Forms 144,
regardless of whether a Form 4 also
needs to be filed for the same
transaction.41 The proposal therefore
would provide all Form 144 filers more
time to file the form, yet would
generally result in the Form 144
becoming publicly available earlier than
under the existing filing deadline
because the Form 144 would be filed
electronically rather than mailed to the
Commission in paper at the time the
sale is executed. The proposed filing
deadline, however, would not preclude
filers from filing a Form 144
concurrently with either the placing of
an order to execute a sale with a broker,
page of registration statements and periodic reports
and would be available through these forms.
39 We are proposing to amend the filing deadline
for Form 144 to facilitate the simultaneous filing of
Form 144 and Form 4. See infra Section II.B.2.c.
40 Consistent with the exception to the Form 4
two-business day filing deadline provided in
Exchange Act Rule 16a–3(g)(2)(i) [17 CFR 240.16a–
3(g)(2)(i)], the proposed amendments provide that if
the transaction is pursuant to a contract, instruction
or written plan that satisfies the affirmative defense
conditions of Exchange Act Rule 10b5–1(c), and the
affiliate does not select the date of execution, the
date on which the executing broker, dealer notifies
the security holder of the execution of the
transaction is deemed the date of execution for a
transaction.
41 To better reflect the proposed change to the
Form 144 filing deadline, we also propose to revise
the title of Form 144 to read: ‘‘Notice of sale or
proposed sale of securities pursuant to Rule 144
under the Securities Act of 1933.’’ We are also
proposing a conforming amendment to Instruction
3(d) to Form 144 to clarify that the filer should
provide the total sales proceeds for completed sales
rather than the aggregate market value for sales that
have not yet been completed.
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or the execution of a sale directly with
a market maker.
Finally, we observe that the
Commission considered Rule 144 to be
in the nature of an experiment at the
time of its adoption in 1972.42 The
Commission has used Form 144 filings
to monitor the operation of the rule and
as an enforcement tool to assist in the
detection of abuses.43 Since the
Commission initially adopted the Rule
144 requirements, the Commission has
amended the rule to eliminate certain
Form 144 filing requirements.44 While,
at this time, we are not proposing the
elimination of the current Form 144
filing requirement for sales of securities
by affiliates of issuers that are subject to
Exchange Act reporting, we are
soliciting comment on the continued
utility of Form 144 filings.
Request for Comment
10. Do investors or other market
participants have an interest in the
information provided by Form 144?
Does Form 144 provide important
information that would not otherwise be
publicly available? Do investors or other
market participants obtain benefits from
this information? If so, please describe
the benefits.
11. How do market participants and
the public currently access Form 144
information? Should we mandate the
electronic filing of Form 144 for
affiliates’ sales of securities of issuers
that are subject to Exchange Act
reporting and that exceed the thresholds
in Rule 144(h), as proposed? Would
electronic filing of Form 144 make those
forms more readily accessible to the
public? Would electronic filing result in
cost savings? Given that the majority of
Form 144 filings are made in paper, has
the inability to access the paper Forms
144 filed during the pandemic had any
effect on the usefulness of this
information to market participants and
the public?
12. Should we, as proposed, amend
Rule 144(h)(1) to eliminate the
requirement that an affiliate send one
copy of the Form 144 notice to the
principal exchange, if any, on which the
restricted securities are admitted to
trading?
13. Should we amend Form 144 to
update the form and eliminate certain
42 See
1972 Adopting Release, supra note 7, at
595.
43 See Resales of Securities, Release No. 33–6252
(Oct. 24, 1980) [45 FR 72685 (Nov. 3, 1980)] at
72686.
44 See, e.g., 1981 Adopting Release, supra note 17,
at 12197 (amending Rule 144 to relieve nonaffiliates from the Form 144 filing requirement and
explaining that the ‘‘costs and burdens of the
requirement outweigh its usefulness, at least in this
area’’).
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5069
information, as proposed? Is there any
other information in Form 144 that we
should remove because it is unnecessary
to further the purposes of Rule 144? Is
there any other information that should
be included in the form?
14. Should we instead continue to
permit a Form 144 filer to have the
option of filing in paper or
electronically?
15. In the alternative, should we
eliminate the Form 144 filing
requirement altogether?
16. Is the proposed six-month
transition period appropriate? Would a
shorter or longer transition period be
more appropriate (e.g., three months,
nine months)?
17. Is it common for Form 144 filers
to use a filing agent or a third party such
as a broker to prepare and submit the
Form 144 filing? If so, would the
proposed amendments create any
difficulties in the filing process or add
costs to the process?
18. Should we amend the Form 144
filing deadline to coincide with the
Form 4 filing deadline, as proposed? If
not, should we change the deadline in
some other way?
19. If we mandate the electronic filing
of Form 144 without amending the
filing due date, the Form 144
disclosures would be available to
investors and other EDGAR users more
quickly than if we amend the Form 144
filing deadline to coincide with the
Form 4 filing deadline. Should we
maintain the existing Form 144 filing
deadline that requires the form to be
transmitted for filing concurrently with
either the placing with a broker of an
order to execute a sale of securities in
reliance on the rule or execution of the
sale directly with a market maker? Is
there a benefit to having the Form 144
filed at an earlier date than a Form 4
that reports the same sale? If so, how
does that benefit compare to the
efficiencies that a filer subject to both
the Form 144 and Form 4 requirements
could realize from being able to file both
forms simultaneously?
b. Eliminating Form 144 Filing
Requirement for Investors Selling
Securities of Non-Reporting Issuers
As noted above, the Commission staff
estimates that approximately one
percent of the Form 144 filings made
during the 2019 calendar year related to
the resale of securities of issuers that are
not subject to Exchange Act reporting.45
The proposed amendments discussed
above that would mandate the
electronic filing of a Form 144 notice for
the securities of an Exchange Act
45 See
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reporting issuer would reduce a large
majority of the paper Form 144 filings
that the Commission receives. Although
one of the primary goals of EDGAR is to
facilitate the dissemination of financial
and business information contained in
Commission filings,46 given the limited
number of paper Form 144 filings
related to non-reporting issuers that we
receive, we believe that the benefits of
having this information filed
electronically would not justify the
burdens on filers. For this reason, we
are proposing to amend Rule 144 and
Rule 101(c)(6) of Regulation S–T to
require affiliates relying on Rule 144 to
file a notice of sale on Form 144 only
when the issuer of the securities is
subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
Form 144 provides the Commission,
among other things, with information
concerning the issuer, the person on
whose behalf the securities are to be
sold, the broker who will execute the
sale order, the securities to be sold, the
approximate date of sale, and other
securities of the same issuer sold during
the past three months. The form,
however, is not the sole source of
information available to the
Commission regarding resale
transactions under the rule. For
example, brokers are generally required
to make and maintain records, for a
period of time, of all purchases and
sales of securities 47 and to furnish
promptly legible, true, complete, and
current copies of those records upon
request by a representative of the
Commission.48 In addition, brokers that
execute a sale under Rule 144 must
conduct a reasonable inquiry to
determine that the person for whose
account the securities are sold is not an
underwriter or that the transaction is
not part of a distribution of securities of
the issuer.49
Although the Form 144 filing
requirement would be eliminated for
resales of securities by affiliates of
issuers that are not subject to Exchange
Act reporting, the proposed
amendments to eliminate the Form 144
filing requirement would not change
any of the other conditions of the Rule
144 safe harbor.
Request for Comment
20. Should we eliminate the Form 144
filing requirement for affiliates’ sales of
securities of non-reporting companies,
as proposed? Does Form 144 provide
46 See
Electronic Filing, Processing and
Information Dissemination System, Release No. 33–
6519 (Mar. 22, 1984) [49 FR 12707 (Mar. 30, 1984)].
47 See 17 CFR 240.17a-3 and 17 CFR 240.17a-4.
48 See 17 CFR 240.17a-4(j).
49 See 17 CFR 230.144(g)(4) (Rule 144(g)(4)).
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important information concerning the
resale of securities of non-reporting
issuers that would not otherwise be
publicly available to investors or other
users of this information? Do investors
or market participants currently rely on
Form 144 for this information or do they
rely on other publicly available sources?
If so, which other public sources are
relied upon?
21. Do investors have an interest in
the information provided by Form 144
regarding the resale of securities of nonreporting issuers? Do investors or
market participants obtain benefits from
this information? If so, please describe
the benefits.
22. We have received comments
indicating that the information
contained in Form 144 could be used to
satisfy some of the public information
requirements in Rule 144(c)(2),50 in
particular the information specified in
Rule 15c2–11(b)(5)(i)(N) and
(b)(5)(i)(P).51 For the purpose of Rule
144(c)(2), is the Rule 15c2–11
information specified in paragraphs
(b)(5)(i)(N) and (b)(5)(i)(P) publicly
available from other sources? If so,
which sources?
23. Rule 15c2–11 does not require that
the information specified in paragraphs
(b)(5)(i)(N) and (b)(5)(i)(P) of Rule 15c2–
11 be publicly available but requires, in
certain circumstances, that a brokerdealer make it available upon request of
a person expressing an interest in a
proposed transaction in the issuer’s
security. Rule 144(c)(2) requires the
information specified in these
paragraphs to be publicly available.
Should we amend Rule 144(c)(2) to
50 See letter from OTC Markets Group Inc. (dated
Sept. 24, 2019), available at https://www.sec.gov/
comments/s7-08-19/s70819-6193364-192517.pdf,
which was submitted in response to the Concept
Release on Harmonization of Securities Offerings
Exemptions, Release No. 33–10649 (Jun. 18, 2019)
[84 FR 30460 (Jun. 26, 2019)] (recommending ‘‘prepublication’’ of Form 144 so that the information
contained in it is publicly available for the purposes
of rule 144(c)(2)). See also U.S. Sec. & Exch.
Comm’n, Report on the 39th Annual Small Business
Forum 31 (2020) (recommending ‘‘pre-publication’’
of Form 144), available at https://www.sec.gov/files/
2020-oasb-forum-report-final_0.pdf.
51 See 17 CFR 240.15c2–11. Rule 15c2–
11(b)(5)(i)(N) requires information about whether
the broker or dealer or any associated person of the
broker or dealer is affiliated, directly or indirectly,
with the issuer. Rule 15c2–11(b)(5)(i)(P) requires
information about whether the quotation is being
submitted or published, directly or indirectly, by or
on behalf of the issuer or a company insider and,
if so, the name of such person and the basis for any
exemption under the Federal securities laws for any
sales of such securities on behalf of such person.
In the recently adopted amendments to Rule 15c2–
11, the prior references to Rule 15c2–11(a)(5)(xiv)
and (a)(5)(xvi) were changed to (b)(5)(i)(N) and
(b)(5)(i)(P). See Publication or Submission of
Quotations Without Specified Information, Release
No. 33–10842 (Sept. 16, 2020) [85 FR 68124 (Oct.
27, 2020)].
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require the information in these
paragraphs to be available upon request
in accordance with the provisions of
Rule 15c2–11(b)(5)(ii) instead of
publicly available?
24. How do the costs of electronically
filing a Form 144 notice related to the
resale of securities of a non-reporting
issuer compare with the benefits of
having the form available on EDGAR?
c. Filing Options for Form 4 and Form
144
Section 16 of the Exchange Act
applies to every person who is the
beneficial owner of more than 10
percent of any class of equity security
registered under Section 12 of the
Exchange Act 52 and each officer and
director (collectively, ‘‘reporting
persons’’ or ‘‘insiders’’) of the issuer of
the security. Upon becoming a reporting
person, or upon the Section 12
registration of that class of securities,
Section 16(a) requires a reporting person
to file an initial report with the
Commission disclosing the amount of
his or her beneficial ownership of all
equity securities of the issuer. To keep
this information current, Section 16(a)
also requires insiders to report changes
in such ownership. Under Rule 16a–3 of
the Exchange Act,53 insiders are
required to report most changes in
beneficial ownership, including
purchases and sales of securities, on
Form 4.
As discussed above, Rule 144 requires
an affiliate of an issuer to file a Form
144 concurrently with either the placing
with a broker of an order to execute a
sale of securities in reliance upon Rule
144 or the execution directly with a
market maker of such a sale. Some of
the disclosures required by Form 144
duplicate the disclosure requirements of
Form 4. For example, both Form 144
and Form 4 require disclosure
concerning the title of the class of
securities being sold, the number of
shares subject to sale, the aggregate
market value of those shares, and the
date of sale.
Many affiliates of an issuer under
Rule 144 are also insiders of that issuer
under Section 16 of the Exchange Act.
Affiliates selling securities under Rule
144 often are required to file a Form 4
within two business days after they file
a Form 144 to report information
regarding the same sale of securities.54
52 15
U.S.C. 78l.
CFR 240.16a–3.
54 The Sarbanes-Oxley Act of 2002 [Public Law
107–204, 116 Stat. 745] amended Section 16(a) to
require insiders to file Form 4 before the end of the
second business day following the day on which
the subject transaction has been executed or at such
other time as the Commission shall establish if the
53 17
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In June 2007, the Commission issued
a release proposing amendments to
update Securities Act Rules 144 and
145.55 In that release, the Commission
discussed possible approaches to, and
requested comment about, amending
Form 144 and Form 4 in order to reduce
duplicative requirements and
coordinate the filing requirements of
these two forms. The Commission
ultimately did not adopt any
amendments to the forms to reduce
duplicative requirements.56 The
Commission also has received a
rulemaking petition requesting that the
Commission revise its rules and
regulations so that Form 144 be
combined into Form 4 for persons that
need to file both forms.57
If we adopt the proposed amendments
to Form 144 discussed above, we intend
to modify EDGAR to provide filers with
the option to file a Form 144 and a Form
4 through a single user interface. The
system would use the information
entered into the fields to create separate
Form 4 and Form 144 filings. After the
information is entered, a filer would
have the opportunity to correct errors
and verify the accuracy of the
information before choosing to file one
or both forms on EDGAR. Once the
information is filed on EDGAR, the
system would provide the filer with
separate accession numbers for the
Form 4 and Form 144 and also a return
copy for both the Form 4 and Form 144
shortly after filing. We believe these
changes would make the filing of these
forms more efficient for filers subject to
both reporting requirements. This filing
option, however, would not be available
for a Form 4 filing that is made on
behalf of multiple insiders.58
2-day period is not feasible. On August 27, 2002,
the Commission adopted rule and form
amendments to implement this filing deadline. See
Ownership Reports and Trading by Officers,
Directors and Principal Security Holders, Release
No. 34–46421 (Aug. 27, 2002) [67 FR 56462 (Sept.
3, 2002)].
55 17 CFR 230.145. See Revisions to Rule 144 and
Rule 145, Release No. 33–8813 (June 22, 2007) [72
FR 36822 (July 5, 2007)].
56 In the 2007 Adopting Release, the Commission
stated that it expected to issue a separate release in
the future to provide affiliates that are subject to
both the Form 4 and Form 144 filing requirements
with greater flexibility in satisfying their
requirements. See 2007 Adopting Release, supra
note 19, at 72 FR 71554 and 71555.
57 See Request for rulemaking to combine Form
144 into Form 4, File No. 4–671 (Dec. 13, 2013)
(requesting that the Commission amend its rules to
combine Form 144 with Form 4), https://
www.sec.gov/rules/petitions/2013/petn4-671.pdf.
The proposal, if adopted, would achieve the
objectives sought by the petitioner.
58 Form 4 permits multiple insiders to file on a
single form if they all have an interest in the
transaction(s) being reported. Form 144, however,
does not have a similar feature.
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In addition, we would make Form 144
available online as a fillable document
that could be used by filers that do not
have a corresponding Form 4 reporting
obligation, as well as those who need to
report the same sale on Form 4 and
Form 144 but choose to enter the
information separately for each form.
An online fillable form would enable
the convenient input of information,
and support the electronic assembly of
such information and transmission to
EDGAR, without requiring a Form 144
filer to purchase or maintain additional
software or technology. The fillable
form would be similar to other fillable
forms that are currently available to file
Forms D,59 3, 4, and 5.
Request for Comment
25. If the Commission adopts the
proposed rules, should we enable the
filing of a Form 4 and Form 144 on
EDGAR through a single user interface?
Would this option make the filing of
these documents more efficient for
filers?
26. Are there alternative methods that
we should consider that could reduce
the duplicative requirements of Form
144 and Form 4?
d. Rule 10b5–1(c) Transaction
Indication in Forms 4 and 5
Form 144 requires a selling security
holder to represent, as of the date that
the form is signed, that he or she does
not know any material adverse
information in regard to the current and
prospective operations of the issuer of
the securities to be sold which has not
been publicly disclosed. In 2007, we
amended Form 144 to allow filers who
satisfy Rule 10b5–1(c) by adopting a
written trading plan or providing
trading instructions to make that
representation as of the date they
adopted the plan or gave instructions,
rather than the date they signed the
Form 144.60
Exchange Act Rule 16a–3(g) provides
that a reporting person must report
specified changes in beneficial
ownership on Form 4 before the end of
59 17
CFR 239.500.
2007 Adopting Release, supra note 19.
Exchange Act Rule 10b5–1 defines when a purchase
or sale of a security constitutes trading ‘‘on the basis
of’’ material nonpublic information in insider
trading cases brought under Section 10(b) of the
Exchange Act [15 U.S.C. 78j] and Rule 10b–5.
Specifically, a purchase or sale of a security of an
issuer is ‘‘on the basis of’’ material nonpublic
information about that security or issuer if the
person making the purchase or sale was aware of
the material nonpublic information when the
person made the purchase or sale. Rule 10b5–1(c)
establishes affirmative defenses that permit a
person to trade in circumstances where it is clear
that the information was not a factor in the decision
to trade.
60 See
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5071
the second business day following the
date of execution for the transaction. In
addition, Rule 16a–3(f) provides that
every person who at any time during an
issuer’s fiscal year was subject to
Section 16 of the Exchange Act must file
a Form 5 within 45 days after the
issuer’s fiscal year end to disclose
certain beneficial ownership
transactions and holdings not reported
previously on Forms 3,61 4, or 5. For
transactions executed pursuant to a
contract, instruction, or written plan for
the purchase or sale of equity securities
that satisfies the affirmative defense
conditions of Rule 10b5–1(c) 62 and for
which the reporting person does not
select the date of execution, the date on
which the executing broker, dealer, or
plan administrator notifies the reporting
person of execution of the transaction is
deemed the date of execution, so long as
the notification date is not later than the
third business day following the trade
date.63
We propose to permit a Form 4 filer,
at the filer’s option, to indicate through
a check box on the form that a sale or
purchase reported on the form was
made pursuant to Rule 10b5–1(c).We
believe that the check box option would
provide Form 4 filers with an efficient
method to provide this disclosure.
Consistent with current practice, filers
could provide additional information,
such as the date of a Rule 10b5–1 plan,
in the ‘‘Explanation of Responses’’
portion of the form along with other
relevant information about the
transactions reported on the Form 4. We
propose to add a similar checkbox to
Form 5.64
61 17
CFR 249.103.
persons sometimes provide
additional disclosure in the ‘‘Explanation of
Responses’’ portion of Form 4 indicating that a
transaction satisfies the affirmative defenses
conditions of Rule 10b5–1(c). For example, a
reporting person may state that a transaction was
made pursuant to a written trading plan and
indicate the date the plan was adopted.
63 See 17 CFR 240.16a–3(g)(2) (Exchange Act Rule
16a-3(g)(2)) and 17 CFR 240.16a–3(g)(4) (Exchange
Act Rule 16a–3(g)(4)). If the notification date is later
than the third business day following the trade date,
the date of execution is deemed to be the third
business day following the trade date.
64 Under the proposal, the check boxes on Forms
4 and 5 would permit filers to indicate whether a
transaction was made pursuant to a binding
contract, instruction, or written trading plan for the
purchase or sale of equity securities of the issuer
that satisfies the conditions of Rule 10b5–1(c). This
is broader than the representation on Form 144,
which refers only to written trading plans and
trading instructions, because the purpose of the
proposed amendment is to simplify reporting for
filers who provide Rule 10b5–1(c) transaction
information in the ‘‘Explanation of Responses’’
portion of Forms 4 and 5, and some filers provide
this information with respect to transactions made
pursuant to binding contracts.
62 Reporting
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Request for Comment
27. Should we add a check box to
Forms 4 and 5 to provide filers the
option of disclosing that their sales or
purchases were made pursuant to Rule
10b5–1(c)?
28. Should we instead require Form 4
and Form 5 to indicate via a check box
whether any of their reported
transactions were made pursuant to
Rule 10b5–1(c) rather than provide it as
an option for the filer?
29. Would a Rule 10b5–1(c) check box
on Forms 4 and 5 provide useful
information to investors and market
participants?
II. Economic Analysis
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A. Introduction
The Commission is proposing
amendments to Rule 144, Form 144,
Form 4, Form 5, and Regulation S–T.
We are mindful of the costs imposed by
and the benefits obtained from our rules
and the proposed amendments.65 The
discussion below addresses the
potential economic effects of the
proposed amendments. These effects
include the likely benefits and costs of
the proposed amendments and
reasonable alternatives thereto, as well
as the potential effects on efficiency,
competition, and capital formation. We
attempt to quantify these economic
effects whenever possible; however, due
to data limitations, in many cases we are
unable to do so. When we are unable to
provide a quantitative assessment, we
provide a qualitative discussion of the
economic effects instead.
Due to the differing nature of the
proposed amendments’ baselines,
affected parties, and anticipated
economic effects, we provide separate
analyses of the proposed changes. We
first discuss the economic effects of the
proposed amendments to the holding
period for securities acquired upon
conversion or exchange of certain
market-adjustable securities issued by
unlisted issuers, and then separately
discuss the proposed amendments to
Form 144, Form 4, Form 5, and
Regulation S–T.
65 Section 2(b) of the Securities Act, 15 U.S.C.
77b(b), and Section 3(f) of the Exchange Act, 15
U.S.C. 78c(f), require us, when engaging in
rulemaking that requires us to consider or
determine whether an action is necessary or
appropriate in the public interest, to consider, in
addition to the protection of investors, whether the
action will promote efficiency, competition and
capital formation. In addition, Section 23(a)(2) of
the Exchange Act, 15 U.S.C. 78w(a)(2), requires us
to consider the effects on competition of any rules
that the Commission adopts under the Exchange
Act and prohibits the Commission from adopting
any rule that would impose a burden on
competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
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B. Proposed Amendments to Holding
Period for Market-Adjustable Securities
1. Broad Economic Considerations
The size of the market for all U.S.issued convertible securities has
historically been slightly less than half
the size of the seasoned equity market
and just less than one-tenth the size of
the regular bond market.66 Despite this
difference in size, it is generally
understood that the market for
convertible securities is an important
and highly innovative market that can
provide solutions to investment
inefficiencies or barriers to capital
formation that would otherwise occur if
issuers were restricted to offerings of
only non-hybrid securities.67 Studies
have suggested that because convertible
securities can mitigate certain agency
problems, forms of adverse selection,
overinvestment, and misallocation of
risk, they enable firms to make
investments in business opportunities
that would otherwise be infeasible for
those firms.68 Empirical evidence on the
impact of these investments on longerterm firm value and shareholder wealth,
however, is ambiguous on whether such
investments represent efficient
allocations of external financing.69
Interpreting the value of convertible
bond financing from market outcomes
like short-term stock returns or longterm stock price performance is further
complicated by the increase in arbitrage
hedge fund activity and arbitrage-related
short-selling.70 Therefore, while there
are a number of reasons why convertible
securities can uniquely facilitate
investments of economic value, it is
66 Marie Dutordoir et al., What We Do and Do Not
Know About Convertible Bond Financing, 24 J.
CORP. FIN. 3 (2014) (‘‘Dutordoir’’).
67 Id.; see also Craig Lewis and Patrick
Verwijmeren, Convertible Security Design and
Contract Innovation, 17 J. CORP. FIN. 809 (2011).
68 See Dutordoir, supra note 66; see also Sudha
Krishnaswami & Devrim Yaman, The Role of
Convertible Bonds in Alleviating Contracting Costs,
78 Q. REV. ECON. FIN. 942 (2008); Craig Lewis et
al., Agency Problems, Information Asymmetries,
and Convertible Debt Security Design, J. FIN.
INTERMEDIATION (1998).
69 See Felix Ziedler et al., Risk Dynamics
Surrounding the Issuance of Convertible Bonds, 18
J. CORP. FIN. 273 (2012); Dutordoir, supra note 66;
Craig Lewis et al., The Long-Run Performance of
Firms that Issue Convertible Debt: An Empirical
Analysis of Operating Characteristics and Analysts
Forecasts, 7 J. CORP. FIN. 447 (2001).
70 See Eric Duca et al., Why are Convertible Bond
Announcements Associated with Increasingly
Negative Issuer Stock Returns? An Arbitrage-Based
Explanation, 36 J. BANKING & FIN. 2884 (2012);
see also Stephen Brown et al., Convertibles and
Hedge Funds as Distributors of Equity Exposure, 25
REV. FIN. STUD. 3077 (2012), and Darwin Choi et
al., Convertible Bond Arbitrage, Liquidity
Externalities, and Stock Prices, 91 J. FIN. ECON.
227 (2009)
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difficult to generalize about their impact
on shareholder wealth.
Market-adjustable securities 71 are an
innovation in the market for convertible
securities dating back to the 1990s.72 By
allowing the holder of the marketadjustable security to convert at
discount to the market price (or a
reference price based on recent market
prices), the issuer can avoid the adverse
selection problems it would face by
offering equity or fixed-rate convertible
securities instead. In practice, however,
it does not appear that many issuers
have taken advantage of this aspect of
market-adjustable securities, and their
use has been concentrated in the
subpopulation of issuers who are unable
to issue additional equity or fixed-rate
convertibles, such as financially
distressed firms, other low- or norevenue firms, and those approaching
bankruptcy.73
The main economic characteristic of
market-adjustable securities is that they
may provide protection to the holder
against declines in market value from
the time of purchase of the overlying
security until the time of conversion or
exchange.74 Although the risk to
investors from purchasing such a
security is significantly lower than the
risk associated with a convertible
security with a fixed conversion rate,
risks associated with the investment
during the pre-conversion period still
exist.75
We are proposing to amend Rule
144(d)(3)(ii) to provide that the holding
period for certain securities acquired
71 In the empirical literature cited in the
Economic Analysis section, the term ‘‘floating
priced convertibles’’ is often used to denote the
‘‘market-adjustable securities’’ referred to in this
release. Other terms, such as ‘‘floating rate
convertibles’’ or ‘‘future-priced convertibles,’’ also
may be used in the literature referring to the same
securities.
72 See Dutordoir, supra note 66.
73 See Austin Dwyer et al., An Investigation of
Death Spiral Convertible Bonds, (Tenn. State Univ.,
Working Paper, 2018) (‘‘Dwyer et al.’’); Zachary T.
Knepper, Future-Priced Convertible Securities and
the Outlook for Death Spiral Securities-Fraud
Litigation, 26 WHITTIER L. REV. 359 (2004); Pierre
Hillion & Theo Vermaelen, Death Spiral
Convertibles, 71 J. Fin. Econ. 381 (2004) (‘‘Hillion
& Vermaelen’’) (examining 467 floating-priced
convertibles issued over the 1994–1998 period and
finding, among other things, that such convertibles
are issued by younger, smaller, riskier issuers, for
which adverse selection problems are potentially
large.)
74 One common method that may provide such
protection is the inclusion of a floating conversion
rate. When the amount of securities to be received
upon conversion of a convertible security is
conditioned on the stock price performance of the
issuer prior to conversion, the conversion ratio is
known as a floating conversion rate.
75 For example, investors are exposed to risk
during the pre-conversion period if the company
becomes bankrupt and its stock price declines to
zero value.
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upon conversion or exchange of marketadjustable securities issued by unlisted
issuers would not begin until the
conversion or exchange occurs. The
proposed amendment would expose the
holder of the market-adjustable security
to the economic risk of the underlying
securities during the proposed
corresponding holding period following
the conversion or exchange.
We expect that exposing these
investments to risk during the postconversion or post-exchange period
would limit market-adjustable security
holders’ ability to immediately resell
converted or exchanged marketadjustable securities, which might
otherwise constitute a public
distribution of securities without the
investor protections afforded by
registration. However, the proposed
holding period would reduce the
liquidity of these investments, and thus
could prevent some unlisted issuers
from obtaining financing or increasing
the costs of doing so, particularly since
market-adjustable securities may
constitute a ‘‘last resort’’ form of
financing for issuers.76 To the extent
that such firms have presented attractive
arbitrage opportunities, it is foreseeable
that demand-side investors would hold
significant bargaining power in the
design of the securities’ specific terms
and could require additional
compensation for limitations imposed
upon that power or on final contract
terms in future exchanges.
Overall, we believe that the net
impact of the proposed amendments
may depend on the relative significance
of these two competing consequences.
2. Economic Baseline
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The economic baseline for the
proposed amendment includes unlisted
issuers that issue, or may seek to issue,
market-adjustable securities.77 We
estimate that as of the end of 2019, there
were approximately 2,760 unlisted
reporting issuers.78 We find that during
76 See Ming Dong et al., Why Do Firms Issue
Convertible Bonds? 7 CRITICAL FIN. REV. 111
(2018) (‘‘Dong et al.’’). See also Hillion &
Vermaelen, supra note 73; Helgi Walker et al.,
Aggressive SEC Enforcement Actions Could Limit
Small Business Recovery Resources, NATIONAL
LAW JOURNAL (Aug. 20, 2020, 1:08 p.m.),
available at https://www.gibsondunn.com/wpcontent/uploads/2020/08/Walker-GoldsmithSeibald-Richman-Aggressive-SEC-EnforcementActions-Could-Limit-Small-Business-RecoveryResources-NLJ-08-20-2020.pdf.
77 See Section I.B.2
78 This estimate is based upon staff review of all
filers who submitted a 10–K, 20–F, 40–F, or an
amendment thereto within calendar year 2019.
Unlisted reporting issuers are identified by unique
CIKs as those without a class of securities registered
pursuant to Section 12(b) of the Exchange Act.
Because of limitations in available data, we were
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2019, 106 of these issuers submitted a
combined 207 disclosures regarding
convertible securities issued that
included a floating conversion rate
feature.79 Of the identified floating
conversion rate issues, roughly 80
percent involved convertible debt and
20 percent involved convertible
preferred stock. Issuers of these
securities are predominantly nonaccelerated filers 80 and smaller
reporting companies (‘‘SRCs’’) 81
concentrated in pharmaceutical,
biotechnology, and business technology
industries.82 Approximately 25 percent
of these convertible issuers had no
revenue in their most recent fiscal year,
but had average net income and market
capitalization of approximately ¥$5.3
million and $18.8 million, respectively.
For the remaining 75 percent of issuers,
average revenue, net income, and
market capitalization values were $7.2
million, ¥$12.0 million, and $12.3
million for the most recent fiscal year
reported in 2019. We are unable to
assess such characteristics for the
population of unlisted, non-reporting
issuers given current limitations to data
availability.
Of Form 144 filings submitted in
calendar year 2019, approximately two
unable to construct a reliable estimate of the
number of unlisted, non-reporting issuers who may
also be affected by the proposed amendments. We
request information on such issuers in the Request
for Comment. See infra Section II.B.6.
79 This number is based on a search of Forms 8–
K (17 CFR 249.308) filed by unlisted issuers that
indicate the issuance of a convertible security that
appears to have a floating conversion rate. If there
are other issued securities by unlisted issuers that
meet the definition of a market-adjustable security,
the number reported represents a lower bound of
the prevalence of such securities in the market.
80 Although Rule 12b–2 defines the terms
‘‘accelerated filer’’ and ‘‘large accelerated filer,’’ it
does not define the term ‘‘non-accelerated filer.’’ If
an issuer does not meet the definition of accelerated
filer or large accelerated filer, it is considered a nonaccelerated filer. See Accelerated Filer and Large
Accelerated Filer Definitions, Release No. 34–88365
(Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)]
(Accelerated Filer Adopting Release), https://
www.sec.gov/rules/final/2020/34-88365.pdf
81 ‘‘Smaller reporting company’’ is defined in 17
CFR 229.10(f) as an issuer that is not an investment
company, an asset-backed issuer (as defined in 17
CFR 229.1101), or a majority-owned subsidiary of
a parent that is not a smaller reporting company
and that: (i) Had a public float of less than $250
million; or (ii) had annual revenues of less than
$100 million and either no public float, or a public
float of less than $700 million.
82 In calendar year 2019, all 106 identified
unlisted reporting issuers of floating-rate
convertibles self-identified as either a nonaccelerated filer, a smaller reporting company, or
both. Insofar as recently adopted amendments to
the definitions of accelerated filer and smaller
reporting company will effect cost savings for
issuers newly eligible as non-accelerated filers or
smaller reporting companies, the ability to reinvest
such savings in business operations may to some
degree offset the potential increased costs of
financing to issuers affected by the proposed
amendment to Rule 144(d)(1)(ii).
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5073
percent pertained to transactions in
reporting, unlisted issuances and only
one percent to intended sales of nonreporting, unlisted issuances.
3. Benefits and Costs to Proposed
Amendment to Rule 144(d)(3)(ii)
As observed, use of the current
tacking provisions essentially eliminates
the holding period that would otherwise
apply to the underlying securities after
conversion or exchange, enabling
holders of the overlying securities to
convert and then immediately sell the
underlying securities received upon
conversion or exchange to the open
market.83 Investments in such securities
carry little risk given the floating
conversion rate and the ability of
holders to sell the stock to the open
market immediately upon conversion.
The proposed amendment to Rule
144(d)(3)(ii) would require the holding
period of the underlying securities to
begin upon conversion or exchange of
the overlying securities by the holder.
Upon conversion or exchange, the
amount or value of the underlying
securities received by the holder would
have been determined. The proposed
restriction from selling the underlying
securities in the open market during the
holding period would put the value of
the underlying securities and the
holder’s investment at risk because,
upon conversion or exchange, any
subsequent decline in the stock price of
the underlying securities during the
holding period would result in a
decrease in the value of the investment
to the holder.
The proposed amendment to Rule
144(d)(3)(ii) would likely have a number
of benefits. We believe this proposed
amendment would curb the occurrence
of situations where purchasers of such
instruments have a view to an
unregistered public distribution.
Restricting the underlying securities
from being sold to the broader market
during the proposed holding period
would introduce greater risk to the
holder of the market-adjustable
securities. During the holding period,
any decline in the price of the
underlying securities would decrease
the value of the investment. We expect
that this proposed amendment would
discourage parties from engaging in
such transactions because they would
no longer be able to immediately
distribute the underlying securities on
an unregistered basis to capture the
discount feature of these instruments.
Instead, such parties would now be
exposed to economic risk for the
requisite holding period following
83 See
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conversion. To the extent that this
would lead to fewer instances of
significant, unregistered but public
distributions of the underlying
securities, it would enhance investor
protection.
However, we anticipate that the
proposed amendment to Rule
144(d)(3)(ii) may also impose costs on
some market participants including, but
not limited to, an increase in the cost of
financing and a decrease in total access
to financing for unlisted issuers. The
proposed post-conversion holding
period would reduce the liquidity of
these investments. As a consequence,
investors are likely to demand
additional compensation for providing
capital through market-adjustable
securities to these issuers. Academic
literature links the issuance of
convertibles with a floating conversion
rate, such as market-adjustable
securities, to smaller, potentially higher
growth issuers with elevated likelihoods
of bankruptcy and less diversified
sources of potential revenue that are in
need of immediate financing.84 The
same literature also suggests that such
issuers have limited options to raise
capital due to their characteristics and
issue market-adjustable securities, as a
‘‘last resort’’ form of financing. To the
extent that these issuers have limited
options to raise capital, the proposed
amendment may also trigger changes to
the design of these contracts in order to
provide additional compensation to
investors for the increase in risk. For
example, investors may demand a
steeper upfront discount when investing
in these securities.
The net effect of the proposed
amendment on the affected issuers’
other existing shareholders is unclear.85
The proposed amendment could affect
existing shareholders of affected issuers
if it changes the propensity of such
issuers to issue unregistered marketadjustable securities or if it changes the
terms of those securities. Conversion of
these unregistered securities may dilute
the holdings of existing shareholders,
which may lead to a significant decline
in the value of existing shareholders’
holdings. If the proposed amendment
changes the propensity of issuers to
issue unregistered market-adjustable
securities, it could also affect the
likelihood of such effects on existing
shareholders.
Similarly, if as a result of the
proposed amendment, potential buyers
of unregistered market-adjustable
securities demand a higher conversion
84 See Hillion & Vermaelen, supra note 73; Dwyer
et al., supra note 73; Dong et al., supra note 76.
85 See supra note 66 and accompanying text.
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rate, the proposed amendment may
increase the potential dilutive effects of
conversion. If shareholders are unaware
of the existence of these contracts and
plan of distribution, such as for nonreporting issuers, or if shareholders are
aware but not able to infer the
consequences of these contracts, they
may experience the negative effects of
these unregistered distributions.
Because of uncertainty surrounding how
the proposed amendment would affect
the issuance of unregistered marketadjustable securities across issuer types
and the terms of such securities, the net
effect of the proposed amendment on
the affected issuers’ other existing
shareholders is unclear. Below we
request comment on the effects of the
proposal on non-converting, existing
shareholders.
4. Effects on Efficiency, Competition,
and Capital Formation
As discussed above, the proposed
amendment is likely to have an effect on
capital formation. To the extent that the
sales of underlying securities into the
broader market following a conversion
of market-adjustable securities
constitute a distribution of securities,
the proposed amendment is likely to
reduce the number of instances in
which existing shareholders and new
investors would not have the disclosure
and liability protections that registration
provides. In addition, investors in the
underlying securities may be more
willing to increase their investments in
the issuer because they are less
concerned about potential dilution of
their holdings and therefore capital
formation may be improved.86 However,
if the costs to the issuers of these
market-adjustable securities increase,
issuers continuing to sell such securities
may raise less capital. Other issuers may
be required to seek other options for
raising capital.
Because total effects on efficiency and
competition would aggregate across
issuers, industries, and markets that the
proposed changes may impact
differentially, we anticipate that the
unique impact of the amendment to the
holding period requirements would not
be readily observable or reliably
quantified. We invite commenters to
submit data or studies that would
facilitate estimating such effects.
5. Reasonable Alternatives
We could propose to amend the
holding period for only a subset of
unlisted issuers, either reporting or nonreporting. Such an alternative would
86 See supra at note 30; see also supra Section
II.B.3.
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create an asymmetry within the subset
of unlisted issuers with regard to the
required holding period, and
accordingly provide a disincentive for
transactions in market-adjustable
securities that in effect may result in an
unregistered distribution of securities
for only a subset of unlisted issuers.
Under such alternative, it is possible
that currently observed unregistered
distributions would continue to take
place in the subset of unlisted issuers
that would not be affected by the
proposed amendments.
We could, in addition to amending
the start of the holding period, propose
to increase the holding period for
market-adjustable securities that are
issued by reporting unlisted issuers
from six months to one year to align
with the holding period for such
securities issued by non-reporting
unlisted issuers. Such alternative would
reduce the liquidity of these
investments to the holder, and
accordingly increase the issuers’
financing costs. To the extent that
market-adjustable securities are issued
by reporting unlisted issuers to replicate
the distribution of securities, it is
possible that increasing the holding
period could provide disincentives for
potentially abusive practices.
6. Request for Comment
30. What are the economic effects of
the proposed amendments to Rule
144(d)(3)(ii)? To the extent possible,
please provide any data, studies, or
other evidence that would allow us to
quantify or better qualitatively assess
the costs and benefits of the proposed
amendments to affected parties. In
particular, have we assessed all of the
costs and benefits to market participants
who would be affected by the change in
tacking provisions?
31. We seek information on the
prevalence of market-adjustable
securities issued by non-reporting
unlisted issuers. Please provide any
data, studies, or other evidence that
would allow us to quantify this
component of the industry baseline.
32. What is the impact of the
proposed rule on efficiency,
competition, and capital formation?
C. Proposed Amendments to Form 144,
Form 4, and Regulation S–T
1. Broad Economic Considerations
Existing Commission rules require the
filing in paper of Form 144 for securities
of issuers not subject to Exchange Act
reporting requirements, and allow for
either paper or electronic filing of Form
144 for securities of issuers subject to
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Exchange Act reporting requirements.87
By requiring the electronic filing of all
Forms 144, the proposed amendments
seek to lower the cost of access to Form
144 information and to enable investors,
market participants and other EDGAR
users to access that information more
quickly.88 The proposed amendments
are expected to enable those filers that
currently are permitted to file Form 144
either in paper or electronically to
benefit from the technology and
efficiency associated with electronic
filing, thereby potentially lowering the
cost and burden of existing compliance
requirements. As discussed in more
detail below, while some filers may
incur an initial cost to transition to
electronic filing, we expect that the
proposed amendments to file Form 144
electronically on EDGAR would result
in cost savings on an ongoing basis and
over the long term. Because we are
additionally proposing a six-month
transition period, filers for whom the
initial costs of transition might
otherwise be highest might reduce their
transition costs by availing themselves
of the additional time to adopt requisite
technological changes to their
submissions processes.
Additionally, the proposed
amendments would eliminate the filing
requirement for affiliates of issuers not
subject to Exchange Act reporting
requirements, thus eliminating certain
compliance costs for those affiliates.
Finally, we are proposing to allow
Form 4 and Form 5 filers, at their
discretion, to include a check box to
indicate that a sale or purchase of
securities was made pursuant to Rule
10b5–1(c). Because this would be
discretionary, we expect that filers will
elect to do so when the anticipated
benefits of doing so exceed the related
costs and that this additional
information may provide benefits to
Form 144 data users.
The discussion below addresses the
potential economic effects of the
proposed amendments, including their
likely costs and benefits as well as the
likely effects of the proposed
amendments on efficiency, competition,
and capital formation, relative to the
economic baseline, which comprises the
filing practices in existence today.
2. Economic Baseline
Existing Commission rules permit
Form 144 to be submitted either
electronically via EDGAR or in paper
form only for forms reporting proposed
sales of reporting issuers. Regulation S–
T does not provide for the electronic
filing of Form 144 to report proposed
sales of securities of issuers not subject
to Exchange Act reporting requirements.
Recently, in response to COVID–19
conditions, Commission staff
announced a no-action position that
temporarily affords Form 144 filers a
third option to submit paper Form 144s
via email.89 In the period following this
announcement, the Commission
received approximately 13,400 Form
144 submissions: 52.9 percent in paper
form, 46.5 percent electronically via
email, and 0.6 percent electronically on
EDGAR.90 Thus, while when given the
5075
option, many paper filers have elected
to submit their forms electronically via
email, very few filers have opted to file
Form 144 electronically on EDGAR.
Figures 1 and 2 provide examples to
illustrate the lag time between when
Form 144 is received by the
Commission and when that information
becomes available in a commercial
database. As seen in Figure 1, in one
commercial database, pre-COVID–19,
most Form 144 filings became available
in commercial databases six days after
being received by the Commission. We
further observe that in 2020, while the
six-day lag time for availability of the
majority of the filings remains true for
the year on aggregate, after the
additional ability to file via email was
introduced, the majority of Form 144
filings have been processed and posted
in that commercial database in fewer
than five days (Figure 2). Overall, the
number of records available via that
commercial database is considerably
lower in 2020 than in 2019, which may
reflect increased difficulty and delays in
integrating the paper form submissions
into such databases under COVID–19
conditions. Thus, while access to data
from paper submissions has been
significantly reduced by the pandemic,
we observe in Figure 2 that for
transactions disclosed via a Form 144
submitted electronically via email or
EDGAR, data vendors and those who
access Form 144 filing data from such
sources now appear to receive that
information with a shorter delay.
BILLING CODE 8011–01–P
89 See
87 See
supra Section I.C.1.
id.; see also 1972 Adopting Release, supra
note 7, at 595.
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88 See
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supra note 34.
90 Staff analysis is based on all Form 144 filings
received by the Commission between April 13 and
August 31, 2020. The average number of filings
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received during this same window of time in the
four preceding years was approximately 11,800
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a. Affected Parties 91 92
The main parties that would be
affected by the proposed amendments
are current and future filers of Form
144, specifically affiliates of an issuer
subject to Exchange Act reporting
requirements.93 It is our understanding
that the majority of affected filers
currently prepare and file these forms
individually or with the assistance of a
broker or personal counsel.94 Filings of
Forms 144 from holders of securities of
an issuer not subject to Exchange Act
reporting requirements currently make
up approximately one percent of all
Form 144 filings.95 As the majority of
Form 144 filings are paper filings, most
filers would have to modify their
processes for submitting their Form 144
filings if the Commission adopts the
proposed amendments. Based on past
filings, we estimate that approximately
12,250 filers would be required to
switch from paper filings to electronic
filings and 313 filers would no longer be
subject to filing Form 144.96
Additionally, the proposed change to
electronic filing may affect the manner
by which members of the public obtain
these filings. Currently, the public can
access these filings using EDGAR on the
Commission’s website or, for paper
filings (under normal operating
conditions), by visiting the
Commission’s public reference room in
person, or, for either format, by
subscribing to a third-party information
vendor (such as private information
aggregators that distribute the
information obtained from EDGAR or
the Commission’s public reference room
and records).97 While the proposed
amendments would not change the
general public’s ultimate access to the
Form 144 information from affiliates
selling securities of an issuer subject to
Exchange Act reporting requirements,
the public would no longer have access
91 Based on Form 144 filings accessed via
Thomson Reuters Insiders Data with the field ‘‘SEC
Receipt’’ dated between January 1, 2019 and August
31, 2020.
92 Based on Form 144 filings accessed via
Thomson Reuters Insiders Data with the field ‘‘SEC
Receipt’’ dated between January 1, 2020 and August
31, 2020.
93 See supra Section I.C.1.
94 See letter from Jesse Brill (dated Dec. 18, 2013),
available at https://www.sec.gov/rules/petitions/
2013/petn4-671.pdf.
95 See supra Section I.C.2.b.
96 These estimates assume that filers of Form 144
submissions in our data are not also affiliates of
other issuers. Because we lack data on the holdings
of filers in securities of issuers other than those
disclosed in the Form 144, we are unable to identify
any filers that are such affiliates.
97 Paper filings submitted via email based on the
staff’s no-action position are available at https://
www.sec.gov/corpfin/form-144-email. See supra
note 34.
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to similar information from the
relatively small subpopulation of
affiliates filing Form 144 to report sales
(or potential sales) of securities of
issuers not subject to Exchange Act
reporting requirements.
b. EDGAR
From 2016 to 2019, an average of
30,000 Form 144 filings were made each
year, of which an average of
approximately 250 were submitted
electronically via EDGAR. As EDGAR
submissions thus constitute less than
one percent of all Form 144 submissions
per year, the proposed amendments
could be anticipated to significantly
increase the volume of Form 144 filings
made electronically on EDGAR.98
3. Benefits and Costs of Proposed
Amendments to Form 144, Form 4, and
Regulation S–T
The proposed amendments would
change some of the Commission’s
current practices related to making
Form 144 information available to the
public. First, holders of securities of an
issuer subject to Exchange Act reporting
requirements would be required to file
Form 144 electronically. In contrast,
holders of securities of an issuer not
subject to Exchange Act reporting
requirements would no longer be
required to file Form 144. Second, the
deadline for filing a Form 144 would be
revised to coincide with the filing
deadline of Form 4, which reports
changes in beneficial ownership
(purchases and sales of securities and
derivatives and exercise of options)
rather than have it due concurrently
with either the placing of an order with
a broker to execute the sale or the
execution of a sale directly with a
market maker, as currently required. As
Form 4 is required to be submitted
within two business days of a change in
beneficial ownership, this could result
in a delay of the reporting of an
affiliate’s sale of restricted or control
securities on Form 144 by two business
days.
This proposed change in the Form
144 filing deadline could result in the
information on Form 144 sales being
made available later than under the
current rule. However, because
98 A rate of change based on the current one
percent EDGAR submission rate may slightly
overestimate the changes in volume to the extent
that the proposed removal of a filing requirement
for securities not subject to Exchange Act reporting
requirements may simultaneously decrease total
submissions. Further, based on the observed
EDGAR filing behavior of affiliates who use an
issuer’s existing access to EDGAR, the number of
new Form IDs required to be processed could be
reduced, but would not otherwise affect the
increase in submission volume.
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currently most Form 144 filings are
made in paper form and thus as a
practical matter are generally accessible
to most of the public only after a delay
of a number of days (e.g., after being
uploaded into electronic databases for
purchase as in Figure 1), it is likely that
any delay due to changing the deadline
of Form 144 to align with Form 4
submissions would be offset by the
proposed change to require electronic
filing. Under the proposal, the public
would be able to access the filing
electronically via EDGAR upon
submission rather than needing to wait
for electronic access via a commercial
database.99
After initial transition costs, the
proposed amendments are expected to
benefit all Form 144 filers. Filers are
expected to realize direct benefits in the
form of reduced time required to file
forms electronically, compared to a
paper filing, and avoided copying and
mailing expenses. Filers who make
multiple submissions of Form 144 per
year or longer submissions likely would
benefit most. Electronic filing using
EDGAR and the revised filing deadline
are expected to make the filing process
more efficient by making it easier and
less costly for filers to assure timely
receipt of the filing (e.g., filers would
have no reason to pay for premium
services such as delivery
confirmation).100 We anticipate that the
proposed amendments will also provide
benefits to users of the Form 144
disclosures by significantly reducing
both time and costs currently associated
with obtaining the data contained in
paper form submissions.101
The proposal would also modify the
data format in which Form 144 would
be electronically submitted. Form 144
would be available on EDGAR as a
fillable document, similar to other
fillable forms that filers can use such as
Forms D, 3, 4, and 5.102 An online
fillable form would enable the
convenient input of information and
support the electronic assembly of such
99 Data users who continue to choose to access
these filings via a commercial database rather than
accessing EDGAR might also be able to access them
more quickly than at present, depending on the
interplay of the two-business-day-delay and the
change from paper to electronic filing. We note that,
as seen in Figure 2, electronic databases appear to
incorporate email filings more quickly than paper
submissions, which may indicate that electronic
filings would also be processed more quickly.
100 The proposed amendments also benefit filers
by avoiding uncertainty about how to comply with
paper filing obligations in events similar to the
current COVID–19 pandemic.
101 We estimate, for example, that annual
subscription costs for access to Form 144 data from
a third party vendor would approach $2,600 per
person.
102 See supra Section I.C.2.c.
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information and transmission to
EDGAR, without requiring a Form 144
filer to purchase or maintain additional
software or technology, thus minimizing
the compliance costs. This modification
of the data format of Form 144 would
also benefit data users by standardizing
the inputted data into a structured,
machine-readable custom XML format
and thus making it easier to extract and
process that data.
The fillable form would be similar to
other fillable forms that are currently
available to file Forms D, 3, 4, and 5.
We expect that filers who use EDGAR
for purposes of complying with filing
obligations under existing rules would
not incur additional EDGAR access
costs due to the proposed rules. If filers
with EDGAR experience require time or
specialized training to switch Form 144
from paper to EDGAR, then they may
incur an additional initial transition
cost. Given the experience of such filers
with EDGAR filing, as well as the sixmonth transition period proposed, we
expect such cost would be minimal.
The proposed amendments also
would result in the direct costs of
transitioning to filing electronically
using EDGAR for the large subset of
filers who do not currently file
electronically on EDGAR. Currently,
52.9 percent of filers file paper forms
and 46.5 percent file via email.103 In
particular, such filers would need to
prepare a Form ID as required by Rule
10(b) of Regulation S–T and submit the
Form ID following the processes
detailed in Volume I of the EDGAR Filer
Manual.104 Once a Form ID has been
successfully completed and processed,
EDGAR establishes a Central Index Key
(‘‘CIK’’) number, which permits each
authorized user to create an EDGAR
access code, enabling the filer to use
EDGAR. We estimate that approximately
25 percent of Form 144 filers have
already prepared a Form ID and
obtained a CIK number through other
EDGAR filing obligations.105 Therefore,
we estimate that at most 75 percent of
Form 144 filers would need to file a
103 This estimate does not account for filers who
previously filed via EDGAR but who currently
submit via email pursuant to the staff no-action
position, and may therefore include filers who
would not incur new costs. Based on staff review
of Form 144 submissions in 2020 by filers with
filings both before and after April 10th,
approximately 50 percent of filers who previously
used EDGAR opted to submit their Form 144s via
email after April 10, 2020.
104 See 17 CFR 232.10(b); see also supra Section
I.C.2.a.
105 Specifically, we observe that approximately 23
percent of calendar year 2019 Form 144 filers also
submitted Form 4 filings in EDGAR, while a
remaining two percent without Form 4 filings in
EDGAR submitted a miscellany of other forms
related to beneficial ownership.
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Form ID as a result of the proposed
amendments.106 For purposes of the
PRA, we estimate that respondents
require 0.15 hours to complete the Form
ID and that 100 percent of the burden
of preparation for Form ID is carried by
the respondent. For purposes of the
Paperwork Reduction Act of 1995
(‘‘PRA’’) 107 discussed below, we
estimate that the proposed amendments
would result in an incremental increase
of at 1,378 annual burden hours for
Form ID.108 We believe that such direct
costs would be justified by the
anticipated benefits from eliminating
paper filing of Form 144.
The remaining costs of transitioning
to EDGAR, which would apply to all
Form 144 filers that do not currently file
using EDGAR, would be mitigated by
the ease of filing Form 144. The revised
Form 144 would be an online fillable
form with a similar user interface to
Form 4, and for simultaneous filings of
Forms 4 and 144, the same user
interface could be used to file both
forms.109 Because current EDGAR filers
represent such a small proportion of
those who submit Form 144, our ability
to generalize electronic filing behavior
from this group to the full population of
filers may be of limited reliability.110
However to the extent that behavior may
be similar, we estimate that up to onethird of affiliates submitting a Form 144
who do not currently access EDGAR
may be able use an issuer’s existing
connection to EDGAR or rely upon other
support by issuers in meeting their
Form 144 electronic filing obligations.
These filers likely will incur lower costs
as a result of the proposed amendments
than filers who cannot or will not use
an issuer’s existing connection to
EDGAR. We lack the data to quantify the
difference in costs.
In addition, we estimate that the
proposed amendment to eliminate the
requirement to file a Form 144 to report
the resale of securities of issuers that are
not subject to Exchange Act reporting
requirements would result in a one
106 This estimate represents an extreme upper
bound because it assumes that each named
individual who filed at least one Form 144 in
calendar year 2019 who is not currently associated
with a unique CIK would need to file a Form ID.
To the extent that some Form 144 filers are affiliates
of issuers who may use the issuer’s CIK to file via
EDGAR, the estimate likely overstates the required
number of new Form IDs required and the burden
hours associated with such applications.
107 44 U.S.C. 3501 et seq.
108 See infra Section III.C.2.
109 See supra Section I.C.2.c. Based on filings in
calendar year 2019, we estimate that approximately
23 percent of Form 144 filers are also Form 4 filers.
110 See supra Section II.B.2.
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percent reduction of current filings of
Form 144.111
For Form 144 filers, we do not expect
that the proposed custom XML format
would impose any incremental costs,
because filers would be able to enter
their disclosures directly into the online
fillable form. We expect that completing
this XML-based fillable form would not
require any more time than any other
fillable form and would generally
require the same time as completing the
paper form. Some filers may choose to
file directly in custom XML format
(pursuant to the Commission’s custom
XML schema) integrated into their
software because it enables greater
automation of reporting. Other filers
without XML experience or software
could simply use the online fillable
form and would not be required to
license any XML-based filing
preparation software or establish any
XML-based filing processes.
The proposed amendments could
reduce revenue for market information
aggregators who currently aggregate the
information from Form 144 fillings into
databases and provide access to such
databases to various users of this data
for a fee.112 The online filing of Form
144 may make it more cost-effective for
some data users to extract the data
themselves. The reduction in revenue
could be mitigated by the lower cost of
retrieving information from Form 144
filings that is filed in an electronic
format. Data aggregators could sell fewer
subscriptions to make the same profit or
lower the fee that they charge which
might make their services continue to be
attractive even with the electronic
availability of the filings.
We recognize that the potential costs
and benefits of electronic filing are
sensitive to various assumptions,
including the number of affected filers;
the effect of electronic filing using
EDGAR on the time burden of filing
Form 144; printing and mailing costs
incurred today; and the type and cost of
staff, if any, involved in the electronic
filing of Form 144. The cost savings
realized by individual filers may vary
across all filers depending on variables
such as filer size, number of filings
submitted, existing filing practices (e.g.,
current reliance on electronic document
preparation; current experience with
using EDGAR; use of in-house staff,
brokers, or outside counsel for the filing
of Form 144; number, types, and cost of
in-house staff involved in the paper
111 This estimate is based upon the average
number of Form 144s submitted pertaining to such
securities as a proportion of total Form 144
submissions in each of the four prior calendar years
(2016–2019).
112 See supra Section II.C.2.a.
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filing of Form 144; actual hours and
printing and mailing costs required for
paper filing today), and the amount of
time required for filers to be trained in
the use of EDGAR and any required
related processes, and the amount of
time to resolve any technical issues
related to electronic filing on EDGAR.
4. Efficiency, Competition, and Capital
Formation
The proposed amendments are
expected to increase the efficiency and
decrease the costs of filing Form 144
and retrieving information from Form
144 filings. Electronic filing and the
revised filing deadline in the proposed
amendments are expected to make the
filing process more efficient by making
it easier and less costly for filers to
assure timely receipt of the filing.
Likewise, for investors currently using
information from paper filings, the costs
of accessing these filings are expected to
be significantly reduced. In addition,
replacing paper filing with electronic
filing is expected to result in filer
savings of labor, printing, and mailing
costs.
The proposed amendments should
facilitate the efficient and rapid
incorporation of price-relevant
information in Form 144 filings into the
market and enhance the sum of
information available to investors. To
the extent that there is value-relevant
information in Form 144 filings, prices
may become more efficient, which
should help to facilitate capital
formation (e.g., by enhancing valuation
quality).
However, the proposal may reduce
some investors’ or market information
aggregators’ competitive advantages.
Particularly, market information
aggregators whose present role includes
converting paper filings of Form 144 to
an electronic information source may
find that this service is less attractive to
data users due to those users’ ability to
access these filings directly due to the
proposed rule changes. These
information aggregators’ loss of
competitive advantage in converting
paper filings of Form 144 to an
electronic information source may
reduce their revenue and thus may
affect their ability to offer other
ancillary services that are valuable to
data users.
Aligning the reporting timeline of
Form 144 with that of Form 4 could
cause up to a two-day delay in
reporting, and thereby potentially delay
the incorporation of information into
markets. However, at the same time, the
proposed electronic filing mandate
could accelerate the incorporation of
that information into the markets
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compared with the current system. We
do not have adequate data with which
to estimate the net effect of these two
proposed changes. Since data users
currently observe this delay with
respect to filings of Forms 144 and 4
that are both publicly available
immediately upon submission, such as
via EDGAR, we have limited data with
which to form an expected value of
having Form 144 information in
advance of a Form 4 filing, and
consequently what related costs might
be incurred by synchronizing
submissions. We are therefore
requesting comments and the
submission of data or other information
that would inform our estimates.
We do not expect marked effects on
either competition or capital formation
as a result of allowing Forms 4 and 5
filers to check a box to indicate that a
sale or purchase of securities was made
pursuant to Rule 10b5–1(c). As
discussed above, due to the
discretionary nature of the checkbox
inclusion, we expect filers to do so only
when they perceive it will increase
efficiency. As a result, there may be
modest increases to efficiency for both
such filers and data users who access
their submissions.
5. Reasonable Alternatives
Eliminating the Form 144 Filing
Requirement
One alternative that we could have
proposed is the elimination of the
current Form 144 filing requirement for
sales of securities by affiliates of issuers
that are subject to Exchange Act
reporting. Such an alternative would
eliminate compliance costs for such
affiliates. However, such an alternative
would also prevent investors and
various other data users from obtaining
any information on such sales of
securities. We are soliciting comment on
the continued utility of Form 144
filings.
Email Submissions
Given the significant number of
submissions via email in response to the
temporary staff no-action position, we
could have proposed making this
manner of filing a permanent option for
Form 144 filers. Such an alternative
would allow filers to avoid the direct
costs of transitioning to filing
electronically using EDGAR. Such an
alternative, however, would result in
issuers incurring expenses in scanning
the forms and emailing them to the
Commission. Additionally, issuers
would forgo potential direct benefits in
the form of reduced time required to file
forms electronically. Such costs could
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5079
be higher for filers who make multiple
submissions of Form 144 per year and
for Form 144 filings with multiple
pages.
Data users might also incur higher
costs under this alternative since the
site used to access Form 144 email
submissions is distinct from EDGAR.113
Specifically, under this alternative, a
data user interested in obtaining the
information from all Form 144 filings
pertaining to a given issuer would be
required to search both EDGAR and the
daily folders posted to the Form 144
website. Furthermore, Form 144 data
submitted via email submissions is not
structured, therefore analysis that would
require aggregating data from multiple
submissions would be more difficult or
most costly to perform.
Format Requirements
While the proposed rule does not
expressly prescribe a specific format for
Form 144 that would be required for
filing in EDGAR, Form 144 would be
made available as an online fillable
form, similar to other fillable forms such
as Forms D, 3, 4, and 5.114 As an
alternative, we could require Form 144
to be filed in the Inline eXtensible
Business Reporting Language (‘‘Inline
XBRL’’) format, a derivation of XML that
is designed for financial reporting and is
both machine-readable and humanreadable. Compared to the proposal, the
Inline XBRL alternative for Form 144
would provide more sophisticated
validation, presentation, and reference
features for filers and data users.
However, the Inline XBRL alternative
would also impose initial
implementation costs (e.g., learning how
to prepare filings in Inline XBRL,
licensing Inline XBRL filing preparation
software) upon filers that do not have
prior experience structuring data in the
Inline XBRL format. By contrast,
because the proposal would allow filers
to submit Form 144 using an online
fillable Form, filers that lack experience
structuring data in a custom XML
format would not incur implementation
costs.
D. Request for Comment
33. What are the economic effects of
the proposed amendments to Form 144,
Form 4, and Regulation S–T? To the
extent possible, please provide any data,
studies, or other evidence that would
allow us to better quantify or otherwise
qualitatively assess the costs and
benefits of the proposed amendments to
affected parties.
113 See
114 See
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supra note 97.
supra Section I.B.2.c.
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34. We expect that the proposed
amendments may benefit Form 144 data
users by facilitating easier access to
Form 144 data, potentially reducing the
incentive to purchase such data from
third-party data providers. At the same
time, the proposed changes may affect
the timing of the availability of such
information. What are the economic
effects of the proposed timing and
format changes to Form 144? To the
extent possible, please provide any data,
studies, or other evidence that would
allow us to better quantify or otherwise
qualitatively assess the impact of these
proposed changes, including the
benefits and costs.
35. We seek comment on the ways
that Form 144 information is used by
affected parties. In particular, what data
uses of Form 144 data do not coincide
with information available via Form 4?
Are there currently any uses of Form
144 data in advance of Form 4 filings,
and if so, would there be any costs
incurred by losing such information in
advance?
36. Are there other methods or
databases by which Form 144 data users
currently access such information? If so,
please provide information about those
methods, including how many Form
144 filings may be accessed via those
methods and how soon they are made
available after they are filed with the
SEC. To what extent might the
availability and use of these alternative
databases affect our analysis of the
anticipated benefits and costs to our
proposed amendments? Please provide
data, studies, or other evidence.
37. Should we adopt any of the
alternative approaches outlined above
instead of the proposed amendments,
including requiring the use of XBRL for
electronic submissions of Form 144? We
considered requiring the use of XBRL as
a possible alternative approach but have
not proposed it for the reasons stated
above. In addition or instead of XBRL,
should the form provide for use of a
format based on a new derivation of
XML or another machine readable
format that the Commission may
determine is appropriate in the future?
If so, what would be the attendant costs
and benefits of such flexibility?
38. Are there any other potential
alternative approaches we should
consider and what are their economic
effects?
39. Because we are proposing to allow
Form 4 and Form 5 filers, at their
discretion, to check a box to indicate
that a sale or purchase of securities was
made pursuant to Rule 10b5–1(c) we
expect that filers will only elect to do
so when their anticipated benefits of
doing so exceed their related costs. Are
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there other anticipated benefits, costs, or
economic effects related to this proposal
that we should consider?
III. Paperwork Reduction Act
A. Summary of the Collections of
Information
Certain provisions of our rules and
forms that would be affected by the
proposed amendments contain
‘‘collection of information’’
requirements within the meaning of the
PRA.115 We are submitting the proposal
to the Office of Management and Budget
(‘‘OMB’’) for review in accordance with
the PRA.116 An agency may not conduct
or sponsor, and a person is not required
to respond to, a collection of
information requirement unless it
displays a currently valid OMB control
number. Compliance with the
information collections is mandatory.
Responses to the information collections
are not kept confidential and there is no
mandatory retention period for the
information disclosed. The titles for the
collections of information are:
• Form ID (OMB Control Number
3235–0328);
• Form 144 (OMB Control Number
3235–0101);
• Form 4 (OMB Control Number
3235–0287);
• Form 5 (OMB Control Number
3235–0362) 117
Form ID is used by registrants,
individuals, third party filers, or their
agents to request access codes that
permit the filing of documents on
EDGAR. Form 144 is used by security
holders to disclose the proposed sale of
securities by the holder and to indicate
that the holder is not to be engaged in
the distribution of the securities and
therefore not an underwriter. Form 4 is
used by an issuer’s insiders to report the
insider’s changes in beneficial
ownership of the issuer’s equity
securities. A description of the proposed
amendments, including the need for the
information and its proposed use, as
well as a description of the likely
respondents, can be found in Section I
115 See
supra note 107.
44 U.S.C. 3507(d); see also 5 CFR 1320.11.
117 We do not believe that the proposed
amendments to permit Form 4 and Form 5 filers to
indicate through a check box on the forms that a
sale or purchase reported on the forms was made
pursuant to Rule 10b5–1(c) would affect an issuer’s
burden hours or costs for PRA purposes. Filers must
already determine whether their sale or purchase
reported on the forms was made pursuant to Rule
10b5–1(c), so adding a check a box on the forms
would not substantively modify existing collection
of information requirements or otherwise affect the
overall burden estimates associated with Forms 4 or
5. Therefore, we are not adjusting any burden or
cost estimates in connection with the check box for
the proposed amendments.
116 See
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above, and a discussion of the economic
effects of the proposed amendments can
be found in Section II above.
As described in more detail above,118
we are proposing to amend Rule 144 to
provide that the holding period for
securities acquired upon the conversion
or exchange of certain, specific
securities that are market adjustable and
issued by unlisted issuers would not
begin until the time of conversion or
exchange.119 Also, as described
above,120 we are proposing to mandate
electronic filing of Form 144 with
respect to securities issued by
companies subject to Exchange Act
reporting requirements, eliminate the
requirement to file a Form 144 for
resales of securities of issuers that are
not subject to Exchange Act reporting,
amend the filing deadline for Form 144
to coincide with the filing deadline for
Form 4,121 and amend Form 4 to
include a check box that would provide
the filer with the option to indicate if
securities were sold or purchased
pursuant to a plan intended to satisfy
the affirmative defense conditions of
Exchange Act Rule 10b5–1(c).
B. Summary of the Proposed
Amendments’ Effects on the Collections
of Information
We anticipate that the proposed
amendment to mandate the electronic
filing of Form 144 would result in a
number of filers using EDGAR to file
their Form 144 electronically who do
not currently do so. Filers who have not
previously made an electronic filing on
EDGAR are required to file a Form ID to
obtain access codes that will enable
them to file a document on EDGAR. As
discussed above, we estimate that
approximately 12,250 filers would be
required to switch from paper filings of
their Form 144 to electronic filings of
118 See
supra Section I.B.
the proposed amendments to the
holding period are expected to reduce the number
of market-adjustable securities transactions, we do
not anticipate that these proposed amendments
would affect the burdens and costs associated with
Form 144. The requirement to file Form 144 only
applies to affiliates of the issuer. The investors in
these securities generally do not meet the definition
of affiliate in our regulations and therefore are not
required to file Form 144.
120 See supra Section I.C.
121 We do not believe that the proposed
amendment to change the filing deadline for Form
144 to coincide with the filing deadline for Form
4 would affect an issuer’s burden hours or costs for
PRA purposes. The information in the form that
must be filed would not change as a result of this
amendment, so changing the filing deadline would
not substantively modify existing collection of
information requirements or otherwise affect the
overall burden estimates associated with Form 144.
Therefore, we are not adjusting any burden or cost
estimates in connection with the deadline change
for the proposed amendments.
119 Although
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is carried by the respondent internally.
Therefore, we estimate that this
proposed amendment would result in
an incremental increase of 1,378 annual
burden hours for Form ID.126
We expect that the proposed
amendment to eliminate the
requirement to file a Form 144 to report
the resale of securities of issuers that are
not subject to the reporting
requirements of Sections 13 or 15(d) of
the Exchange Act would reduce the
number of filings of the form. As
discussed above, we estimate that 313
filers would no longer be subject to
that form.122 Of those 12,250 filers,
however, we estimate that 25 percent
have already filed a Form ID through
other EDGAR filing obligations,123 so
only approximately 75 percent of Form
144 filers would need to file a Form
ID.124 As a result, we estimate that
approximately 9,188 filers would be
required to file a Form ID because of the
proposed amendment to mandate the
electronic filing of Form 144.125 We
estimate that respondents require 0.15
hours to complete the Form ID and, for
purposes of the PRA, that 100 percent
of the burden of preparation for Form ID
filing Form 144.127 We estimate that
each notice on Form 144 imposes a
burden for PRA purposes of one hour
and, for purposes of the PRA, that 100
percent of the burden of preparation for
Form 144 is carried by the respondent
internally. Therefore, we estimate that
this proposed amendment would result
in an incremental decrease of 313
annual burden hours for Form 144.
PRA Table 1 summarizes the
estimated effects of the amendments on
the paperwork burdens associated with
the affected collections of information
listed in Section III.A.
PRA TABLE 1—ESTIMATED PAPERWORK BURDEN EFFECTS OF THE AMENDMENTS
Proposed affected
collections
of information
Proposed amendments and effects
Form ID:
• Amend Rules 101(a) and 101(b) of Regulation S–T to
mandate the electronic filing of all Form 144 filings
for the sale of securities of Exchange Act reporting
companies.
Form 144:
• Eliminate the requirement to file a Form 144 for resales of securities of issuers that are not subject to
Exchange Act reporting.
C. Incremental and Aggregate Burden
and Cost Estimates
Below we estimate the incremental
and aggregate changes in paperwork
burden as a result of the amendments.
These estimates represent the average
burden for all issuers, both large and
small. In deriving our estimates, we
recognize that the burdens will likely
vary among individual issuers based on
Estimated net effect
• Form ID ..............
• Increase of 0.15 hour compliance burden per response to
the new collection of information.
• Form 144 ............
• Decrease of 1.0 hour compliance burden per response to
the new collection of information.
a number of factors, including the
nature of their business. We believe that
the amendments will change the
frequency of responses to the existing
collections of information and the
burden per response.
PRA Table 2 below illustrates the
incremental change to the total annual
compliance burden of affected forms, in
hours and in costs, as a result of the
amendments’ estimated effect on the
paperwork burden per response. The
number of estimated affected responses
shown in PRA Table 2 is based on the
number of responses in the
Commission’s current OMB PRA filing
inventory adjusted to reflect the change
in the number of responses we estimate
as a result of the proposed
amendments.128
PRA TABLE 2—CALCULATION OF THE INCREMENTAL CHANGE IN BURDEN ESTIMATES OF CURRENT RESPONSES
RESULTING FROM THE AMENDMENTS
Current burden
Form ID .....................................
Form 144 ...................................
Current
annual responses
Current
burden
hours
Current cost
burden
Proposed
change in
annual responses
Proposed
change in
burden
hours
Proposed
change in
professional
costs
Proposed
annual affected responses
Proposed
Burden
Hours for
Affected Responses
Proposed
Cost Burden
for Affected
Responses
(A)
(B)
(C)
(D)
(E)
(F)
(G) = (A) +
(D)
(H) = (B) +
(E)
(I) = (C) +
(F)
46,842
33,725
D. Request for Comment
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Proposed burden change
We request comments in order to
evaluate: (1) Whether the proposed
collection of information is necessary
for the proper performance of the
functions of the agency, including
supra note 96.
supra note 105.
124 See supra note 106.
7,026
33,725
$0
0
× 0.75 = 9,187.5.
× 0.15 = 1,378.2, which is rounded to
125 22,250
123 See
126 9,188
18:23 Jan 17, 2021
1,378.
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1,378
(313)
whether the information would have
practical utility; (2) the accuracy of our
estimate of the burden of the proposed
collection of information; (3) whether
there are ways to enhance the quality,
utility, and clarity of the information to
be collected; and (4) whether there are
122 See
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9,188
(313)
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$0
0
56,030
33,412
8,404
33,412
$0
0
ways to minimize the burden of the
collection of information on those who
are to respond, including through the
use of automated collection techniques
127 See
supra note 96.
OMB PRA filing inventory represents a
three-year average.
128 The
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or other forms of information
technology.129
Any member of the public may direct
to us any comments concerning the
accuracy of these burden estimates and
any suggestions for reducing the
burdens. Persons who desire to submit
comments on the collection of
information requirements should direct
their comments to the Office of
Management and Budget, Attention:
Desk Officer for the Securities and
Exchange Commission, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and send a copy
of the comments to Vanessa A.
Countryman, Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549, with reference
to File No. S7–24–20. Requests for
materials submitted to the OMB by us
with regard to these collections of
information should be in writing, refer
to File No. S7–24–20 and be submitted
to the Securities and Exchange
Commission, Office of FOIA Services,
100 F Street NE, Washington DC 20549.
Because the OMB is required to make a
decision concerning the collections of
information between 30 and 60 days
after publication, a comment to the
OMB is best assured of having its full
effect if the OMB receives it within 30
days of publication.
IV. Initial Regulatory Flexibility Act
Analysis
This Initial Regulatory Flexibility
Analysis (‘‘IRFA’’) has been prepared in
accordance with the Regulatory
Flexibility Act (‘‘RFA’’).130 It relates to
proposed amendments that would: (1)
Amend Rule 144(d)(3)(ii) to provide that
the holding period for securities
acquired upon the conversion or
exchange of certain, specific securities
that are market adjustable and issued by
unlisted issuers would not begin until
the time of conversion or exchange; (2)
mandate electronic filing of Form 144
with respect to securities issued by
companies subject to Exchange Act
reporting requirements; (3) eliminate the
requirement to file a Form 144 for
resales of securities of issuers that are
not subject to Exchange Act reporting;
(4) amend the filing deadline for Form
144 to coincide with the filing deadline
for Form 4; and (5) amend Forms 4 and
5 to include a check box that would
provide the filer with the option to
indicate if a transaction intended to
satisfy the affirmative defense
conditions of Exchange Act Rule 10b5–
1(c). In addition, if we adopt the
129 We request comment pursuant to 44 U.S.C.
3506(c)(2)(B).
130 5 U.S.C. 601 et seq.
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proposed amendments, we plan to
simplify and streamline the electronic
filing of Form 144 and Form 4.
A. Reasons for, and Objectives of, the
Proposed Action
One purpose of the proposed
amendments is to mitigate the risk of
unregistered distributions in connection
with sales of market-adjustable
securities. The proposed amendments
are also intended to facilitate more
efficient transmission, dissemination,
and analysis, of certain forms, and to
reduce the costs of storing and
retrieving documents that are currently
filed in paper.
B. Legal Basis
We are proposing the amendments
under the authority set forth in Sections
4, 6, 7, 8, 10, 19(a) and 28 of the
Securities Act, and Sections 3, 16, and
23(a) of the Exchange Act.
C. Small Entities Subject to the
Proposed Rules
The proposed amendments would
affect small entities that issue securities
as well as those that hold securities. The
RFA defines ‘‘small entity’’ to mean
‘‘small business,’’ ‘‘small organization,’’
or ‘‘small governmental
jurisdiction.’’ 131 For purposes of the
RFA, under our rules, a registrant, other
than an investment company, is a
‘‘small business’’ or ‘‘small
organization’’ if it had total assets of $5
million or less on the last day of its most
recent fiscal year and is engaged or
proposing to engage in an offering of
securities that does not exceed $5
million.132 An investment company,
including a business development
company,133 is considered to be a
‘‘small business’’ if it, together with
other investment companies in the same
group of related investment companies,
has net assets of $50 million or less as
of the end of its most recent fiscal
year.134 We estimate that there are 1,056
issuers that file with the Commission,
other than investment companies,
which may be considered small entities
and are potentially subject to the final
amendments.135 In addition, we
131 5
U.S.C. 601(6).
17 CFR 240.0–10(a).
133 Business development companies are a
category of closed-end investment company that are
not registered under the Investment Company Act
[15 U.S.C. 80a–2(a)(48) and 80a–53—64].
134 17 CFR 270.0–10(a).
135 This estimate is based on staff analysis of
issuers, excluding co-registrants, with EDGAR
filings of Form 10–K, 20–F and 40–F, or
amendments filed during the calendar year of
January 1, 2019 to December 31, 2019. This analysis
is based on data from XBRL filings, Compustat, and
Ives Group Audit Analytics.
132 See
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estimate that there are 37 investment
companies that would be subject to the
proposed amendments that may be
considered small entities.136
D. Proposed Reporting, Recordkeeping,
and Other Compliance Requirements
As noted above, the proposed
amendment to Rule 144(d)(3)(ii) would
provide that the holding period for
securities acquired upon the conversion
or exchange of certain, specific
securities that are market adjustable and
issued by unlisted issuers would not
begin until the time of conversion or
exchange. We expect the proposed
amendment to reduce the number of
market-adjustable securities
transactions. As noted in Section III, we
do not anticipate that the proposed
amendments would affect the reporting
or compliance burdens associated with
Form 144, including those for small
entities, because the requirement to file
the form only applies to affiliates of the
issuer and the investors in these
securities generally do not meet the
definition of affiliate in our regulations.
Affected parties may decide to adjust
their recordkeeping methods if needed
to account for the change in the start
date for the holding period.
Additionally, the proposed
amendments would mandate electronic
filing of Form 144 with respect to
securities issued by companies subject
to Exchange Act reporting requirements.
We anticipate that this proposed
amendment would cause a number of
filers, including small entities, using
EDGAR to file their Form 144
electronically who do not currently do
so, thereby modestly increasing their
compliance obligations.
Further, the proposed amendments
would eliminate the requirement to file
a Form 144 to report the resale of
securities of issuers that are not subject
to the reporting requirements of
Sections 13 or 15(d) of the Exchange
Act. As a result, some filers, including
small entities would no longer be
required to file Form 144, which would
reduce their compliance obligations.
The proposed amendments to revise
the filing deadline for Form 144 and to
include an optional check box in Forms
4 and 5 would not change the reporting,
recordkeeping, or compliance
requirements or otherwise affect the
overall compliance burden for small
entities.
Compliance with the proposed
amendments may require the use of
136 This estimate is based on staff review of Forms
N–CEN filed with the Commission as of November
5, 2020 and is based on the definition of small
entity under Investment Company Act Rule 0–10.
See 17 CFR 240.0–10.
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professional skills, including legal
skills.
Section I discusses the proposed
amendments in detail. Sections II and III
discuss the economic impact, including
the estimated costs and benefits, of the
proposed amendments to all affected
entities.
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E. Duplicative, Overlapping, or
Conflicting Federal Rules
The proposed amendments would not
duplicate, overlap, or conflict with other
Federal rules.
F. Significant Alternatives
The RFA directs us to consider
alternatives that would accomplish our
stated objectives, while minimizing any
significant adverse impact on small
entities. In connection with the
proposed amendments, we considered
the following alternatives:
• Establishing different compliance or
reporting requirements or timetables
that take into account the resources
available to small entities;
• Clarifying, consolidating or
simplifying compliance and reporting
requirements under the rules for small
entities;
• Using performance rather than
design standards; and
• Exempting small entities from all or
part of the requirements.
We are proposing to amend Rule
144(d)(3)(ii) to provide that the holding
period for the securities acquired upon
conversion or exchange of certain
market-adjustable securities issued by
unlisted issuers would not begin until
conversion or exchange. We recognize
that the proposal could
disproportionately affect small issuers
because it is those entities that typically
issue market-adjustable securities 137 but
we believe this proposal would benefit
issuers and investors by mitigating the
risk of unregistered distributions in
connection with sales of marketadjustable securities. The features of
certain market-adjustable securities,
combined with the tacking provisions of
Rule 144, can undermine one of the key
premises of Rule 144, which is that
holding securities at risk for an
appropriate period of time prior to
resale can demonstrate that the seller
did not purchase the securities with a
view to distribution and, therefore, is
not an underwriter. We could propose
to exempt the securities of small entities
from the proposed amendment or
establish a different holding period for
their securities, but doing so would not
address the risk that holders may
participate in unregistered distributions
137 See
supra note 73 and accompanying text.
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of the market-adjustable securities of
these issuers.
The proposed amendments to
mandate the electronic filing of Form
144 clarify and streamline the filing
requirements for the form and should
benefit all filers, as well as benefit users
of the information in Form 144 by
facilitating easier access to, and faster
retrieval of such information. We do not
believe that it is necessary to partially
or completely exempt small entities
from the proposed amendments to
require the electronic filing of Form 144
because the amendments are expected
to result in cost benefits on an ongoing
basis compared to paper filing, and
increased efficiencies for all filers who
would be required to file Form 144,
including small entities that are filers.
We preliminarily believe that it is not
necessary to establish different
compliance timetables for small entities
or to further clarify, consolidate, or
simplify the proposed amendments’
requirements. But we are proposing a
six-month transition period after the
effective date of the amendments to
Regulation S–T to give Form 144 paper
filers who would be first-time electronic
filers, including any small entities,
sufficient time to apply for codes to
make filings on EDGAR. In addition, we
solicit comment on whether we should
provide a different timetable for paper
Form 144 filers to transition to
electronic filing.
We have used design rather than
performance standards in connection
with the proposed filing revisions to
Form 144 in order to promote uniform
filing requirements and also to facilitate
a simpler and less costly filing method
for Form 144 filers.
G. Request for Comment
We encourage the submission of
comments with respect to any aspect of
this Initial Regulatory Flexibility
Analysis. In particular, we request
comments regarding:
• The number of small entity issuers
that may be affected by the proposed
amendments;
• The existence or nature of the
potential impact of the proposed
amendments on small entity issuers
discussed in the analysis;
• How the proposed amendments
could further lower the burden on small
entities; and
• How to quantify the impact of the
proposed amendments.
Please describe the nature of any
impact and provide empirical data
supporting the extent of the impact.
Such comments will be considered in
the preparation of the Final Regulatory
Flexibility Analysis, if the proposed
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5083
amendments are adopted, and will be
placed in the same public file as
comments on the proposed amendments
themselves.
V. Small Business Regulatory
Enforcement Fairness Act
For purposes of the Small Business
Regulatory Enforcement Fairness Act of
1996 (‘‘SBREFA’’),138 the Commission
must advise OMB as to whether the
proposed amendments constitute a
‘‘major’’ rule. Under SBREFA, a rule is
considered ‘‘major’’ where, if adopted, it
results, or is likely to result, in:
• An annual effect on the economy of
$100 million or more (either in the form
of an increase or a decrease);
• A major increase in costs or prices
for consumers or individual industries;
or
• Significant adverse effects on
competition, investment or innovation.
We request comment on whether the
proposed amendments would be a
‘‘major rule’’ for purposes of SBREFA.
We solicit comment and empirical data
on: (a) The potential effect on the U.S.
economy on an annual basis; (b) any
potential increase in costs or prices for
consumers or individual industries; and
(c) any potential effect on competition,
investment or innovation. Commenters
are requested to provide empirical data
and other factual support for their views
to the extent possible.
VI. Statutory Authority
The amendments contained in this
release are being proposed under the
authority set forth in Sections 4, 6, 7, 8,
10, 19(a), and 28 of the Securities Act,
and Sections 3, 16, and 23(a) of the
Exchange Act.
List of Subjects in 17 CFR Parts 230,
232, 239, and 249
Reporting and recordkeeping
requirements, Securities.
Text of the Proposed Amendments
For the reasons set out in the
preamble, the Commission is proposing
to amend Title 17, chapter II of the Code
of Federal Regulations as follows:
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
1. The authority citation for part 230
continues to read as follows:
■
Authority: 15 U.S.C. 77b, 77b note, 77c,
77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss,
78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note,
78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a–
28, 80a–29, 80a–30, and 80a–37, and Pub. L.
138 Public Law 104–121, Title II, 110 Stat. 857
(1996).
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112–106, sec. 201(a), sec. 401, 126 Stat. 313
(2012), unless otherwise noted.
2. Amend § 230.144 by:
a. Removing the Preliminary Note;
b. Adding introductory text and
paragraph (b)(3);
■ c. Revising paragraphs (d)(3)(ii) and
(h); and
■ d. Adding Notes 1 through 5 to
§ 230.144.
The additions and revisions to read as
follows:
■
■
■
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§ 230.144 Persons deemed not to be
engaged in a distribution and therefore not
underwriters.
A Notes section appears at the end of
this rule to assist in understanding its
provisions.
*
*
*
*
*
(b) * * *
(3) Not part of a scheme to evade:
Section 230.144 (Rule 144) is not
available to any person with respect to
any transaction or series of transactions
that, although in technical compliance
with this § 230.144, is part of a plan or
scheme to evade the registration
requirements of the Act.
*
*
*
*
*
(d) * * *
(3) * * *
(ii) Conversions and exchanges. If the
securities sold were acquired from the
issuer solely in exchange for other
securities of the same issuer, the newly
acquired securities shall be deemed to
have been acquired at the same time as
the securities surrendered for
conversion or exchange, even if the
securities surrendered were not
convertible or exchangeable by their
terms, unless:
(A) The newly acquired securities
were acquired from an issuer that, at the
time of conversion or exchange, 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 (15
U.S.C. 78f); and
(B) The convertible or exchangeable
security contains terms, such as
conversion rate or price adjustments,
that offset, in whole or in part, declines
in the market value of the underlying
securities occurring prior to conversion
or exchange, other than terms that
adjust for stock splits, dividends or
other issuer-initiated changes in its
capitalization.
Note 1 to paragraph (d)(3)(ii). If the
surrendered securities originally did not
provide for cashless conversion or
exchange by their terms and the holder
provided consideration, other than
solely securities of the same issuer, in
connection with the amendment of the
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surrendered securities to permit
cashless conversion or exchange, then
the newly acquired securities shall be
deemed to have been acquired at the
same time as such amendment to the
surrendered securities, so long as, in the
conversion or exchange, the securities
sold were acquired from the issuer
solely in exchange for other securities of
the same issuer.3
*
*
*
*
*
(h) Notice of sale or proposed sale. (1)
If the issuer is, and has been for a period
of at least 90 days immediately before
the sale, subject to the reporting
requirements of section 13 or 15(d) of
the Exchange Act and the amount of
securities to be sold in reliance upon
this rule during any period of three
months exceeds 5,000 shares or other
units or has an aggregate sale price in
excess of $50,000, a notice on Form 144
(§ 239.144 of this chapter) shall be filed
electronically with the Commission.
(2) The Form 144 shall be signed by
the security holder and shall be filed
before the end of the second business
day following the day on which the
subject transaction has been executed.
Provided however, if the transaction
satisfies the affirmative defense
conditions of § 240.10b5–1(c) of this
chapter, and the security holder does
not select the date of execution, the date
on which the executing broker, dealer or
plan administrator notifies the security
holder of the execution of the
transaction is deemed the date of
execution for a transaction. Neither the
filing of such notice nor the failure of
the Commission to comment on such
notice shall be deemed to preclude the
Commission from taking any action that
it deems necessary or appropriate with
respect to the sale of the securities
referred to in such notice. The security
holder filing the notice required by this
paragraph shall have sold or have a
bona fide intention to sell the securities
referred to in the notice within a
reasonable time after the filing of such
notice.
Note 1 to § 230.144. Certain basic
principles are essential to an
understanding of the registration
requirements in the Securities Act of
1933 (the Act or the Securities Act) and
the purposes underlying Rule 144. If
any person sells a non-exempt security
to any other person, the sale must be
registered unless an exemption can be
found for the transaction. Section 4(a)(1)
of the Securities Act provides one such
exemption for a transaction ‘‘by a
person other than an issuer,
underwriter, or dealer.’’ Therefore, an
understanding of the term
‘‘underwriter’’ is important in
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determining whether or not the Section
4(a)(1) exemption from registration is
available for the sale of the securities.
Note 2 to § 230.144. Section 2(a)(11)
of the Securities Act defines the term
‘‘underwriter’’ broadly to mean any
person who has purchased from an
issuer with a view to, or offers or sells
for an issuer in connection with, the
distribution of any security, or
participates, or has a direct or indirect
participation in any such undertaking,
or participates or has a participation in
the direct or indirect underwriting of
any such undertaking. The
interpretation of this definition
traditionally has focused on the words
‘‘with a view to’’ in the phrase
‘‘purchased from an issuer with a view
to . . . distribution.’’ An investment
banking firm which arranges with an
issuer for the public sale of its securities
is clearly an ‘‘underwriter’’ under that
section. However, individual investors
who are not professionals in the
securities business also may be
‘‘underwriters’’ if they act as links in a
chain of transactions through which
securities move from an issuer to the
public.
Note 3 to § 230.144. Since it is
difficult to ascertain the mental state of
the purchaser at the time of an
acquisition of securities, prior to and
since the adoption of Rule 144,
subsequent acts and circumstances have
been considered to determine whether
the purchaser took the securities ‘‘with
a view to distribution’’ at the time of the
acquisition. Emphasis has been placed
on factors such as the length of time the
person held the securities and whether
there has been an unforeseeable change
in circumstances of the holder.
Experience has shown, however, that
reliance upon such factors alone has led
to uncertainty in the application of the
registration provisions of the Act.
Note 4 to § 230.144. The Commission
adopted Rule 144 to establish specific
criteria for determining whether a
person is not engaged in a distribution.
Rule 144 creates a safe harbor from the
Section 2(a)(11) definition of
‘‘underwriter.’’ A person satisfying the
applicable conditions of the Rule 144
safe harbor is deemed not to be engaged
in a distribution of the securities and
therefore not an underwriter of the
securities for purposes of Section
2(a)(11). Therefore, such a person is
deemed not to be an underwriter when
determining whether a sale is eligible
for the Section 4(a)(1) exemption for
‘‘transactions by any person other than
an issuer, underwriter, or dealer.’’ If a
sale of securities complies with all of
the applicable conditions of Rule 144:
Any affiliate or other person who sells
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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Proposed Rules
restricted securities will be deemed not
to be engaged in a distribution and
therefore not an underwriter for that
transaction; any person who sells
restricted or other securities on behalf of
an affiliate of the issuer will be deemed
not to be engaged in a distribution and
therefore not an underwriter for that
transaction; and the purchaser in such
transaction will receive securities that
are not restricted securities.
Note 5 to § 230.144. Rule 144 is not
an exclusive safe harbor. A person who
does not meet all of the applicable
conditions of Rule 144 still may claim
any other available exemption under the
Act for the sale of the securities.
PART 232—REGULATION S–T—
GENERAL RULES AND REGULATIONS
FOR ELECTRONIC FILINGS
3. The general authority citation for
part 232 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j,
77s(a), 77z–3, 77sss(a), 78c(b), 78l, 78m, 78n,
78o(d), 78w(a), 78ll, 80a–6(c), 80a–8, 80a–29,
80a–30, 80a–37, 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
4. Amend § 232.101 by adding
paragraph (a)(1)(xxii), and removing and
reserving paragraphs (b)(4) and (c)(6), to
read as follows:
■
§ 232.101 Mandated electronic
submissions and exceptions.
(a) * * *
(1) * * *
(xxii) Form 144 (§ 239.144 of this
chapter), where the issuer of the
securities is subject to the reporting
requirements of Section 13 or 15(d) of
the Exchange Act (15 U.S.C. 78m or
78o(d), respectively).
*
*
*
*
*
PART 239—FORMS PRESCRIBED
UNDER THE SECURITIES ACT OF 1933
5. The general authority citation for
part 239 continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77f, 77g, 77h,
77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m,
78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll,
78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a–
10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30,
and 80a–37; and sec. 107, Pub. L. 112–106,
126 Stat. 312, unless otherwise noted.
6. Amend § 239.144 by revising
paragraphs (a) and (b) to read as follows:
(a) Except as indicated in paragraph
(b) of this section, each person who
intends to sell securities in reliance
upon § 230.144 of this chapter shall file
this form in electronic format by means
of the Commission’s Electronic Data,
Gathering, Analysis, and Retrieval
system (EDGAR) in accordance with the
EDGAR rules set forth in Regulation S–
T (17 CFR part 232 of this chapter).
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■
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(b) This form need not be filed if the
amount of securities to be sold during
any period of three months does not
exceed 5,000 shares or other units and
the aggregate sale price does not exceed
$50,000.
*
*
*
*
*
■ 7. Amend Form 144 (referenced in
§ 239.144) by:
■ a. Removing the title text ‘‘NOTICE
OF PROPOSED SALE OF SECURITIES
PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933’’ and add in
its place ‘‘NOTICE OF SALE OR
PROPOSED SALE OF SECURITIES
PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933’’;
■ b. Removing the text ‘‘ATTENTION:
Transmit for filing 3 copies of this form
concurrently with either placing an
order with a broker to execute sale or
executing a sale directly with a market
maker.’’ and add in its place
‘‘ATTENTION: This form must be filed
in electronic format by means of the
Commission’s Electronic Data
Gathering, Analysis, and Retrieval
system (EDGAR) in accordance with the
EDGAR rules set forth in Regulation S–
T (17 CFR part 232). For assistance with
technical questions about EDGAR or to
request an access code, call the EDGAR
Filer Support Office at (202) 551–
8900.’’;
■ c. Removing the text ‘‘INSTRUCTION:
The person filing this notice should
contact the issuer to obtain the I.R.S.
Identification Number and the SEC. File
Number.’’ and add in its place
‘‘INSTRUCTION: The filer should
contact the issuer to obtain the SEC. File
Number.’’;
■ d. Removing the data field box ‘‘1(b)’’;
■ e. Redesignating the data field boxes
1(c) through 1(e) as 1(b) through 1(d);
■ f. Removing the data field box ‘‘2(c)’’;
■ g. Removing Instructions 1(b) and
2(c);
■ h. Redesignating Instructions 1(c)
through 1(e) as 1(b) through 1(d); and
■ i. Removing ‘‘(d) Aggregate market
value of the securities to be sold as of
a specified date within 10 days prior to
the filing of this notice’’ and add in its
place ‘‘(d) Aggregate market value of the
securities to be sold as of a specified
date within 10 days prior to the filing
of this notice. For completed sales,
provide instead the total sales proceeds
(amount of securities sold multiplied by
the price per share)’’.
Note: The text of Form 144 does not and
this amendment will not appear in the Code
of Federal Regulations.
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5085
PART 249—FORMS, SECURITIES
EXCHANGE ACT OF 1934
8. The general authority citation for
part 249 continues to read as follows:
■
Authority: 15 U.S.C. 78a et seq. and 7201
et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350;
Sec. 953(b) Pub. L. 111–203, 124 Stat. 1904;
Sec. 102(a)(3) Pub. L. 112–106, 126 Stat. 309
(2012), Sec. 107, Pub. L. 112–106, 126 Stat.
313 (2012), and Sec. 72001 Pub. L. 114–94,
129 Stat. 1312 (2015), unless otherwise
noted.
*
*
*
*
*
9. Amend Form 4 (referenced in
§ 249.104) by:
■ a. Adding new General Instruction 10;
and
■ b. Adding text and a check box at the
top of the first page immediately below
the text ‘‘Check this box if no longer
subject to Section 16. Form 4 or Form
5 obligations may continue. See
Instruction 1(b).’’
The additions to read as follows:
■
Note: The text of Form 4 does not, and this
amendment will not, appear in the Code of
Federal Regulations.
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
FORM 4
*
*
*
*
*
General Instructions
*
*
*
*
*
10. Optional Rule 10b5–1(c)
Transaction Indication
If a transaction was made pursuant to
a contract, instruction or written plan
for the purchase or sale of equity
securities of the issuer that satisfies the
conditions of Rule 10b5–1(c) under the
Exchange Act [§ 240.10b5–1(c) of this
chapter], a reporting person may elect to
check the Rule 10b5–1 box appearing on
this Form. Additional information, such
as the date of a Rule 10b5–1 plan, may
be provided at the filer’s option in the
‘‘Explanation of Responses’’ portion of
the Form.
*
*
*
*
*
b Check this box to indicate that a
transaction was made pursuant to Rule
10b5–1(c). See Instruction 10.
*
*
*
*
*
10. Amend Form 5 (referenced in
§ 249.105) by:
a. Adding new General Instruction 10;
and
b. Adding text and a check box at the
top of the first page immediately below
the text ‘‘Form 4 Transactions
Reported’’.
The additions to read as follows:
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Note: The text of Form 5 does not, and this
amendment will not, appear in the Code of
Federal Regulations.
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
[EPA–R09–OAR–2020–0523; FRL–10017–
10–Region 9]
Washington, DC 20549
Air Plan Approval; California; Feather
River Air Quality Management District
FORM 5
*
*
*
*
*
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
General Instructions
*
*
*
*
*
The Environmental Protection
Agency (EPA) is proposing to approve a
revision to the Feather River Air Quality
Management District (FRAQMD or
‘‘District’’) portion of the California
State Implementation Plan (SIP). This
revision concerns emissions of volatile
organic compounds (VOCs) from surface
preparation and clean-up operations.
We are proposing to approve a local rule
to regulate these emission sources under
the Clean Air Act (CAA or the ‘‘Act’’).
We are taking comments on this
proposal and plan to follow with a final
action.
DATES: Comments must be received on
or before February 18, 2021.
ADDRESSES: Submit your comments,
identified by Docket ID No. is EPA–
R09–OAR–2020–0523 at https://
www.regulations.gov. For comments
submitted at Regulations.gov, follow the
online instructions for submitting
comments. Once submitted, comments
cannot be edited or removed from
Regulations.gov. The EPA may publish
any comment received to its public
docket. Do not submit electronically any
information you consider to be
Confidential Business Information (CBI)
or other information whose disclosure is
restricted by statute. Multimedia
submissions (audio, video, etc.) must be
accompanied by a written comment.
The written comment is considered the
official comment and should include
discussion of all points you wish to
make. The EPA will generally not
SUMMARY:
10. Optional Rule 10b5–1(c)
Transaction Indication
If a transaction was made pursuant to
a contract, instruction or written plan
for the purchase or sale of equity
securities of the issuer that satisfies the
conditions of Rule 10b5–1(c) under the
Exchange Act [§ 240.10b5–1(c) of this
chapter], a reporting person may elect to
check the Rule 10b5–1 box appearing on
this Form. Additional information, such
as the date of a Rule 10b5–1 plan, may
be provided at the filer’s option in the
‘‘Explanation of Responses’’ portion of
the Form.
*
*
*
*
*
b Check this box to indicate that a
transaction was made pursuant to Rule
10b5–1(c). See Instruction 10.
*
*
*
*
*
By the Commission.
Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020–28790 Filed 1–15–21; 8:45 am]
BILLING CODE 8011–01–P
consider comments or comment
contents located outside of the primary
submission (i.e., on the web, cloud, or
other file sharing system). For
additional submission methods, please
contact the person identified in the FOR
FURTHER INFORMATION CONTACT section.
For the full EPA public comment policy,
information about CBI or multimedia
submissions, and general guidance on
making effective comments, please visit
https://www.epa.gov/dockets/
commenting-epa-dockets. If you need
assistance in a language other than
English or if you are a person with
disabilities who needs a reasonable
accommodation at no cost to you, please
contact the person identified in the FOR
FURTHER INFORMATION CONTACT section.
FOR FURTHER INFORMATION CONTACT:
Christine Vineyard, EPA Region IX, 75
Hawthorne St., San Francisco, CA
94105. By phone: (415) 947–4125 or by
email at vineyard.christine@epa.gov.
SUPPLEMENTARY INFORMATION:
Throughout this document, ‘‘we,’’ ‘‘us’’
and ‘‘our’’ refer to the EPA.
Table of Contents
I. The State’s Submittal
A. What rule did the State submit?
B. Are there other versions of this rule?
C. What is the purpose of the submitted
rule revision?
II. The EPA’s Evaluation and Action
A. How is the EPA evaluating the rule?
B. Does the rule meet the evaluation
criteria?
C. The EPA’s Recommendations to Further
Improve the Rule
D. Public Comment and Proposed Action
III. Incorporation by Reference
IV. Statutory and Executive Order Reviews
I. The State’s Submittal
A. What rule did the State submit?
Table 1 lists the rule addressed by this
proposal with the date that it was
adopted by the local air agency and
submitted by the California Air
Resources Board (CARB).
TABLE 1—SUBMITTED RULE
Local agency
Rule No.
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FRAQMD ...........
Rule title
3.14
Surface Preparation and Clean-up ..............................................................
On April 17, 2017, the EPA
determined that the submittal for
FRAQMD Rule 3.14 met the
completeness criteria in 40 CFR part 51,
appendix V, which must be met before
formal EPA review.
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B. Are there other versions of this rule?
We approved an earlier version of
Rule 3.14 into the SIP on April 23, 2015
(80 FR 22646). The FRAQMD adopted
revisions to the SIP-approved version on
August 1, 2016, and CARB submitted
them to us on January 24, 2017.
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08/01/16
Submitted
01/24/17
C. What is the purpose of the submitted
rule revision?
Emissions of VOCs contribute to the
production of ground-level ozone, (or
‘‘smog’’) and particulate matter, which
harm human health and the
environment. Section 110(a) of the CAA
requires states to submit regulations that
control VOC emissions. Rule 3.14 was
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]]>Agencies
[Federal Register Volume 86, Number 11 (Tuesday, January 19, 2021)]
[Proposed Rules]
[Pages 5063-5086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28790]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 232, 239, and 249
[Release Nos. 33-10911; 34-90773; File No. S7-24-20]
RIN 3235-AM78
Rule 144 Holding Period and Form 144 Filings
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend Rule 144 to revise the holding period determination
for securities acquired upon the conversion or exchange of certain
market-adjustable securities of issuers that do not have securities
listed on a national securities exchange. Under the proposed
amendments, the holding period for those securities would not begin
until the securities are acquired upon the conversion or exchange of
the market-adjustable security. The Commission is also proposing to
mandate electronic filing of Form 144 with respect to securities issued
by issuers subject to Exchange Act reporting requirements, to amend the
filing deadline for Form 144 to coincide with the filing deadline for
Form 4, and to streamline the filing process in cases where both Form 4
and Form 144 are required to report the same transaction. Finally, the
Commission is proposing to eliminate
[[Page 5064]]
the requirement to file a Form 144 for resales of securities of issuers
that are not subject to Exchange Act reporting.
DATES: Comments should be received on or before March 22, 2021.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm).
Paper Comments
Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-24-20. We will post all
submitted comments, requests, other submissions and other materials on
our internet website (https://www.sec.gov/rules/proposed.shtml).
Typically, comments are also available for website viewing and printing
in the Commission's Public Reference Room, 100 F Street NE, Washington,
DC 20549, on official business days between the hours of 10 a.m. and 3
p.m. Due to pandemic conditions, however, access to the Commission's
public reference room is not permitted at this time. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information. You should submit only information that you wish to make
available publicly.
Studies, memoranda or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: John Fieldsend or Sean Harrison, at
(202) 551-3430, in the Office of Rulemaking, Division of Corporation
Finance, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: We are proposing amendments to:
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Commission reference CFR citation
(17 CFR)
----------------------------------------------------------------------------------------------------------------
Regulation S-T [17 CFR 232.10 through Rule 101.......................... Sec. 232.101.
232.903].
Securities Act of 1933 (``Securities Rule 144(b)(3).................... Sec. 230.144(b)(3).
Act'') [15 U.S.C. 77a et seq.].
Rule 144(d)(3)(ii)................ Sec. 230.144(d)(3)(ii).
Rule 144(h)....................... Sec. 230.144(h).
Form 144.......................... Sec. 239.144.
Securities Exchange Act of 1934 Form 4............................ Sec. 249.104.
(``Exchange Act'') [15 U.S.C. 78a et
seq.].
Form 5............................ Sec. 249.105.
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Table of Contents
I. Discussion of the Proposed Amendments
A. Overview of the Proposed Amendments
B. Proposed Amendment to Rule 144(d)(3)(ii)
1. Background
a. Rule 144 Safe Harbor
b. Rule 144 Holding Period Condition and Tacking
c. Market-Adjustable Securities Transactions
2. Proposed Amendment
C. Proposed Amendment to the Form 144 Filing Requirements
1. Background
2. Proposed Amendments
a. Mandatory Electronic Filing of Form 144
b. Eliminating Form 144 Filing Requirement for Investors Selling
Securities of Non-Reporting Issuers
c. Filing Options for Form 4 and Form 144
d. Rule 10b5-1(c) Transaction Indication in Forms 4 and 5
II. Economic Analysis
A. Introduction
B. Proposed Amendments to Holding Period for Market-Adjustable
Securities
1. Broad Economic Considerations
2. Economic Baseline
3. Benefits and Costs to Proposed Amendment to Rule
144(d)(3)(ii)
4. Effects on Efficiency, Competition, and Capital Formation
5. Reasonable Alternatives
6. Request for Comment
C. Proposed Amendments to Form 144, Form 4 and Regulation S-T
1. Broad Economic Considerations
2. Economic Baseline.
a. Affected parties
b. EDGAR
3. Benefits and Costs of Proposed Amendments to Form 144, Form
4, and Regulation S-T
4. Efficiency, Competition, and Capital Formation
5. Reasonable Alternatives
D. Request for Comment
III. Paperwork Reduction Act
A. Summary of the Collections of Information
B. Summary of the Proposed Amendments' Effects on the
Collections of Information
C. Incremental and Aggregate Burden and Cost Estimates
D. Request for Comment
IV. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Rules
D. Proposed Reporting, Recordkeeping, and other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
V. Small Business Regulatory Enforcement Fairness Act
VI. Statutory Authority
Text of the Proposed Amendments
I. Discussion of the Proposed Amendments
A. Overview of the Proposed Amendments
We are proposing to amend Rule 144, Form 144, Form 4, Form 5 and
Rule 101 of Regulation S-T. We propose to amend Rule 144(d)(3)(ii) to
revise the holding period determination for securities acquired upon
the conversion or exchange of certain market-adjustable securities of
an issuer that does not have a class of securities listed, or approved
to be listed, on a national securities exchange registered pursuant to
Section 6 \1\ of the Exchange Act (``unlisted issuer'') so that the
holding period would not begin until the conversion or exchange. As
used in this release, a ``market-adjustable security'' is a convertible
or exchangeable security that provides for a conversion rate,
conversion price, or other terms that, in each case, would have the
effect of offsetting, in whole or in part, declines in value of the
underlying securities that may occur prior to conversion or exchange.
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\1\ 15 U.S.C. 78f.
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We are proposing this amendment to mitigate the risk of
unregistered distributions in connection with sales of market-
adjustable securities. As
[[Page 5065]]
discussed below, the application of the ``tacking'' provisions of Rule
144 to market-adjustable securities undermines one of the key premises
of Rule 144, which is that holding securities at risk for an
appropriate period of time prior to resale can demonstrate that the
seller did not purchase the securities with a view to distribution \2\
and, therefore, is not an underwriter for the purpose of Securities Act
Section 4(a)(1).\3\ Amending the Rule 144 holding period for the
securities received on conversion or exchange of market-adjustable
securities so that it will not commence until the time the underlying
securities are acquired would help maintain the effectiveness of this
key aspect of the Rule 144 safe harbor.
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\2\ The term ``underwriter'' is broadly defined to mean any
person who has purchased from an issuer with a view to, or offers or
sells for an issuer in connection with, the distribution of any
security, or participates, or has a direct or indirect participation
in any such undertaking, or participates or has a participation in
the direct or indirect underwriting of any such undertaking. See
Securities Act Section 2(a)(11) [15 U.S.C. 77b(a)(11)]. The
interpretation of this definition traditionally has focused on the
words ``with a view to'' in the phrase ``purchased from an issuer
with a view to . . . distribution.'' For simplicity, in this release
we often only refer to the ``with a view to'' prong of the
underwriter definition.
\3\ 15 U.S.C. 77d(a)(1).
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We are also proposing amendments to update and simplify the Form
144 filing requirements by mandating the electronic filing of all Form
144 notices related to the resale of securities of issuers that are
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, and eliminating the filing requirement for Form 144
notices related to the resale of securities of issuers that are not
subject to Exchange Act reporting. Additionally, we are proposing to
eliminate two unnecessary data fields and intend to create an online
fillable document for entering the information required by Form 144. In
connection with these amendments, we are planning to streamline filing
procedures for individuals who are subject to notice filing
requirements under Rule 144 and reporting requirements under Section 16
\4\ of the Exchange Act. These amendments would also change the filing
deadline for Form 144 to coincide with the filing deadline for Form 4.
In addition, we are proposing to amend Forms 4 and 5 to add a check box
to permit filers to indicate that a sale or purchase reported on the
form was made pursuant to a transaction that satisfied 17 CFR 240.10b5-
1(c) (``Rule 10b5-1(c)'').
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\4\ 15 U.S.C. 78p.
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We welcome feedback and encourage interested parties to submit
comments on any or all aspects of the proposed rule amendments. When
commenting, it would be most helpful if you include the reasoning
behind your position or recommendation.
B. Proposed Amendment to Rule 144(d)(3)(ii)
1. Background
a. Rule 144 Safe Harbor
Securities Act Section 5 requires registration of all offers and
sales of securities in interstate commerce or by use of the United
States mails, unless an exemption from the registration requirement is
available.\5\ Securities Act Section 4(a)(1) provides an exemption for
``transactions by any person other than an issuer, underwriter, or
dealer.'' Securities Act Section 2(a)(11) defines an ``underwriter'' to
mean any person who has purchased from an issuer with a view to, or
offers or sells for an issuer in connection with, the distribution of
any security or participates or has a direct or indirect participation
in any such undertaking.\6\
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\5\ 15 U.S.C. 77e.
\6\ As used in Section 2(a)(11), the term ``issuer'' includes
any person directly or indirectly controlling or controlled by the
issuer, or any person under direct or indirect common control with
the issuer. An affiliate of an issuer is a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such issuer. See 17
CFR 230.405 and 17 CFR 230.144(a)(1).
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In 1972,\7\ the Commission adopted Rule 144 to provide a non-
exclusive safe harbor from the statutory definition of ``underwriter''
to assist security holders in determining whether the Section 4(a)(1)
exemption is available for their resale of restricted or control
securities.\8\ Rule 144 sets forth objective criteria on which security
holders seeking to resell such securities may rely to be assured they
would not be deemed to be engaged in a distribution and, therefore, not
be considered an underwriter under Section 2(a)(11). A selling security
holder that seeks to rely on the safe harbor for the resale of
securities must satisfy the following conditions: \9\
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\7\ See Definition of Terms ``Underwriter'' and ``Brokers'
Transactions,'' Release No. 33-5223 (Jan. 11, 1972) [37 FR 591 (Jan.
14, 1972)] (``1972 Adopting Release'').
\8\ Restricted securities are securities acquired pursuant to
one of the transactions listed in Securities Act Rule 144(a)(3),
such as securities issued in a private placement. Although not
defined in Rule 144, the term ``control securities'' commonly refers
to securities held by an affiliate of the issuer, regardless of how
the affiliate acquired the securities. See Rule 144(b)(2).
\9\ In general, these are the conditions that a selling security
holder must satisfy when seeking to rely on the safe harbor for the
resale of securities. However, a person seeking to rely on the safe
harbor when reselling securities of certain types of companies must
satisfy different conditions. See 17 CFR 230.144(i).
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There must be adequate current public information
available about the issuer if the selling security holder is an
affiliate of the issuer; \10\
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\10\ See 17 CFR 230.144(c). A sale by a non-affiliate also must
satisfy the current public information condition if the non-
affiliate is selling securities of a reporting issuer and has held
the securities for less than one year.
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The selling security holder must have held the securities
for a specified holding period if the securities being sold are
restricted securities; \11\
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\11\ See 17 CFR 230.144(d).
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The resale must be within specified sales volume
limitations if the selling security holder is an affiliate of the
issuer; \12\
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\12\ See 17 CFR 230.144(e).
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The resale must comply with the manner of sale
requirements if the selling security holder is an affiliate of the
issuer; \13\ and
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\13\ See 17 CFR 230.144(f) and (g).
---------------------------------------------------------------------------
The selling security holder must file a Form 144 if the
selling security holder is an affiliate of the issuer and the amount of
securities being sold exceeds specified thresholds.\14\
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\14\ See Rule 144(h).
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b. Rule 144 Holding Period Condition and Tacking
One of the conditions of Rule 144 for restricted securities is that
a selling security holder must have held the securities for a specified
period of time prior to resale. This condition helps to ensure that a
holder who claims an exemption under Section 4(a)(1) has assumed the
full economic risks of investment and, therefore, is not acting as a
conduit, directly or indirectly, on behalf of the issuer for the sale
of unregistered securities to the public.\15\ Under Rule 144(d)(1)(i),
restricted securities acquired from an issuer that has been subject to
Exchange Act reporting for at least 90 days before the sale (a
``reporting issuer'') must be held for a minimum of six months. If the
issuer is not subject to Exchange Act reporting, or has not been for a
period of at least 90 days immediately before the sale (a ``non-
reporting issuer''), the restricted securities must be held for a
minimum of one year pursuant to Rule 144(d)(1)(ii).
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\15\ See 1972 Adopting Release, supra note 7, at 594 (noting
that the holding period condition in Rule 144 was designed to assure
that the registration provisions of the Securities Act are not
circumvented by persons acting, directly or indirectly, as conduits
for an issuer in connection with resales of restricted securities
and that to accomplish this, the rule provides that such persons be
subject to the full economic risks of investment during the holding
period).
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As originally adopted, Rule 144 required a two-year holding period
before a security holder could make
[[Page 5066]]
limited sales of restricted securities.\16\ Later changes to the rule
established a separate three-year holding period for unlimited sales of
restricted securities by non-affiliates of the issuer.\17\ In 1997, the
Commission shortened the holding periods for restricted securities to
one-year and two-year periods, respectively.\18\ In 2007, the
Commission adopted the current holding periods of six months for
reporting issuers and one year for non-reporting issuers based on its
observations of Rule 144's application since 1997 and its desire that
the holding period be no longer than necessary nor impose any
unnecessary costs or restrictions on capital formation.\19\ By reducing
the holding periods for restricted securities, the Commission intended
to help companies to raise capital more easily and less
expensively.\20\
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\16\ See id.
\17\ See Resales of Securities, Release No. 33-6032 (Mar. 5,
1979) [44 FR 15610 (Mar. 14, 1979)] and Resales of Securities,
Release No. 33-6286 (Feb. 6, 1981) [46 FR 12195 (Feb. 13, 1981)]
(``1981 Adopting Release'').
\18\ See Revision of Holding Period Requirements in Rules 144
and 145, Release No. 33-7390 (Feb. 20, 1997) [62 FR 9242 (Feb. 28,
1997)]. In that adopting release, the Commission stated that it was
shortening the holding to reduce the cost of capital, lower the
illiquidity discount given by companies raising capital in private
placements, and increase the usefulness of the Rule 144 safe harbor.
See id. at 9242. Additionally, the Commission stated that it did not
believe that the shorter holding periods would diminish investor
protection because the holding periods were still sufficiently long
to ensure that resales under Rule 144 would not facilitate indirect
public distributions of unregistered securities by issuers or
affiliates.
\19\ See Revisions to Rules 144 and 145, Release No. 33-8869
(Dec. 6, 2007) [72 FR 71546 (Dec. 17, 2007)] (``2007 Adopting
Release''). In the 2007 Adopting Release, the Commission eliminated
the bifurcated holding periods for affiliates and non-affiliates,
and added different holding periods for reporting and non-reporting
issuers because non-reporting issuers are not obliged to file
periodic reports with updated financial information that are
publicly available on EDGAR.
\20\ See id.
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Rule 144 contains ``tacking'' provisions in specified situations
that allow holders to count other holding periods--either of prior
owners of the securities or of different securities owned by the
holders--to satisfy their holding period requirement. One situation
where Rule 144 permits tacking of the holding period involves
convertible securities. Rule 144(d)(3)(ii) allows securities acquired
solely in exchange for other securities of the same issuer to be deemed
to have been acquired at the same time as the securities surrendered
for conversion or exchange. A variation of this provision has existed
since 1972,\21\ and the current version of this provision was adopted
in 2007.\22\
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\21\ See 1972 Adopting Release, supra note 7, at 597.
\22\ See 2007 Adopting Release, supra note 19, at 71555.
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c. Market-Adjustable Securities Transactions
A typical convertible security, for example a convertible bond, a
convertible promissory note, or convertible preferred stock, can be
converted into a different security, such as shares of the issuer's
common stock, under specified terms and conditions.\23\ In a
conventional convertible security transaction, the conversion formula
is generally fixed, such that the convertible security converts into
common stock based on a conversion price that is fixed at the time the
convertible security is sold and remains at that fixed price through
its conversion. Convertible securities may contain mechanical
adjustments to the number of underlying shares and the conversion price
upon the occurrence of events such as splits, dividends, or other
distributions on the underlying securities. They also may contain anti-
dilution provisions designed to protect the holder's economic interest
if the issuer subsequently issues shares of the underlying securities
at a price below their current market value or below the holder's
original purchase price. The terms of market-adjustable securities,
however, go beyond these typical adjustments and anti-dilution
provisions to adjust for, and protect the holder against, general
decreases in market value of the underlying securities.\24\
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\23\ See infra Section II.B.1; see also, Convertible Securities,
U.S. Sec. & Exchange Commission (last visited Dec. 18, 2020),
available at https://www.sec.gov/fast-answers/answersconvertibleshtm.html.
\24\ For example, the conversion or exchange rate of the
overlying convertible securities into the underlying equity
securities may be discounted from a weighted average price of the
publicly traded class of securities, typically, common stock,
calculated for a period leading up to the date of conversion or
exchange. Therefore, the conversion price provides a discount from
the recent market price that can be realized at the time sales of
the underlying equity securities begin.
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While the holder of a typical convertible security is at
substantial economic risk upon conversion with respect to the
underlying security if the underlying security fails to appreciate or
declines in value, this is not the case in market-adjustable securities
transactions where the conversion or exchange price and/or the amount
of securities received on conversion are not fixed at the time of the
initial transaction. In these transactions, holders have the right to
convert the securities into the underlying securities (often shares of
common stock) at a conversion price that yields a substantial discount
to the market price of the underlying securities at the time of
conversion or exchange. If the securities are converted or exchanged
after the Rule 144 holding period is satisfied, the underlying
securities may be sold quickly into the public market at prices above
the price at which they were acquired. Accordingly, initial purchasers
or subsequent holders have an incentive to purchase the market-
adjustable securities with a view to distribution of the underlying
securities following conversion to capture the difference between the
built-in discount and the market value of the underlying securities. As
noted above, when a holder purchases with a view to distribution, it is
acting as an underwriter and is unable to rely on the Section 4(a)(1)
exemption from registration.
A holding period is essential to assure that purchasers have
assumed the economic risks of investment, and therefore, are not acting
as conduits for sale to the public of unregistered securities, directly
or indirectly, on behalf of an issuer.\25\ The discounted conversion or
exchange features in market-adjustable securities typically provide
holders with protection against investment losses that would occur due
to declines in the market value of the underlying securities prior to
conversion or exchange. As a result, these holders are not exposed to
the market risk associated with holding the underlying security prior
to conversion or exchange; \26\ they are only exposed to that market
risk during the time that they hold the underlying security after the
conversion or exchange.\27\ In these circumstances, holders that
convert and promptly resell the underlying security in order to secure
a profit on the sale based on the built-in discount have not assumed
the economic risks of investment of the underlying security. Therefore,
under Rule 144's current
[[Page 5067]]
formulation, holders are able to purchase market-adjustable securities
with a view to distribution while still satisfying the holding period
requirements and tacking period provisions of Rule 144.
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\25\ See 1972 Adopting Release, supra note 7.
\26\ Prior to conversion or exchange, a holder of market-
adjustable securities is at risk of bankruptcy of the issuer.
However, this risk is borne for a briefer duration currently than
when Rule 144 was originally adopted because of the shortened
holding periods.
\27\ This period of time can be very limited because the
discounted equity securities acquisition, through conversion or
exchange, and the market-priced sales can occur almost
simultaneously. For example, when the applicable holding period
ends, the holder may demand that the issuer issue the required
number of underlying securities at the discounted conversion or
exchange price and concurrently sell those securities at market
prices. The underlying securities are received from the issuer in
time to settle the sales at market prices made earlier.
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Permitting the holding period of the underlying securities to be
``tacked'' onto the holding period of the convertible or exchangeable
security allows the initial holders of market-adjustable securities to
structure transactions without significant economic risk prior to
conversion. The structure of these transactions incentivizes purchases
with a view to distribution because, by selling the underlying
securities into the market promptly after conversion, holders of
market-adjustable securities can capture the value of the built-in
discount to the then-current market value. This is inconsistent with
the purpose of Rule 144 to provide a safe harbor for transactions that
are not distributions of securities. These unregistered transactions
pose the risk that distributions of securities will reach the public
markets without the same level of disclosure and liability protections
that registration provides to investors.
2. Proposed Amendment
We are proposing to amend Rule 144(d)(3)(ii) to provide that the
holding period for the securities acquired upon conversion or exchange
of certain market-adjustable securities issued by unlisted issuers
would not begin until conversion or exchange.\28\ The proposed
amendment would be limited to unlisted issuers because national
securities exchanges registered pursuant to Section 6 of the Exchange
Act have certain listing requirements, such as requiring shareholder
approval of an issuance of 20 percent or more of a company's common
stock. Because market-adjustable securities have the potential to
result in highly dilutive issuances of large amounts of the issuer's
securities, these required approvals are not likely to be granted in
the situations the amendment is intended to address.\29\
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\28\ Nothing in this proposed amendment is intended to impact
the availability of the Securities Act Section 3(a)(9), 15 U.S.C.
77c(a)(9), exemption from registration for such conversions or
exchanges as long as the requirements of Section 3(a)(9) are
otherwise met.
\29\ See, e.g., Section 312.03(c) of the New York Stock Exchange
LLC Listed Company Manual (requiring shareholder approval of any
issuance of securities in any transaction or related transactions
relating to 20 percent or more of a listed company's stock before
the issuance) and Nasdaq Stock Market LLC Listing Rule 5635(d)
(requiring shareholder approval prior to an issuance or potential
issuance by a company of common stock (or securities convertible
into or exercisable for common stock), which alone or together with
sales by officers, directors, or certain other shareholders equals
20 percent or more of the common stock or 20 percent or more of the
voting power outstanding before the issuance at a price that is less
than the certain, minimum price).
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We have also observed that issuers that are able to satisfy the
listing criteria of these exchanges have generally not been engaging in
these transactions. The proposed amendment is intended to avoid the
potential under the current Rule 144 safe harbor for holders to acquire
market-adjustable securities with a view to an unregistered
distribution of the underlying securities acquired upon their
conversion or exchange, resulting in significant resales of the
underlying securities without investors having the benefit of
registration.\30\
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\30\ In addition to lacking the disclosure and liability
protections that registration provides, market-adjustable securities
may result in extreme dilution to holders of the underlying
securities, especially when the conversions or exchanges occur in
tranches at subsequently lower market prices.
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The proposed amendment would not affect the use of Rule 144 for
most convertible or variable-rate securities transactions. The proposed
amendment would apply only to market-adjustable securities transactions
where:
The newly acquired securities were acquired from an issuer
that, at the time of the conversion or exchange, 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
The convertible or exchangeable security contains terms,
such as conversion rate or price adjustments, that offset, in whole or
in part, declines in the market value of the underlying securities
occurring prior to conversion or exchange, other than terms that adjust
for stock splits, dividends, or other issuer-initiated changes in its
capitalization.
We believe the proposed amendment would reduce the potential for
unregistered distributions because after the conversion or exchange of
the overlying convertible securities, the underlying securities would
need to be held for the applicable Rule 144 holding period before they
would be eligible for resale under the Rule 144 safe harbor. A holder
who has held the underlying securities for the entire six months or one
year, as applicable, during which period market adjustments are no
longer available, is generally appropriately excluded from the
definition of an underwriter.
While we believe the proposed amendment would mitigate the risk of
unregistered distributions in connection with market-adjustable
securities transactions, we also emphasize that the Rule 144 safe
harbor is not available to any person with respect to any transaction
or series of transactions that is part of a plan or scheme to evade the
registration requirements of the Securities Act, as currently stated in
the Preliminary Note to Rule 144. We propose to move this statement to
new paragraph (b)(3) of Rule 144 so that the statement is explicitly
included in the rule text.\31\
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\31\ In addition to this amendment, due to current Federal
Register formatting requirements we are also proposing a technical
change to move the rest of Rule 144's Preliminary Note to a note
that immediately follows the rule. Neither new Rule 144(b)(3) nor
this technical change would alter the substance of the Preliminary
Note.
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Request for Comment
1. Should we amend Rule 144(d)(3)(ii) as proposed?
2. Should the rule only apply if the issuer is an ``unlisted
issuer'' at the time of conversion or exchange, as proposed? Or should
the determination of whether an issuer is unlisted be made at the time
the holder buys the market-adjustable security, the time of the resale
of any of the underlying equity securities, or some other time? Should
the determination be made both at the time of the purchase of the
market-adjustable security and at the time of the conversion or
exchange, or some other combination of times?
3. Is the description of market-adjustable securities in proposed
Rule 144(d)(3)(ii) sufficient to achieve the purpose of the proposal?
If not, how should we modify the description?
4. Should we define the securities that would be subject to the
proposed rules more narrowly or more broadly? If so, how? We do not
intend for adjustments for recapitalizations, stock or cash dividends,
or other anti-dilution adjustments that apply to issuer-initiated
actions, to be considered the type of adjustments that would cause a
security to be considered a market-adjustable security. However, are
there specific additional factors or clarification that we should
provide in the rule to indicate when a transaction may be considered a
market-adjustable securities transaction?
5. As an alternative to the proposed amendment to Rule
144(d)(3)(ii), should we amend Rule 144(d)(1)(i) to increase from six
months to one year (or some other period) the holding period that would
apply to the market-adjustable securities that are issued by reporting,
unlisted issuers? Should we amend Rule 144(d)(1)(i) to increase the
holding period to one year (or some other period) for these market-
adjustable
[[Page 5068]]
securities in addition to amending Rule 144(d)(3)(ii) as proposed?
6. Are there alternative approaches that we should consider that
would better mitigate the risk of unregistered distributions of
securities acquired upon the conversion or exchange of market-
adjustable securities?
7. Should market-adjustable securities of both listed and unlisted
issuers be covered by the amendment to Rule 144(d)(3)(ii) rather than
only those of unlisted issuers, as proposed? Do an exchange's listing
criteria provide sufficient safeguards against the type of transaction
that the proposal seeks to address? If not, are there alternatives that
we should consider?
8. Should the proposed amendment to Rule 144(d)(3)(ii) only apply
to issuers that do not have a class of equity security listed on an
exchange, rather than to issuers that do not have any class of security
listed on an exchange, as proposed?
9. Are there any additional amendments or changes to the proposed
amendments that we should consider that would help achieve the purposes
of the proposal?
C. Proposed Amendment to the Form 144 Filing Requirements
1. Background
Form 144 is a notice form that must be filed with the Commission by
an affiliate of an issuer who intends to resell restricted or control
securities \32\ of that issuer in reliance upon Securities Act Rule
144.\33\ Under Securities Act Rule 144(h), an affiliate who intends to
resell securities of the issuer during any three-month period in a
transaction that exceeds either 5,000 shares or has an aggregate sales
price of more than $50,000 must file a Form 144 concurrently with
either the placing of an order with a broker to execute the sale or the
execution of a sale directly with a market maker.
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\32\ See Rule 144(h).
\33\ See Rule 144(a)(1) (defining ``affiliate of the issuer as a
person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the issuer).
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Rule 101(b) of Regulation S-T permits Form 144 to be filed
electronically or in paper if the issuer of the securities is subject
to Exchange Act reporting requirements. If the issuer of the securities
is not subject to Exchange Act reporting requirements, Rule 101(c)(6)
of Regulation S-T requires Form 144 to be filed in paper.\34\ During
the 2019 calendar year, the Commission received over 31,000 Form 144
filings. Based on an analysis of these filings, Commission staff
estimates that approximately 99 percent related to the resale of
securities of issuers subject to Exchange Act reporting requirements.
Although most of these Form 144 filings can be made electronically,
during the 2019 calendar year, only 221 Form 144 filings were made
electronically and the vast majority were filed in paper.\35\
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\34\ In April 2020, in recognition of several logistical
difficulties related to the submission of Form 144 in paper pursuant
to Rules 101(b)(4) or 101(c)(6) of Regulation S-T, as well as
ongoing health and safety concerns related to COVID-19, the Division
of Corporation Finance provided temporary no-action relief that
specified that it would not recommend enforcement action to the
Commission if Forms 144 for the period from and including April 10,
2020 to June 30, 2020 were submitted as a complete PDF attachment
and emailed to the Commission in lieu of filing the form in paper.
Subsequently, on June 25, 2020, the Division of Corporation Finance
updated this no-action relief by indefinitely extending it from the
period beginning on April 10, 2020. See Division of Corporation
Finance Statement Regarding Requirements for Form 144 Paper Filings
in Light of COVID-19 Concerns, U.S. Sec. & Exchange Comm'n (June 25,
2020), available at https://www.sec.gov/corpfin/announcement/form-144-paper-filings-email-option-update.
\35\ The paper filings of Form 144 are retained in the
Commission's public reference room for a period of 90 days.
Investors or other interested parties wishing to access and review a
Form 144 filed in paper must do so in person at our public reference
room or subscribe to a third party information service that records
and distributes the information electronically after a paper Form
144 is filed. Due to pandemic conditions, prospective data users
cannot, at this time, access the Commission's public reference room.
Therefore, access to paper filings is limited to those records which
have been obtained and incorporated by vendor databases.
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2. Proposed Amendments
a. Mandatory Electronic Filing of Form 144
Since the Commission's implementation of the Electronic Data
Gathering, Analysis, and Retrieval system (``EDGAR''), we have sought
to make the system more comprehensive by subjecting more filings to our
mandated electronic filing requirements. The mandated electronic
submission of documents required to be filed with the Commission has
enabled investors, market participants, and other EDGAR users to access
more quickly the information contained in registration statements,
periodic reports, and other filings made with the Commission. We are
proposing rule amendments that would mandate the electronic filing of
Form 144 and eliminate the paper filing option. Specifically, we
propose to amend Rules 101(a) and 101(b) of Regulation S-T to mandate
the electronic filing of all Form 144 filings for the sale of
securities of Exchange Act reporting companies.
Mandating the electronic filing of Form 144 would facilitate more
efficient storage and retrieval of the transaction information and
facilitate analysis of this information. In addition, as described in
more detail below, Form 144 filers would benefit from the planned EDGAR
changes to make the form an online fillable document that would make
electronic filing easier. Under the proposed amendments, affiliates of
an issuer that is subject to Exchange Act reporting who resell or
expect to resell securities in reliance upon Rule 144 in an amount
exceeding the Form 144 filing thresholds would be required to file a
Form 144 electronically on EDGAR.\36\ Any Form 144 filer who has not
previously made an electronic filing on EDGAR would need to apply for
EDGAR access in accordance with the EDGAR Filer Manual in order to file
documents on EDGAR. We are also proposing to provide a six-month
transition period after the effective date of the amendments to
Regulation S-T to give Form 144 paper filers who would be first-time
electronic filers sufficient time to apply for codes to make filings on
EDGAR.
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\36\ An affiliate, however, would be able to file the form in
paper pursuant to a temporary hardship exemption under 17 CFR
232.201 (Rule 201 of Regulation S-T) if the affiliate experiences
unanticipated technical difficulties preventing the timely
preparation and submission of the electronic filing.
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In addition, we propose to amend Rule 144(h)(1) to delete the
requirement that an affiliate send one copy of the Form 144 notice to
the principal exchange, if any, on which the restricted securities are
admitted to trading. This provision was designed for Form 144 filings
made in paper and will no longer be needed if we mandate the electronic
filing of Form 144.\37\
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\37\ Many exchanges have rules or guidance that specify that it
is not necessary for a company listed on the exchange to provide it
with physical copies of any documents that the company has filed on
EDGAR. See, e.g., New York Stock Exchange Listed Company Regulation
Guidance Memo, N.Y. Stock Exch. (Feb. 20, 2018), available at
https://www.nyse.com/publicdocs/nyse/regulation/nyse/2018_Listed_Company_Regulation_Guidance_Memo.pdf.
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We are also proposing minor changes to Form 144 to update the form
and eliminate certain personally identifiable information (``PII'') and
immaterial information fields that are unnecessary. Specifically, we
propose to delete the fields requiring the home address of the person
for whose account the securities are to be sold and the IRS
identification number of the issuer of the securities.\38\
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\38\ For purposes of Form 144, we have determined that we can
achieve our regulatory objectives without the PII. Furthermore, the
IRS identification number of the issuer is redundant as this
information is required to be disclosed on the cover page of
registration statements and periodic reports and would be available
through these forms.
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[[Page 5069]]
We intend to provide an online fillable document on EDGAR for
entering information required by Form 144 and to streamline the
electronic filing process for those filing both a Form 144 and a Form 4
to report the same sale of equity securities, as discussed in more
detail below. In connection with these changes, we are also proposing
to amend the Form 144 filing deadline to coincide with the Form 4
filing deadline.\39\ Specifically, we propose to amend Securities Act
Rule 144(h)(2) to revise the filing deadline to require that a Form 144
be filed before the end of the second business day following the day on
which the sale of securities has been executed or the deemed date of
execution \40\ rather than have it due concurrently with either the
placing of an order with a broker to execute the sale or the execution
of a sale directly with a market maker, as currently required.
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\39\ We are proposing to amend the filing deadline for Form 144
to facilitate the simultaneous filing of Form 144 and Form 4. See
infra Section II.B.2.c.
\40\ Consistent with the exception to the Form 4 two-business
day filing deadline provided in Exchange Act Rule 16a-3(g)(2)(i) [17
CFR 240.16a-3(g)(2)(i)], the proposed amendments provide that if the
transaction is pursuant to a contract, instruction or written plan
that satisfies the affirmative defense conditions of Exchange Act
Rule 10b5-1(c), and the affiliate does not select the date of
execution, the date on which the executing broker, dealer notifies
the security holder of the execution of the transaction is deemed
the date of execution for a transaction.
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The proposed amendment to the Form 144 filing deadline would
facilitate this new filing process. This filing deadline would apply to
all Forms 144, regardless of whether a Form 4 also needs to be filed
for the same transaction.\41\ The proposal therefore would provide all
Form 144 filers more time to file the form, yet would generally result
in the Form 144 becoming publicly available earlier than under the
existing filing deadline because the Form 144 would be filed
electronically rather than mailed to the Commission in paper at the
time the sale is executed. The proposed filing deadline, however, would
not preclude filers from filing a Form 144 concurrently with either the
placing of an order to execute a sale with a broker, or the execution
of a sale directly with a market maker.
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\41\ To better reflect the proposed change to the Form 144
filing deadline, we also propose to revise the title of Form 144 to
read: ``Notice of sale or proposed sale of securities pursuant to
Rule 144 under the Securities Act of 1933.'' We are also proposing a
conforming amendment to Instruction 3(d) to Form 144 to clarify that
the filer should provide the total sales proceeds for completed
sales rather than the aggregate market value for sales that have not
yet been completed.
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Finally, we observe that the Commission considered Rule 144 to be
in the nature of an experiment at the time of its adoption in 1972.\42\
The Commission has used Form 144 filings to monitor the operation of
the rule and as an enforcement tool to assist in the detection of
abuses.\43\ Since the Commission initially adopted the Rule 144
requirements, the Commission has amended the rule to eliminate certain
Form 144 filing requirements.\44\ While, at this time, we are not
proposing the elimination of the current Form 144 filing requirement
for sales of securities by affiliates of issuers that are subject to
Exchange Act reporting, we are soliciting comment on the continued
utility of Form 144 filings.
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\42\ See 1972 Adopting Release, supra note 7, at 595.
\43\ See Resales of Securities, Release No. 33-6252 (Oct. 24,
1980) [45 FR 72685 (Nov. 3, 1980)] at 72686.
\44\ See, e.g., 1981 Adopting Release, supra note 17, at 12197
(amending Rule 144 to relieve non-affiliates from the Form 144
filing requirement and explaining that the ``costs and burdens of
the requirement outweigh its usefulness, at least in this area'').
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Request for Comment
10. Do investors or other market participants have an interest in
the information provided by Form 144? Does Form 144 provide important
information that would not otherwise be publicly available? Do
investors or other market participants obtain benefits from this
information? If so, please describe the benefits.
11. How do market participants and the public currently access Form
144 information? Should we mandate the electronic filing of Form 144
for affiliates' sales of securities of issuers that are subject to
Exchange Act reporting and that exceed the thresholds in Rule 144(h),
as proposed? Would electronic filing of Form 144 make those forms more
readily accessible to the public? Would electronic filing result in
cost savings? Given that the majority of Form 144 filings are made in
paper, has the inability to access the paper Forms 144 filed during the
pandemic had any effect on the usefulness of this information to market
participants and the public?
12. Should we, as proposed, amend Rule 144(h)(1) to eliminate the
requirement that an affiliate send one copy of the Form 144 notice to
the principal exchange, if any, on which the restricted securities are
admitted to trading?
13. Should we amend Form 144 to update the form and eliminate
certain information, as proposed? Is there any other information in
Form 144 that we should remove because it is unnecessary to further the
purposes of Rule 144? Is there any other information that should be
included in the form?
14. Should we instead continue to permit a Form 144 filer to have
the option of filing in paper or electronically?
15. In the alternative, should we eliminate the Form 144 filing
requirement altogether?
16. Is the proposed six-month transition period appropriate? Would
a shorter or longer transition period be more appropriate (e.g., three
months, nine months)?
17. Is it common for Form 144 filers to use a filing agent or a
third party such as a broker to prepare and submit the Form 144 filing?
If so, would the proposed amendments create any difficulties in the
filing process or add costs to the process?
18. Should we amend the Form 144 filing deadline to coincide with
the Form 4 filing deadline, as proposed? If not, should we change the
deadline in some other way?
19. If we mandate the electronic filing of Form 144 without
amending the filing due date, the Form 144 disclosures would be
available to investors and other EDGAR users more quickly than if we
amend the Form 144 filing deadline to coincide with the Form 4 filing
deadline. Should we maintain the existing Form 144 filing deadline that
requires the form to be transmitted for filing concurrently with either
the placing with a broker of an order to execute a sale of securities
in reliance on the rule or execution of the sale directly with a market
maker? Is there a benefit to having the Form 144 filed at an earlier
date than a Form 4 that reports the same sale? If so, how does that
benefit compare to the efficiencies that a filer subject to both the
Form 144 and Form 4 requirements could realize from being able to file
both forms simultaneously?
b. Eliminating Form 144 Filing Requirement for Investors Selling
Securities of Non-Reporting Issuers
As noted above, the Commission staff estimates that approximately
one percent of the Form 144 filings made during the 2019 calendar year
related to the resale of securities of issuers that are not subject to
Exchange Act reporting.\45\ The proposed amendments discussed above
that would mandate the electronic filing of a Form 144 notice for the
securities of an Exchange Act
[[Page 5070]]
reporting issuer would reduce a large majority of the paper Form 144
filings that the Commission receives. Although one of the primary goals
of EDGAR is to facilitate the dissemination of financial and business
information contained in Commission filings,\46\ given the limited
number of paper Form 144 filings related to non-reporting issuers that
we receive, we believe that the benefits of having this information
filed electronically would not justify the burdens on filers. For this
reason, we are proposing to amend Rule 144 and Rule 101(c)(6) of
Regulation S-T to require affiliates relying on Rule 144 to file a
notice of sale on Form 144 only when the issuer of the securities is
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act.
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\45\ See infra Section I.C.1.
\46\ See Electronic Filing, Processing and Information
Dissemination System, Release No. 33-6519 (Mar. 22, 1984) [49 FR
12707 (Mar. 30, 1984)].
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Form 144 provides the Commission, among other things, with
information concerning the issuer, the person on whose behalf the
securities are to be sold, the broker who will execute the sale order,
the securities to be sold, the approximate date of sale, and other
securities of the same issuer sold during the past three months. The
form, however, is not the sole source of information available to the
Commission regarding resale transactions under the rule. For example,
brokers are generally required to make and maintain records, for a
period of time, of all purchases and sales of securities \47\ and to
furnish promptly legible, true, complete, and current copies of those
records upon request by a representative of the Commission.\48\ In
addition, brokers that execute a sale under Rule 144 must conduct a
reasonable inquiry to determine that the person for whose account the
securities are sold is not an underwriter or that the transaction is
not part of a distribution of securities of the issuer.\49\
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\47\ See 17 CFR 240.17a-3 and 17 CFR 240.17a-4.
\48\ See 17 CFR 240.17a-4(j).
\49\ See 17 CFR 230.144(g)(4) (Rule 144(g)(4)).
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Although the Form 144 filing requirement would be eliminated for
resales of securities by affiliates of issuers that are not subject to
Exchange Act reporting, the proposed amendments to eliminate the Form
144 filing requirement would not change any of the other conditions of
the Rule 144 safe harbor.
Request for Comment
20. Should we eliminate the Form 144 filing requirement for
affiliates' sales of securities of non-reporting companies, as
proposed? Does Form 144 provide important information concerning the
resale of securities of non-reporting issuers that would not otherwise
be publicly available to investors or other users of this information?
Do investors or market participants currently rely on Form 144 for this
information or do they rely on other publicly available sources? If so,
which other public sources are relied upon?
21. Do investors have an interest in the information provided by
Form 144 regarding the resale of securities of non-reporting issuers?
Do investors or market participants obtain benefits from this
information? If so, please describe the benefits.
22. We have received comments indicating that the information
contained in Form 144 could be used to satisfy some of the public
information requirements in Rule 144(c)(2),\50\ in particular the
information specified in Rule 15c2-11(b)(5)(i)(N) and (b)(5)(i)(P).\51\
For the purpose of Rule 144(c)(2), is the Rule 15c2-11 information
specified in paragraphs (b)(5)(i)(N) and (b)(5)(i)(P) publicly
available from other sources? If so, which sources?
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\50\ See letter from OTC Markets Group Inc. (dated Sept. 24,
2019), available at https://www.sec.gov/comments/s7-08-19/s70819-6193364-192517.pdf, which was submitted in response to the Concept
Release on Harmonization of Securities Offerings Exemptions, Release
No. 33-10649 (Jun. 18, 2019) [84 FR 30460 (Jun. 26, 2019)]
(recommending ``pre-publication'' of Form 144 so that the
information contained in it is publicly available for the purposes
of rule 144(c)(2)). See also U.S. Sec. & Exch. Comm'n, Report on the
39th Annual Small Business Forum 31 (2020) (recommending ``pre-
publication'' of Form 144), available at https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf.
\51\ See 17 CFR 240.15c2-11. Rule 15c2-11(b)(5)(i)(N) requires
information about whether the broker or dealer or any associated
person of the broker or dealer is affiliated, directly or
indirectly, with the issuer. Rule 15c2-11(b)(5)(i)(P) requires
information about whether the quotation is being submitted or
published, directly or indirectly, by or on behalf of the issuer or
a company insider and, if so, the name of such person and the basis
for any exemption under the Federal securities laws for any sales of
such securities on behalf of such person. In the recently adopted
amendments to Rule 15c2-11, the prior references to Rule 15c2-
11(a)(5)(xiv) and (a)(5)(xvi) were changed to (b)(5)(i)(N) and
(b)(5)(i)(P). See Publication or Submission of Quotations Without
Specified Information, Release No. 33-10842 (Sept. 16, 2020) [85 FR
68124 (Oct. 27, 2020)].
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23. Rule 15c2-11 does not require that the information specified in
paragraphs (b)(5)(i)(N) and (b)(5)(i)(P) of Rule 15c2-11 be publicly
available but requires, in certain circumstances, that a broker-dealer
make it available upon request of a person expressing an interest in a
proposed transaction in the issuer's security. Rule 144(c)(2) requires
the information specified in these paragraphs to be publicly available.
Should we amend Rule 144(c)(2) to require the information in these
paragraphs to be available upon request in accordance with the
provisions of Rule 15c2-11(b)(5)(ii) instead of publicly available?
24. How do the costs of electronically filing a Form 144 notice
related to the resale of securities of a non-reporting issuer compare
with the benefits of having the form available on EDGAR?
c. Filing Options for Form 4 and Form 144
Section 16 of the Exchange Act applies to every person who is the
beneficial owner of more than 10 percent of any class of equity
security registered under Section 12 of the Exchange Act \52\ and each
officer and director (collectively, ``reporting persons'' or
``insiders'') of the issuer of the security. Upon becoming a reporting
person, or upon the Section 12 registration of that class of
securities, Section 16(a) requires a reporting person to file an
initial report with the Commission disclosing the amount of his or her
beneficial ownership of all equity securities of the issuer. To keep
this information current, Section 16(a) also requires insiders to
report changes in such ownership. Under Rule 16a-3 of the Exchange
Act,\53\ insiders are required to report most changes in beneficial
ownership, including purchases and sales of securities, on Form 4.
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\52\ 15 U.S.C. 78l.
\53\ 17 CFR 240.16a-3.
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As discussed above, Rule 144 requires an affiliate of an issuer to
file a Form 144 concurrently with either the placing with a broker of
an order to execute a sale of securities in reliance upon Rule 144 or
the execution directly with a market maker of such a sale. Some of the
disclosures required by Form 144 duplicate the disclosure requirements
of Form 4. For example, both Form 144 and Form 4 require disclosure
concerning the title of the class of securities being sold, the number
of shares subject to sale, the aggregate market value of those shares,
and the date of sale.
Many affiliates of an issuer under Rule 144 are also insiders of
that issuer under Section 16 of the Exchange Act. Affiliates selling
securities under Rule 144 often are required to file a Form 4 within
two business days after they file a Form 144 to report information
regarding the same sale of securities.\54\
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\54\ The Sarbanes-Oxley Act of 2002 [Public Law 107-204, 116
Stat. 745] amended Section 16(a) to require insiders to file Form 4
before the end of the second business day following the day on which
the subject transaction has been executed or at such other time as
the Commission shall establish if the 2-day period is not feasible.
On August 27, 2002, the Commission adopted rule and form amendments
to implement this filing deadline. See Ownership Reports and Trading
by Officers, Directors and Principal Security Holders, Release No.
34-46421 (Aug. 27, 2002) [67 FR 56462 (Sept. 3, 2002)].
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[[Page 5071]]
In June 2007, the Commission issued a release proposing amendments
to update Securities Act Rules 144 and 145.\55\ In that release, the
Commission discussed possible approaches to, and requested comment
about, amending Form 144 and Form 4 in order to reduce duplicative
requirements and coordinate the filing requirements of these two forms.
The Commission ultimately did not adopt any amendments to the forms to
reduce duplicative requirements.\56\ The Commission also has received a
rulemaking petition requesting that the Commission revise its rules and
regulations so that Form 144 be combined into Form 4 for persons that
need to file both forms.\57\
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\55\ 17 CFR 230.145. See Revisions to Rule 144 and Rule 145,
Release No. 33-8813 (June 22, 2007) [72 FR 36822 (July 5, 2007)].
\56\ In the 2007 Adopting Release, the Commission stated that it
expected to issue a separate release in the future to provide
affiliates that are subject to both the Form 4 and Form 144 filing
requirements with greater flexibility in satisfying their
requirements. See 2007 Adopting Release, supra note 19, at 72 FR
71554 and 71555.
\57\ See Request for rulemaking to combine Form 144 into Form 4,
File No. 4-671 (Dec. 13, 2013) (requesting that the Commission amend
its rules to combine Form 144 with Form 4), https://www.sec.gov/rules/petitions/2013/petn4-671.pdf. The proposal, if adopted, would
achieve the objectives sought by the petitioner.
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If we adopt the proposed amendments to Form 144 discussed above, we
intend to modify EDGAR to provide filers with the option to file a Form
144 and a Form 4 through a single user interface. The system would use
the information entered into the fields to create separate Form 4 and
Form 144 filings. After the information is entered, a filer would have
the opportunity to correct errors and verify the accuracy of the
information before choosing to file one or both forms on EDGAR. Once
the information is filed on EDGAR, the system would provide the filer
with separate accession numbers for the Form 4 and Form 144 and also a
return copy for both the Form 4 and Form 144 shortly after filing. We
believe these changes would make the filing of these forms more
efficient for filers subject to both reporting requirements. This
filing option, however, would not be available for a Form 4 filing that
is made on behalf of multiple insiders.\58\
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\58\ Form 4 permits multiple insiders to file on a single form
if they all have an interest in the transaction(s) being reported.
Form 144, however, does not have a similar feature.
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In addition, we would make Form 144 available online as a fillable
document that could be used by filers that do not have a corresponding
Form 4 reporting obligation, as well as those who need to report the
same sale on Form 4 and Form 144 but choose to enter the information
separately for each form. An online fillable form would enable the
convenient input of information, and support the electronic assembly of
such information and transmission to EDGAR, without requiring a Form
144 filer to purchase or maintain additional software or technology.
The fillable form would be similar to other fillable forms that are
currently available to file Forms D,\59\ 3, 4, and 5.
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\59\ 17 CFR 239.500.
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Request for Comment
25. If the Commission adopts the proposed rules, should we enable
the filing of a Form 4 and Form 144 on EDGAR through a single user
interface? Would this option make the filing of these documents more
efficient for filers?
26. Are there alternative methods that we should consider that
could reduce the duplicative requirements of Form 144 and Form 4?
d. Rule 10b5-1(c) Transaction Indication in Forms 4 and 5
Form 144 requires a selling security holder to represent, as of the
date that the form is signed, that he or she does not know any material
adverse information in regard to the current and prospective operations
of the issuer of the securities to be sold which has not been publicly
disclosed. In 2007, we amended Form 144 to allow filers who satisfy
Rule 10b5-1(c) by adopting a written trading plan or providing trading
instructions to make that representation as of the date they adopted
the plan or gave instructions, rather than the date they signed the
Form 144.\60\
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\60\ See 2007 Adopting Release, supra note 19. Exchange Act Rule
10b5-1 defines when a purchase or sale of a security constitutes
trading ``on the basis of'' material nonpublic information in
insider trading cases brought under Section 10(b) of the Exchange
Act [15 U.S.C. 78j] and Rule 10b-5. Specifically, a purchase or sale
of a security of an issuer is ``on the basis of'' material nonpublic
information about that security or issuer if the person making the
purchase or sale was aware of the material nonpublic information
when the person made the purchase or sale. Rule 10b5-1(c)
establishes affirmative defenses that permit a person to trade in
circumstances where it is clear that the information was not a
factor in the decision to trade.
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Exchange Act Rule 16a-3(g) provides that a reporting person must
report specified changes in beneficial ownership on Form 4 before the
end of the second business day following the date of execution for the
transaction. In addition, Rule 16a-3(f) provides that every person who
at any time during an issuer's fiscal year was subject to Section 16 of
the Exchange Act must file a Form 5 within 45 days after the issuer's
fiscal year end to disclose certain beneficial ownership transactions
and holdings not reported previously on Forms 3,\61\ 4, or 5. For
transactions executed pursuant to a contract, instruction, or written
plan for the purchase or sale of equity securities that satisfies the
affirmative defense conditions of Rule 10b5-1(c) \62\ and for which the
reporting person does not select the date of execution, the date on
which the executing broker, dealer, or plan administrator notifies the
reporting person of execution of the transaction is deemed the date of
execution, so long as the notification date is not later than the third
business day following the trade date.\63\
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\61\ 17 CFR 249.103.
\62\ Reporting persons sometimes provide additional disclosure
in the ``Explanation of Responses'' portion of Form 4 indicating
that a transaction satisfies the affirmative defenses conditions of
Rule 10b5-1(c). For example, a reporting person may state that a
transaction was made pursuant to a written trading plan and indicate
the date the plan was adopted.
\63\ See 17 CFR 240.16a-3(g)(2) (Exchange Act Rule 16a-3(g)(2))
and 17 CFR 240.16a-3(g)(4) (Exchange Act Rule 16a-3(g)(4)). If the
notification date is later than the third business day following the
trade date, the date of execution is deemed to be the third business
day following the trade date.
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We propose to permit a Form 4 filer, at the filer's option, to
indicate through a check box on the form that a sale or purchase
reported on the form was made pursuant to Rule 10b5-1(c).We believe
that the check box option would provide Form 4 filers with an efficient
method to provide this disclosure. Consistent with current practice,
filers could provide additional information, such as the date of a Rule
10b5-1 plan, in the ``Explanation of Responses'' portion of the form
along with other relevant information about the transactions reported
on the Form 4. We propose to add a similar checkbox to Form 5.\64\
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\64\ Under the proposal, the check boxes on Forms 4 and 5 would
permit filers to indicate whether a transaction was made pursuant to
a binding contract, instruction, or written trading plan for the
purchase or sale of equity securities of the issuer that satisfies
the conditions of Rule 10b5-1(c). This is broader than the
representation on Form 144, which refers only to written trading
plans and trading instructions, because the purpose of the proposed
amendment is to simplify reporting for filers who provide Rule 10b5-
1(c) transaction information in the ``Explanation of Responses''
portion of Forms 4 and 5, and some filers provide this information
with respect to transactions made pursuant to binding contracts.
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[[Page 5072]]
Request for Comment
27. Should we add a check box to Forms 4 and 5 to provide filers
the option of disclosing that their sales or purchases were made
pursuant to Rule 10b5-1(c)?
28. Should we instead require Form 4 and Form 5 to indicate via a
check box whether any of their reported transactions were made pursuant
to Rule 10b5-1(c) rather than provide it as an option for the filer?
29. Would a Rule 10b5-1(c) check box on Forms 4 and 5 provide
useful information to investors and market participants?
II. Economic Analysis
A. Introduction
The Commission is proposing amendments to Rule 144, Form 144, Form
4, Form 5, and Regulation S-T. We are mindful of the costs imposed by
and the benefits obtained from our rules and the proposed
amendments.\65\ The discussion below addresses the potential economic
effects of the proposed amendments. These effects include the likely
benefits and costs of the proposed amendments and reasonable
alternatives thereto, as well as the potential effects on efficiency,
competition, and capital formation. We attempt to quantify these
economic effects whenever possible; however, due to data limitations,
in many cases we are unable to do so. When we are unable to provide a
quantitative assessment, we provide a qualitative discussion of the
economic effects instead.
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\65\ Section 2(b) of the Securities Act, 15 U.S.C. 77b(b), and
Section 3(f) of the Exchange Act, 15 U.S.C. 78c(f), require us, when
engaging in rulemaking that requires us to consider or determine
whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition and capital
formation. In addition, Section 23(a)(2) of the Exchange Act, 15
U.S.C. 78w(a)(2), requires us to consider the effects on competition
of any rules that the Commission adopts under the Exchange Act and
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
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Due to the differing nature of the proposed amendments' baselines,
affected parties, and anticipated economic effects, we provide separate
analyses of the proposed changes. We first discuss the economic effects
of the proposed amendments to the holding period for securities
acquired upon conversion or exchange of certain market-adjustable
securities issued by unlisted issuers, and then separately discuss the
proposed amendments to Form 144, Form 4, Form 5, and Regulation S-T.
B. Proposed Amendments to Holding Period for Market-Adjustable
Securities
1. Broad Economic Considerations
The size of the market for all U.S.-issued convertible securities
has historically been slightly less than half the size of the seasoned
equity market and just less than one-tenth the size of the regular bond
market.\66\ Despite this difference in size, it is generally understood
that the market for convertible securities is an important and highly
innovative market that can provide solutions to investment
inefficiencies or barriers to capital formation that would otherwise
occur if issuers were restricted to offerings of only non-hybrid
securities.\67\ Studies have suggested that because convertible
securities can mitigate certain agency problems, forms of adverse
selection, overinvestment, and misallocation of risk, they enable firms
to make investments in business opportunities that would otherwise be
infeasible for those firms.\68\ Empirical evidence on the impact of
these investments on longer-term firm value and shareholder wealth,
however, is ambiguous on whether such investments represent efficient
allocations of external financing.\69\ Interpreting the value of
convertible bond financing from market outcomes like short-term stock
returns or long-term stock price performance is further complicated by
the increase in arbitrage hedge fund activity and arbitrage-related
short-selling.\70\ Therefore, while there are a number of reasons why
convertible securities can uniquely facilitate investments of economic
value, it is difficult to generalize about their impact on shareholder
wealth.
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\66\ Marie Dutordoir et al., What We Do and Do Not Know About
Convertible Bond Financing, 24 J. CORP. FIN. 3 (2014)
(``Dutordoir'').
\67\ Id.; see also Craig Lewis and Patrick Verwijmeren,
Convertible Security Design and Contract Innovation, 17 J. CORP.
FIN. 809 (2011).
\68\ See Dutordoir, supra note 66; see also Sudha Krishnaswami &
Devrim Yaman, The Role of Convertible Bonds in Alleviating
Contracting Costs, 78 Q. REV. ECON. FIN. 942 (2008); Craig Lewis et
al., Agency Problems, Information Asymmetries, and Convertible Debt
Security Design, J. FIN. INTERMEDIATION (1998).
\69\ See Felix Ziedler et al., Risk Dynamics Surrounding the
Issuance of Convertible Bonds, 18 J. CORP. FIN. 273 (2012);
Dutordoir, supra note 66; Craig Lewis et al., The Long-Run
Performance of Firms that Issue Convertible Debt: An Empirical
Analysis of Operating Characteristics and Analysts Forecasts, 7 J.
CORP. FIN. 447 (2001).
\70\ See Eric Duca et al., Why are Convertible Bond
Announcements Associated with Increasingly Negative Issuer Stock
Returns? An Arbitrage-Based Explanation, 36 J. BANKING & FIN. 2884
(2012); see also Stephen Brown et al., Convertibles and Hedge Funds
as Distributors of Equity Exposure, 25 REV. FIN. STUD. 3077 (2012),
and Darwin Choi et al., Convertible Bond Arbitrage, Liquidity
Externalities, and Stock Prices, 91 J. FIN. ECON. 227 (2009)
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Market-adjustable securities \71\ are an innovation in the market
for convertible securities dating back to the 1990s.\72\ By allowing
the holder of the market-adjustable security to convert at discount to
the market price (or a reference price based on recent market prices),
the issuer can avoid the adverse selection problems it would face by
offering equity or fixed-rate convertible securities instead. In
practice, however, it does not appear that many issuers have taken
advantage of this aspect of market-adjustable securities, and their use
has been concentrated in the subpopulation of issuers who are unable to
issue additional equity or fixed-rate convertibles, such as financially
distressed firms, other low- or no-revenue firms, and those approaching
bankruptcy.\73\
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\71\ In the empirical literature cited in the Economic Analysis
section, the term ``floating priced convertibles'' is often used to
denote the ``market-adjustable securities'' referred to in this
release. Other terms, such as ``floating rate convertibles'' or
``future-priced convertibles,'' also may be used in the literature
referring to the same securities.
\72\ See Dutordoir, supra note 66.
\73\ See Austin Dwyer et al., An Investigation of Death Spiral
Convertible Bonds, (Tenn. State Univ., Working Paper, 2018) (``Dwyer
et al.''); Zachary T. Knepper, Future-Priced Convertible Securities
and the Outlook for Death Spiral Securities-Fraud Litigation, 26
WHITTIER L. REV. 359 (2004); Pierre Hillion & Theo Vermaelen, Death
Spiral Convertibles, 71 J. Fin. Econ. 381 (2004) (``Hillion &
Vermaelen'') (examining 467 floating-priced convertibles issued over
the 1994-1998 period and finding, among other things, that such
convertibles are issued by younger, smaller, riskier issuers, for
which adverse selection problems are potentially large.)
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The main economic characteristic of market-adjustable securities is
that they may provide protection to the holder against declines in
market value from the time of purchase of the overlying security until
the time of conversion or exchange.\74\ Although the risk to investors
from purchasing such a security is significantly lower than the risk
associated with a convertible security with a fixed conversion rate,
risks associated with the investment during the pre-conversion period
still exist.\75\
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\74\ One common method that may provide such protection is the
inclusion of a floating conversion rate. When the amount of
securities to be received upon conversion of a convertible security
is conditioned on the stock price performance of the issuer prior to
conversion, the conversion ratio is known as a floating conversion
rate.
\75\ For example, investors are exposed to risk during the pre-
conversion period if the company becomes bankrupt and its stock
price declines to zero value.
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We are proposing to amend Rule 144(d)(3)(ii) to provide that the
holding period for certain securities acquired
[[Page 5073]]
upon conversion or exchange of market-adjustable securities issued by
unlisted issuers would not begin until the conversion or exchange
occurs. The proposed amendment would expose the holder of the market-
adjustable security to the economic risk of the underlying securities
during the proposed corresponding holding period following the
conversion or exchange.
We expect that exposing these investments to risk during the post-
conversion or post-exchange period would limit market-adjustable
security holders' ability to immediately resell converted or exchanged
market-adjustable securities, which might otherwise constitute a public
distribution of securities without the investor protections afforded by
registration. However, the proposed holding period would reduce the
liquidity of these investments, and thus could prevent some unlisted
issuers from obtaining financing or increasing the costs of doing so,
particularly since market-adjustable securities may constitute a ``last
resort'' form of financing for issuers.\76\ To the extent that such
firms have presented attractive arbitrage opportunities, it is
foreseeable that demand-side investors would hold significant
bargaining power in the design of the securities' specific terms and
could require additional compensation for limitations imposed upon that
power or on final contract terms in future exchanges.
---------------------------------------------------------------------------
\76\ See Ming Dong et al., Why Do Firms Issue Convertible Bonds?
7 CRITICAL FIN. REV. 111 (2018) (``Dong et al.''). See also Hillion
& Vermaelen, supra note 73; Helgi Walker et al., Aggressive SEC
Enforcement Actions Could Limit Small Business Recovery Resources,
NATIONAL LAW JOURNAL (Aug. 20, 2020, 1:08 p.m.), available at
https://www.gibsondunn.com/wp-content/uploads/2020/08/Walker-Goldsmith-Seibald-Richman-Aggressive-SEC-Enforcement-Actions-Could-Limit-Small-Business-Recovery-Resources-NLJ-08-20-2020.pdf.
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Overall, we believe that the net impact of the proposed amendments
may depend on the relative significance of these two competing
consequences.
2. Economic Baseline
The economic baseline for the proposed amendment includes unlisted
issuers that issue, or may seek to issue, market-adjustable
securities.\77\ We estimate that as of the end of 2019, there were
approximately 2,760 unlisted reporting issuers.\78\ We find that during
2019, 106 of these issuers submitted a combined 207 disclosures
regarding convertible securities issued that included a floating
conversion rate feature.\79\ Of the identified floating conversion rate
issues, roughly 80 percent involved convertible debt and 20 percent
involved convertible preferred stock. Issuers of these securities are
predominantly non-accelerated filers \80\ and smaller reporting
companies (``SRCs'') \81\ concentrated in pharmaceutical,
biotechnology, and business technology industries.\82\ Approximately 25
percent of these convertible issuers had no revenue in their most
recent fiscal year, but had average net income and market
capitalization of approximately -$5.3 million and $18.8 million,
respectively. For the remaining 75 percent of issuers, average revenue,
net income, and market capitalization values were $7.2 million, -$12.0
million, and $12.3 million for the most recent fiscal year reported in
2019. We are unable to assess such characteristics for the population
of unlisted, non-reporting issuers given current limitations to data
availability.
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\77\ See Section I.B.2
\78\ This estimate is based upon staff review of all filers who
submitted a 10-K, 20-F, 40-F, or an amendment thereto within
calendar year 2019. Unlisted reporting issuers are identified by
unique CIKs as those without a class of securities registered
pursuant to Section 12(b) of the Exchange Act. Because of
limitations in available data, we were unable to construct a
reliable estimate of the number of unlisted, non-reporting issuers
who may also be affected by the proposed amendments. We request
information on such issuers in the Request for Comment. See infra
Section II.B.6.
\79\ This number is based on a search of Forms 8-K (17 CFR
249.308) filed by unlisted issuers that indicate the issuance of a
convertible security that appears to have a floating conversion
rate. If there are other issued securities by unlisted issuers that
meet the definition of a market-adjustable security, the number
reported represents a lower bound of the prevalence of such
securities in the market.
\80\ Although Rule 12b-2 defines the terms ``accelerated filer''
and ``large accelerated filer,'' it does not define the term ``non-
accelerated filer.'' If an issuer does not meet the definition of
accelerated filer or large accelerated filer, it is considered a
non-accelerated filer. See Accelerated Filer and Large Accelerated
Filer Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178
(Mar. 26, 2020)] (Accelerated Filer Adopting Release), https://www.sec.gov/rules/final/2020/34-88365.pdf
\81\ ``Smaller reporting company'' is defined in 17 CFR
229.10(f) as an issuer that is not an investment company, an asset-
backed issuer (as defined in 17 CFR 229.1101), or a majority-owned
subsidiary of a parent that is not a smaller reporting company and
that: (i) Had a public float of less than $250 million; or (ii) had
annual revenues of less than $100 million and either no public
float, or a public float of less than $700 million.
\82\ In calendar year 2019, all 106 identified unlisted
reporting issuers of floating-rate convertibles self-identified as
either a non-accelerated filer, a smaller reporting company, or
both. Insofar as recently adopted amendments to the definitions of
accelerated filer and smaller reporting company will effect cost
savings for issuers newly eligible as non-accelerated filers or
smaller reporting companies, the ability to reinvest such savings in
business operations may to some degree offset the potential
increased costs of financing to issuers affected by the proposed
amendment to Rule 144(d)(1)(ii).
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Of Form 144 filings submitted in calendar year 2019, approximately
two percent pertained to transactions in reporting, unlisted issuances
and only one percent to intended sales of non-reporting, unlisted
issuances.
3. Benefits and Costs to Proposed Amendment to Rule 144(d)(3)(ii)
As observed, use of the current tacking provisions essentially
eliminates the holding period that would otherwise apply to the
underlying securities after conversion or exchange, enabling holders of
the overlying securities to convert and then immediately sell the
underlying securities received upon conversion or exchange to the open
market.\83\ Investments in such securities carry little risk given the
floating conversion rate and the ability of holders to sell the stock
to the open market immediately upon conversion.
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\83\ See supra Section I.B.1.
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The proposed amendment to Rule 144(d)(3)(ii) would require the
holding period of the underlying securities to begin upon conversion or
exchange of the overlying securities by the holder. Upon conversion or
exchange, the amount or value of the underlying securities received by
the holder would have been determined. The proposed restriction from
selling the underlying securities in the open market during the holding
period would put the value of the underlying securities and the
holder's investment at risk because, upon conversion or exchange, any
subsequent decline in the stock price of the underlying securities
during the holding period would result in a decrease in the value of
the investment to the holder.
The proposed amendment to Rule 144(d)(3)(ii) would likely have a
number of benefits. We believe this proposed amendment would curb the
occurrence of situations where purchasers of such instruments have a
view to an unregistered public distribution. Restricting the underlying
securities from being sold to the broader market during the proposed
holding period would introduce greater risk to the holder of the
market-adjustable securities. During the holding period, any decline in
the price of the underlying securities would decrease the value of the
investment. We expect that this proposed amendment would discourage
parties from engaging in such transactions because they would no longer
be able to immediately distribute the underlying securities on an
unregistered basis to capture the discount feature of these
instruments. Instead, such parties would now be exposed to economic
risk for the requisite holding period following
[[Page 5074]]
conversion. To the extent that this would lead to fewer instances of
significant, unregistered but public distributions of the underlying
securities, it would enhance investor protection.
However, we anticipate that the proposed amendment to Rule
144(d)(3)(ii) may also impose costs on some market participants
including, but not limited to, an increase in the cost of financing and
a decrease in total access to financing for unlisted issuers. The
proposed post-conversion holding period would reduce the liquidity of
these investments. As a consequence, investors are likely to demand
additional compensation for providing capital through market-adjustable
securities to these issuers. Academic literature links the issuance of
convertibles with a floating conversion rate, such as market-adjustable
securities, to smaller, potentially higher growth issuers with elevated
likelihoods of bankruptcy and less diversified sources of potential
revenue that are in need of immediate financing.\84\ The same
literature also suggests that such issuers have limited options to
raise capital due to their characteristics and issue market-adjustable
securities, as a ``last resort'' form of financing. To the extent that
these issuers have limited options to raise capital, the proposed
amendment may also trigger changes to the design of these contracts in
order to provide additional compensation to investors for the increase
in risk. For example, investors may demand a steeper upfront discount
when investing in these securities.
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\84\ See Hillion & Vermaelen, supra note 73; Dwyer et al., supra
note 73; Dong et al., supra note 76.
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The net effect of the proposed amendment on the affected issuers'
other existing shareholders is unclear.\85\ The proposed amendment
could affect existing shareholders of affected issuers if it changes
the propensity of such issuers to issue unregistered market-adjustable
securities or if it changes the terms of those securities. Conversion
of these unregistered securities may dilute the holdings of existing
shareholders, which may lead to a significant decline in the value of
existing shareholders' holdings. If the proposed amendment changes the
propensity of issuers to issue unregistered market-adjustable
securities, it could also affect the likelihood of such effects on
existing shareholders.
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\85\ See supra note 66 and accompanying text.
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Similarly, if as a result of the proposed amendment, potential
buyers of unregistered market-adjustable securities demand a higher
conversion rate, the proposed amendment may increase the potential
dilutive effects of conversion. If shareholders are unaware of the
existence of these contracts and plan of distribution, such as for non-
reporting issuers, or if shareholders are aware but not able to infer
the consequences of these contracts, they may experience the negative
effects of these unregistered distributions. Because of uncertainty
surrounding how the proposed amendment would affect the issuance of
unregistered market-adjustable securities across issuer types and the
terms of such securities, the net effect of the proposed amendment on
the affected issuers' other existing shareholders is unclear. Below we
request comment on the effects of the proposal on non-converting,
existing shareholders.
4. Effects on Efficiency, Competition, and Capital Formation
As discussed above, the proposed amendment is likely to have an
effect on capital formation. To the extent that the sales of underlying
securities into the broader market following a conversion of market-
adjustable securities constitute a distribution of securities, the
proposed amendment is likely to reduce the number of instances in which
existing shareholders and new investors would not have the disclosure
and liability protections that registration provides. In addition,
investors in the underlying securities may be more willing to increase
their investments in the issuer because they are less concerned about
potential dilution of their holdings and therefore capital formation
may be improved.\86\ However, if the costs to the issuers of these
market-adjustable securities increase, issuers continuing to sell such
securities may raise less capital. Other issuers may be required to
seek other options for raising capital.
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\86\ See supra at note 30; see also supra Section II.B.3.
---------------------------------------------------------------------------
Because total effects on efficiency and competition would aggregate
across issuers, industries, and markets that the proposed changes may
impact differentially, we anticipate that the unique impact of the
amendment to the holding period requirements would not be readily
observable or reliably quantified. We invite commenters to submit data
or studies that would facilitate estimating such effects.
5. Reasonable Alternatives
We could propose to amend the holding period for only a subset of
unlisted issuers, either reporting or non-reporting. Such an
alternative would create an asymmetry within the subset of unlisted
issuers with regard to the required holding period, and accordingly
provide a disincentive for transactions in market-adjustable securities
that in effect may result in an unregistered distribution of securities
for only a subset of unlisted issuers. Under such alternative, it is
possible that currently observed unregistered distributions would
continue to take place in the subset of unlisted issuers that would not
be affected by the proposed amendments.
We could, in addition to amending the start of the holding period,
propose to increase the holding period for market-adjustable securities
that are issued by reporting unlisted issuers from six months to one
year to align with the holding period for such securities issued by
non-reporting unlisted issuers. Such alternative would reduce the
liquidity of these investments to the holder, and accordingly increase
the issuers' financing costs. To the extent that market-adjustable
securities are issued by reporting unlisted issuers to replicate the
distribution of securities, it is possible that increasing the holding
period could provide disincentives for potentially abusive practices.
6. Request for Comment
30. What are the economic effects of the proposed amendments to
Rule 144(d)(3)(ii)? To the extent possible, please provide any data,
studies, or other evidence that would allow us to quantify or better
qualitatively assess the costs and benefits of the proposed amendments
to affected parties. In particular, have we assessed all of the costs
and benefits to market participants who would be affected by the change
in tacking provisions?
31. We seek information on the prevalence of market-adjustable
securities issued by non-reporting unlisted issuers. Please provide any
data, studies, or other evidence that would allow us to quantify this
component of the industry baseline.
32. What is the impact of the proposed rule on efficiency,
competition, and capital formation?
C. Proposed Amendments to Form 144, Form 4, and Regulation S-T
1. Broad Economic Considerations
Existing Commission rules require the filing in paper of Form 144
for securities of issuers not subject to Exchange Act reporting
requirements, and allow for either paper or electronic filing of Form
144 for securities of issuers subject to
[[Page 5075]]
Exchange Act reporting requirements.\87\ By requiring the electronic
filing of all Forms 144, the proposed amendments seek to lower the cost
of access to Form 144 information and to enable investors, market
participants and other EDGAR users to access that information more
quickly.\88\ The proposed amendments are expected to enable those
filers that currently are permitted to file Form 144 either in paper or
electronically to benefit from the technology and efficiency associated
with electronic filing, thereby potentially lowering the cost and
burden of existing compliance requirements. As discussed in more detail
below, while some filers may incur an initial cost to transition to
electronic filing, we expect that the proposed amendments to file Form
144 electronically on EDGAR would result in cost savings on an ongoing
basis and over the long term. Because we are additionally proposing a
six-month transition period, filers for whom the initial costs of
transition might otherwise be highest might reduce their transition
costs by availing themselves of the additional time to adopt requisite
technological changes to their submissions processes.
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\87\ See supra Section I.C.1.
\88\ See id.; see also 1972 Adopting Release, supra note 7, at
595.
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Additionally, the proposed amendments would eliminate the filing
requirement for affiliates of issuers not subject to Exchange Act
reporting requirements, thus eliminating certain compliance costs for
those affiliates.
Finally, we are proposing to allow Form 4 and Form 5 filers, at
their discretion, to include a check box to indicate that a sale or
purchase of securities was made pursuant to Rule 10b5-1(c). Because
this would be discretionary, we expect that filers will elect to do so
when the anticipated benefits of doing so exceed the related costs and
that this additional information may provide benefits to Form 144 data
users.
The discussion below addresses the potential economic effects of
the proposed amendments, including their likely costs and benefits as
well as the likely effects of the proposed amendments on efficiency,
competition, and capital formation, relative to the economic baseline,
which comprises the filing practices in existence today.
2. Economic Baseline
Existing Commission rules permit Form 144 to be submitted either
electronically via EDGAR or in paper form only for forms reporting
proposed sales of reporting issuers. Regulation S-T does not provide
for the electronic filing of Form 144 to report proposed sales of
securities of issuers not subject to Exchange Act reporting
requirements. Recently, in response to COVID-19 conditions, Commission
staff announced a no-action position that temporarily affords Form 144
filers a third option to submit paper Form 144s via email.\89\ In the
period following this announcement, the Commission received
approximately 13,400 Form 144 submissions: 52.9 percent in paper form,
46.5 percent electronically via email, and 0.6 percent electronically
on EDGAR.\90\ Thus, while when given the option, many paper filers have
elected to submit their forms electronically via email, very few filers
have opted to file Form 144 electronically on EDGAR.
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\89\ See supra note 34.
\90\ Staff analysis is based on all Form 144 filings received by
the Commission between April 13 and August 31, 2020. The average
number of filings received during this same window of time in the
four preceding years was approximately 11,800 Form 144s.
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Figures 1 and 2 provide examples to illustrate the lag time between
when Form 144 is received by the Commission and when that information
becomes available in a commercial database. As seen in Figure 1, in one
commercial database, pre-COVID-19, most Form 144 filings became
available in commercial databases six days after being received by the
Commission. We further observe that in 2020, while the six-day lag time
for availability of the majority of the filings remains true for the
year on aggregate, after the additional ability to file via email was
introduced, the majority of Form 144 filings have been processed and
posted in that commercial database in fewer than five days (Figure 2).
Overall, the number of records available via that commercial database
is considerably lower in 2020 than in 2019, which may reflect increased
difficulty and delays in integrating the paper form submissions into
such databases under COVID-19 conditions. Thus, while access to data
from paper submissions has been significantly reduced by the pandemic,
we observe in Figure 2 that for transactions disclosed via a Form 144
submitted electronically via email or EDGAR, data vendors and those who
access Form 144 filing data from such sources now appear to receive
that information with a shorter delay.
BILLING CODE 8011-01-P
[[Page 5076]]
[GRAPHIC] [TIFF OMITTED] TP19JA21.026
BILLING CODE 8011-01-C
[[Page 5077]]
a. Affected Parties 91 92
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\91\ Based on Form 144 filings accessed via Thomson Reuters
Insiders Data with the field ``SEC Receipt'' dated between January
1, 2019 and August 31, 2020.
\92\ Based on Form 144 filings accessed via Thomson Reuters
Insiders Data with the field ``SEC Receipt'' dated between January
1, 2020 and August 31, 2020.
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The main parties that would be affected by the proposed amendments
are current and future filers of Form 144, specifically affiliates of
an issuer subject to Exchange Act reporting requirements.\93\ It is our
understanding that the majority of affected filers currently prepare
and file these forms individually or with the assistance of a broker or
personal counsel.\94\ Filings of Forms 144 from holders of securities
of an issuer not subject to Exchange Act reporting requirements
currently make up approximately one percent of all Form 144
filings.\95\ As the majority of Form 144 filings are paper filings,
most filers would have to modify their processes for submitting their
Form 144 filings if the Commission adopts the proposed amendments.
Based on past filings, we estimate that approximately 12,250 filers
would be required to switch from paper filings to electronic filings
and 313 filers would no longer be subject to filing Form 144.\96\
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\93\ See supra Section I.C.1.
\94\ See letter from Jesse Brill (dated Dec. 18, 2013),
available at https://www.sec.gov/rules/petitions/2013/petn4-671.pdf.
\95\ See supra Section I.C.2.b.
\96\ These estimates assume that filers of Form 144 submissions
in our data are not also affiliates of other issuers. Because we
lack data on the holdings of filers in securities of issuers other
than those disclosed in the Form 144, we are unable to identify any
filers that are such affiliates.
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Additionally, the proposed change to electronic filing may affect
the manner by which members of the public obtain these filings.
Currently, the public can access these filings using EDGAR on the
Commission's website or, for paper filings (under normal operating
conditions), by visiting the Commission's public reference room in
person, or, for either format, by subscribing to a third-party
information vendor (such as private information aggregators that
distribute the information obtained from EDGAR or the Commission's
public reference room and records).\97\ While the proposed amendments
would not change the general public's ultimate access to the Form 144
information from affiliates selling securities of an issuer subject to
Exchange Act reporting requirements, the public would no longer have
access to similar information from the relatively small subpopulation
of affiliates filing Form 144 to report sales (or potential sales) of
securities of issuers not subject to Exchange Act reporting
requirements.
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\97\ Paper filings submitted via email based on the staff's no-
action position are available at https://www.sec.gov/corpfin/form-144-email. See supra note 34.
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b. EDGAR
From 2016 to 2019, an average of 30,000 Form 144 filings were made
each year, of which an average of approximately 250 were submitted
electronically via EDGAR. As EDGAR submissions thus constitute less
than one percent of all Form 144 submissions per year, the proposed
amendments could be anticipated to significantly increase the volume of
Form 144 filings made electronically on EDGAR.\98\
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\98\ A rate of change based on the current one percent EDGAR
submission rate may slightly overestimate the changes in volume to
the extent that the proposed removal of a filing requirement for
securities not subject to Exchange Act reporting requirements may
simultaneously decrease total submissions. Further, based on the
observed EDGAR filing behavior of affiliates who use an issuer's
existing access to EDGAR, the number of new Form IDs required to be
processed could be reduced, but would not otherwise affect the
increase in submission volume.
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3. Benefits and Costs of Proposed Amendments to Form 144, Form 4, and
Regulation S-T
The proposed amendments would change some of the Commission's
current practices related to making Form 144 information available to
the public. First, holders of securities of an issuer subject to
Exchange Act reporting requirements would be required to file Form 144
electronically. In contrast, holders of securities of an issuer not
subject to Exchange Act reporting requirements would no longer be
required to file Form 144. Second, the deadline for filing a Form 144
would be revised to coincide with the filing deadline of Form 4, which
reports changes in beneficial ownership (purchases and sales of
securities and derivatives and exercise of options) rather than have it
due concurrently with either the placing of an order with a broker to
execute the sale or the execution of a sale directly with a market
maker, as currently required. As Form 4 is required to be submitted
within two business days of a change in beneficial ownership, this
could result in a delay of the reporting of an affiliate's sale of
restricted or control securities on Form 144 by two business days.
This proposed change in the Form 144 filing deadline could result
in the information on Form 144 sales being made available later than
under the current rule. However, because currently most Form 144
filings are made in paper form and thus as a practical matter are
generally accessible to most of the public only after a delay of a
number of days (e.g., after being uploaded into electronic databases
for purchase as in Figure 1), it is likely that any delay due to
changing the deadline of Form 144 to align with Form 4 submissions
would be offset by the proposed change to require electronic filing.
Under the proposal, the public would be able to access the filing
electronically via EDGAR upon submission rather than needing to wait
for electronic access via a commercial database.\99\
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\99\ Data users who continue to choose to access these filings
via a commercial database rather than accessing EDGAR might also be
able to access them more quickly than at present, depending on the
interplay of the two-business-day-delay and the change from paper to
electronic filing. We note that, as seen in Figure 2, electronic
databases appear to incorporate email filings more quickly than
paper submissions, which may indicate that electronic filings would
also be processed more quickly.
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After initial transition costs, the proposed amendments are
expected to benefit all Form 144 filers. Filers are expected to realize
direct benefits in the form of reduced time required to file forms
electronically, compared to a paper filing, and avoided copying and
mailing expenses. Filers who make multiple submissions of Form 144 per
year or longer submissions likely would benefit most. Electronic filing
using EDGAR and the revised filing deadline are expected to make the
filing process more efficient by making it easier and less costly for
filers to assure timely receipt of the filing (e.g., filers would have
no reason to pay for premium services such as delivery
confirmation).\100\ We anticipate that the proposed amendments will
also provide benefits to users of the Form 144 disclosures by
significantly reducing both time and costs currently associated with
obtaining the data contained in paper form submissions.\101\
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\100\ The proposed amendments also benefit filers by avoiding
uncertainty about how to comply with paper filing obligations in
events similar to the current COVID-19 pandemic.
\101\ We estimate, for example, that annual subscription costs
for access to Form 144 data from a third party vendor would approach
$2,600 per person.
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The proposal would also modify the data format in which Form 144
would be electronically submitted. Form 144 would be available on EDGAR
as a fillable document, similar to other fillable forms that filers can
use such as Forms D, 3, 4, and 5.\102\ An online fillable form would
enable the convenient input of information and support the electronic
assembly of such
[[Page 5078]]
information and transmission to EDGAR, without requiring a Form 144
filer to purchase or maintain additional software or technology, thus
minimizing the compliance costs. This modification of the data format
of Form 144 would also benefit data users by standardizing the inputted
data into a structured, machine-readable custom XML format and thus
making it easier to extract and process that data.
---------------------------------------------------------------------------
\102\ See supra Section I.C.2.c.
---------------------------------------------------------------------------
The fillable form would be similar to other fillable forms that are
currently available to file Forms D, 3, 4, and 5.
We expect that filers who use EDGAR for purposes of complying with
filing obligations under existing rules would not incur additional
EDGAR access costs due to the proposed rules. If filers with EDGAR
experience require time or specialized training to switch Form 144 from
paper to EDGAR, then they may incur an additional initial transition
cost. Given the experience of such filers with EDGAR filing, as well as
the six-month transition period proposed, we expect such cost would be
minimal.
The proposed amendments also would result in the direct costs of
transitioning to filing electronically using EDGAR for the large subset
of filers who do not currently file electronically on EDGAR. Currently,
52.9 percent of filers file paper forms and 46.5 percent file via
email.\103\ In particular, such filers would need to prepare a Form ID
as required by Rule 10(b) of Regulation S-T and submit the Form ID
following the processes detailed in Volume I of the EDGAR Filer
Manual.\104\ Once a Form ID has been successfully completed and
processed, EDGAR establishes a Central Index Key (``CIK'') number,
which permits each authorized user to create an EDGAR access code,
enabling the filer to use EDGAR. We estimate that approximately 25
percent of Form 144 filers have already prepared a Form ID and obtained
a CIK number through other EDGAR filing obligations.\105\ Therefore, we
estimate that at most 75 percent of Form 144 filers would need to file
a Form ID as a result of the proposed amendments.\106\ For purposes of
the PRA, we estimate that respondents require 0.15 hours to complete
the Form ID and that 100 percent of the burden of preparation for Form
ID is carried by the respondent. For purposes of the Paperwork
Reduction Act of 1995 (``PRA'') \107\ discussed below, we estimate that
the proposed amendments would result in an incremental increase of at
1,378 annual burden hours for Form ID.\108\ We believe that such direct
costs would be justified by the anticipated benefits from eliminating
paper filing of Form 144.
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\103\ This estimate does not account for filers who previously
filed via EDGAR but who currently submit via email pursuant to the
staff no-action position, and may therefore include filers who would
not incur new costs. Based on staff review of Form 144 submissions
in 2020 by filers with filings both before and after April 10th,
approximately 50 percent of filers who previously used EDGAR opted
to submit their Form 144s via email after April 10, 2020.
\104\ See 17 CFR 232.10(b); see also supra Section I.C.2.a.
\105\ Specifically, we observe that approximately 23 percent of
calendar year 2019 Form 144 filers also submitted Form 4 filings in
EDGAR, while a remaining two percent without Form 4 filings in EDGAR
submitted a miscellany of other forms related to beneficial
ownership.
\106\ This estimate represents an extreme upper bound because it
assumes that each named individual who filed at least one Form 144
in calendar year 2019 who is not currently associated with a unique
CIK would need to file a Form ID. To the extent that some Form 144
filers are affiliates of issuers who may use the issuer's CIK to
file via EDGAR, the estimate likely overstates the required number
of new Form IDs required and the burden hours associated with such
applications.
\107\ 44 U.S.C. 3501 et seq.
\108\ See infra Section III.C.2.
---------------------------------------------------------------------------
The remaining costs of transitioning to EDGAR, which would apply to
all Form 144 filers that do not currently file using EDGAR, would be
mitigated by the ease of filing Form 144. The revised Form 144 would be
an online fillable form with a similar user interface to Form 4, and
for simultaneous filings of Forms 4 and 144, the same user interface
could be used to file both forms.\109\ Because current EDGAR filers
represent such a small proportion of those who submit Form 144, our
ability to generalize electronic filing behavior from this group to the
full population of filers may be of limited reliability.\110\ However
to the extent that behavior may be similar, we estimate that up to one-
third of affiliates submitting a Form 144 who do not currently access
EDGAR may be able use an issuer's existing connection to EDGAR or rely
upon other support by issuers in meeting their Form 144 electronic
filing obligations. These filers likely will incur lower costs as a
result of the proposed amendments than filers who cannot or will not
use an issuer's existing connection to EDGAR. We lack the data to
quantify the difference in costs.
---------------------------------------------------------------------------
\109\ See supra Section I.C.2.c. Based on filings in calendar
year 2019, we estimate that approximately 23 percent of Form 144
filers are also Form 4 filers.
\110\ See supra Section II.B.2.
---------------------------------------------------------------------------
In addition, we estimate that the proposed amendment to eliminate
the requirement to file a Form 144 to report the resale of securities
of issuers that are not subject to Exchange Act reporting requirements
would result in a one percent reduction of current filings of Form
144.\111\
---------------------------------------------------------------------------
\111\ This estimate is based upon the average number of Form
144s submitted pertaining to such securities as a proportion of
total Form 144 submissions in each of the four prior calendar years
(2016-2019).
---------------------------------------------------------------------------
For Form 144 filers, we do not expect that the proposed custom XML
format would impose any incremental costs, because filers would be able
to enter their disclosures directly into the online fillable form. We
expect that completing this XML-based fillable form would not require
any more time than any other fillable form and would generally require
the same time as completing the paper form. Some filers may choose to
file directly in custom XML format (pursuant to the Commission's custom
XML schema) integrated into their software because it enables greater
automation of reporting. Other filers without XML experience or
software could simply use the online fillable form and would not be
required to license any XML-based filing preparation software or
establish any XML-based filing processes.
The proposed amendments could reduce revenue for market information
aggregators who currently aggregate the information from Form 144
fillings into databases and provide access to such databases to various
users of this data for a fee.\112\ The online filing of Form 144 may
make it more cost-effective for some data users to extract the data
themselves. The reduction in revenue could be mitigated by the lower
cost of retrieving information from Form 144 filings that is filed in
an electronic format. Data aggregators could sell fewer subscriptions
to make the same profit or lower the fee that they charge which might
make their services continue to be attractive even with the electronic
availability of the filings.
---------------------------------------------------------------------------
\112\ See supra Section II.C.2.a.
---------------------------------------------------------------------------
We recognize that the potential costs and benefits of electronic
filing are sensitive to various assumptions, including the number of
affected filers; the effect of electronic filing using EDGAR on the
time burden of filing Form 144; printing and mailing costs incurred
today; and the type and cost of staff, if any, involved in the
electronic filing of Form 144. The cost savings realized by individual
filers may vary across all filers depending on variables such as filer
size, number of filings submitted, existing filing practices (e.g.,
current reliance on electronic document preparation; current experience
with using EDGAR; use of in-house staff, brokers, or outside counsel
for the filing of Form 144; number, types, and cost of in-house staff
involved in the paper
[[Page 5079]]
filing of Form 144; actual hours and printing and mailing costs
required for paper filing today), and the amount of time required for
filers to be trained in the use of EDGAR and any required related
processes, and the amount of time to resolve any technical issues
related to electronic filing on EDGAR.
4. Efficiency, Competition, and Capital Formation
The proposed amendments are expected to increase the efficiency and
decrease the costs of filing Form 144 and retrieving information from
Form 144 filings. Electronic filing and the revised filing deadline in
the proposed amendments are expected to make the filing process more
efficient by making it easier and less costly for filers to assure
timely receipt of the filing. Likewise, for investors currently using
information from paper filings, the costs of accessing these filings
are expected to be significantly reduced. In addition, replacing paper
filing with electronic filing is expected to result in filer savings of
labor, printing, and mailing costs.
The proposed amendments should facilitate the efficient and rapid
incorporation of price-relevant information in Form 144 filings into
the market and enhance the sum of information available to investors.
To the extent that there is value-relevant information in Form 144
filings, prices may become more efficient, which should help to
facilitate capital formation (e.g., by enhancing valuation quality).
However, the proposal may reduce some investors' or market
information aggregators' competitive advantages. Particularly, market
information aggregators whose present role includes converting paper
filings of Form 144 to an electronic information source may find that
this service is less attractive to data users due to those users'
ability to access these filings directly due to the proposed rule
changes. These information aggregators' loss of competitive advantage
in converting paper filings of Form 144 to an electronic information
source may reduce their revenue and thus may affect their ability to
offer other ancillary services that are valuable to data users.
Aligning the reporting timeline of Form 144 with that of Form 4
could cause up to a two-day delay in reporting, and thereby potentially
delay the incorporation of information into markets. However, at the
same time, the proposed electronic filing mandate could accelerate the
incorporation of that information into the markets compared with the
current system. We do not have adequate data with which to estimate the
net effect of these two proposed changes. Since data users currently
observe this delay with respect to filings of Forms 144 and 4 that are
both publicly available immediately upon submission, such as via EDGAR,
we have limited data with which to form an expected value of having
Form 144 information in advance of a Form 4 filing, and consequently
what related costs might be incurred by synchronizing submissions. We
are therefore requesting comments and the submission of data or other
information that would inform our estimates.
We do not expect marked effects on either competition or capital
formation as a result of allowing Forms 4 and 5 filers to check a box
to indicate that a sale or purchase of securities was made pursuant to
Rule 10b5-1(c). As discussed above, due to the discretionary nature of
the checkbox inclusion, we expect filers to do so only when they
perceive it will increase efficiency. As a result, there may be modest
increases to efficiency for both such filers and data users who access
their submissions.
5. Reasonable Alternatives
Eliminating the Form 144 Filing Requirement
One alternative that we could have proposed is the elimination of
the current Form 144 filing requirement for sales of securities by
affiliates of issuers that are subject to Exchange Act reporting. Such
an alternative would eliminate compliance costs for such affiliates.
However, such an alternative would also prevent investors and various
other data users from obtaining any information on such sales of
securities. We are soliciting comment on the continued utility of Form
144 filings.
Email Submissions
Given the significant number of submissions via email in response
to the temporary staff no-action position, we could have proposed
making this manner of filing a permanent option for Form 144 filers.
Such an alternative would allow filers to avoid the direct costs of
transitioning to filing electronically using EDGAR. Such an
alternative, however, would result in issuers incurring expenses in
scanning the forms and emailing them to the Commission. Additionally,
issuers would forgo potential direct benefits in the form of reduced
time required to file forms electronically. Such costs could be higher
for filers who make multiple submissions of Form 144 per year and for
Form 144 filings with multiple pages.
Data users might also incur higher costs under this alternative
since the site used to access Form 144 email submissions is distinct
from EDGAR.\113\ Specifically, under this alternative, a data user
interested in obtaining the information from all Form 144 filings
pertaining to a given issuer would be required to search both EDGAR and
the daily folders posted to the Form 144 website. Furthermore, Form 144
data submitted via email submissions is not structured, therefore
analysis that would require aggregating data from multiple submissions
would be more difficult or most costly to perform.
---------------------------------------------------------------------------
\113\ See supra note 97.
---------------------------------------------------------------------------
Format Requirements
While the proposed rule does not expressly prescribe a specific
format for Form 144 that would be required for filing in EDGAR, Form
144 would be made available as an online fillable form, similar to
other fillable forms such as Forms D, 3, 4, and 5.\114\ As an
alternative, we could require Form 144 to be filed in the Inline
eXtensible Business Reporting Language (``Inline XBRL'') format, a
derivation of XML that is designed for financial reporting and is both
machine-readable and human-readable. Compared to the proposal, the
Inline XBRL alternative for Form 144 would provide more sophisticated
validation, presentation, and reference features for filers and data
users. However, the Inline XBRL alternative would also impose initial
implementation costs (e.g., learning how to prepare filings in Inline
XBRL, licensing Inline XBRL filing preparation software) upon filers
that do not have prior experience structuring data in the Inline XBRL
format. By contrast, because the proposal would allow filers to submit
Form 144 using an online fillable Form, filers that lack experience
structuring data in a custom XML format would not incur implementation
costs.
---------------------------------------------------------------------------
\114\ See supra Section I.B.2.c.
---------------------------------------------------------------------------
D. Request for Comment
33. What are the economic effects of the proposed amendments to
Form 144, Form 4, and Regulation S-T? To the extent possible, please
provide any data, studies, or other evidence that would allow us to
better quantify or otherwise qualitatively assess the costs and
benefits of the proposed amendments to affected parties.
[[Page 5080]]
34. We expect that the proposed amendments may benefit Form 144
data users by facilitating easier access to Form 144 data, potentially
reducing the incentive to purchase such data from third-party data
providers. At the same time, the proposed changes may affect the timing
of the availability of such information. What are the economic effects
of the proposed timing and format changes to Form 144? To the extent
possible, please provide any data, studies, or other evidence that
would allow us to better quantify or otherwise qualitatively assess the
impact of these proposed changes, including the benefits and costs.
35. We seek comment on the ways that Form 144 information is used
by affected parties. In particular, what data uses of Form 144 data do
not coincide with information available via Form 4? Are there currently
any uses of Form 144 data in advance of Form 4 filings, and if so,
would there be any costs incurred by losing such information in
advance?
36. Are there other methods or databases by which Form 144 data
users currently access such information? If so, please provide
information about those methods, including how many Form 144 filings
may be accessed via those methods and how soon they are made available
after they are filed with the SEC. To what extent might the
availability and use of these alternative databases affect our analysis
of the anticipated benefits and costs to our proposed amendments?
Please provide data, studies, or other evidence.
37. Should we adopt any of the alternative approaches outlined
above instead of the proposed amendments, including requiring the use
of XBRL for electronic submissions of Form 144? We considered requiring
the use of XBRL as a possible alternative approach but have not
proposed it for the reasons stated above. In addition or instead of
XBRL, should the form provide for use of a format based on a new
derivation of XML or another machine readable format that the
Commission may determine is appropriate in the future? If so, what
would be the attendant costs and benefits of such flexibility?
38. Are there any other potential alternative approaches we should
consider and what are their economic effects?
39. Because we are proposing to allow Form 4 and Form 5 filers, at
their discretion, to check a box to indicate that a sale or purchase of
securities was made pursuant to Rule 10b5-1(c) we expect that filers
will only elect to do so when their anticipated benefits of doing so
exceed their related costs. Are there other anticipated benefits,
costs, or economic effects related to this proposal that we should
consider?
III. Paperwork Reduction Act
A. Summary of the Collections of Information
Certain provisions of our rules and forms that would be affected by
the proposed amendments contain ``collection of information''
requirements within the meaning of the PRA.\115\ We are submitting the
proposal to the Office of Management and Budget (``OMB'') for review in
accordance with the PRA.\116\ An agency may not conduct or sponsor, and
a person is not required to respond to, a collection of information
requirement unless it displays a currently valid OMB control number.
Compliance with the information collections is mandatory. Responses to
the information collections are not kept confidential and there is no
mandatory retention period for the information disclosed. The titles
for the collections of information are:
---------------------------------------------------------------------------
\115\ See supra note 107.
\116\ See 44 U.S.C. 3507(d); see also 5 CFR 1320.11.
---------------------------------------------------------------------------
Form ID (OMB Control Number 3235-0328);
Form 144 (OMB Control Number 3235-0101);
Form 4 (OMB Control Number 3235-0287);
Form 5 (OMB Control Number 3235-0362) \117\
---------------------------------------------------------------------------
\117\ We do not believe that the proposed amendments to permit
Form 4 and Form 5 filers to indicate through a check box on the
forms that a sale or purchase reported on the forms was made
pursuant to Rule 10b5-1(c) would affect an issuer's burden hours or
costs for PRA purposes. Filers must already determine whether their
sale or purchase reported on the forms was made pursuant to Rule
10b5-1(c), so adding a check a box on the forms would not
substantively modify existing collection of information requirements
or otherwise affect the overall burden estimates associated with
Forms 4 or 5. Therefore, we are not adjusting any burden or cost
estimates in connection with the check box for the proposed
amendments.
---------------------------------------------------------------------------
Form ID is used by registrants, individuals, third party filers, or
their agents to request access codes that permit the filing of
documents on EDGAR. Form 144 is used by security holders to disclose
the proposed sale of securities by the holder and to indicate that the
holder is not to be engaged in the distribution of the securities and
therefore not an underwriter. Form 4 is used by an issuer's insiders to
report the insider's changes in beneficial ownership of the issuer's
equity securities. A description of the proposed amendments, including
the need for the information and its proposed use, as well as a
description of the likely respondents, can be found in Section I above,
and a discussion of the economic effects of the proposed amendments can
be found in Section II above.
As described in more detail above,\118\ we are proposing to amend
Rule 144 to provide that the holding period for securities acquired
upon the conversion or exchange of certain, specific securities that
are market adjustable and issued by unlisted issuers would not begin
until the time of conversion or exchange.\119\ Also, as described
above,\120\ we are proposing to mandate electronic filing of Form 144
with respect to securities issued by companies subject to Exchange Act
reporting requirements, eliminate the requirement to file a Form 144
for resales of securities of issuers that are not subject to Exchange
Act reporting, amend the filing deadline for Form 144 to coincide with
the filing deadline for Form 4,\121\ and amend Form 4 to include a
check box that would provide the filer with the option to indicate if
securities were sold or purchased pursuant to a plan intended to
satisfy the affirmative defense conditions of Exchange Act Rule 10b5-
1(c).
---------------------------------------------------------------------------
\118\ See supra Section I.B.
\119\ Although the proposed amendments to the holding period are
expected to reduce the number of market-adjustable securities
transactions, we do not anticipate that these proposed amendments
would affect the burdens and costs associated with Form 144. The
requirement to file Form 144 only applies to affiliates of the
issuer. The investors in these securities generally do not meet the
definition of affiliate in our regulations and therefore are not
required to file Form 144.
\120\ See supra Section I.C.
\121\ We do not believe that the proposed amendment to change
the filing deadline for Form 144 to coincide with the filing
deadline for Form 4 would affect an issuer's burden hours or costs
for PRA purposes. The information in the form that must be filed
would not change as a result of this amendment, so changing the
filing deadline would not substantively modify existing collection
of information requirements or otherwise affect the overall burden
estimates associated with Form 144. Therefore, we are not adjusting
any burden or cost estimates in connection with the deadline change
for the proposed amendments.
---------------------------------------------------------------------------
B. Summary of the Proposed Amendments' Effects on the Collections of
Information
We anticipate that the proposed amendment to mandate the electronic
filing of Form 144 would result in a number of filers using EDGAR to
file their Form 144 electronically who do not currently do so. Filers
who have not previously made an electronic filing on EDGAR are required
to file a Form ID to obtain access codes that will enable them to file
a document on EDGAR. As discussed above, we estimate that approximately
12,250 filers would be required to switch from paper filings of their
Form 144 to electronic filings of
[[Page 5081]]
that form.\122\ Of those 12,250 filers, however, we estimate that 25
percent have already filed a Form ID through other EDGAR filing
obligations,\123\ so only approximately 75 percent of Form 144 filers
would need to file a Form ID.\124\ As a result, we estimate that
approximately 9,188 filers would be required to file a Form ID because
of the proposed amendment to mandate the electronic filing of Form
144.\125\ We estimate that respondents require 0.15 hours to complete
the Form ID and, for purposes of the PRA, that 100 percent of the
burden of preparation for Form ID is carried by the respondent
internally. Therefore, we estimate that this proposed amendment would
result in an incremental increase of 1,378 annual burden hours for Form
ID.\126\
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\122\ See supra note 96.
\123\ See supra note 105.
\124\ See supra note 106.
\125\ 22,250 x 0.75 = 9,187.5.
\126\ 9,188 x 0.15 = 1,378.2, which is rounded to 1,378.
---------------------------------------------------------------------------
We expect that the proposed amendment to eliminate the requirement
to file a Form 144 to report the resale of securities of issuers that
are not subject to the reporting requirements of Sections 13 or 15(d)
of the Exchange Act would reduce the number of filings of the form. As
discussed above, we estimate that 313 filers would no longer be subject
to filing Form 144.\127\ We estimate that each notice on Form 144
imposes a burden for PRA purposes of one hour and, for purposes of the
PRA, that 100 percent of the burden of preparation for Form 144 is
carried by the respondent internally. Therefore, we estimate that this
proposed amendment would result in an incremental decrease of 313
annual burden hours for Form 144.
---------------------------------------------------------------------------
\127\ See supra note 96.
---------------------------------------------------------------------------
PRA Table 1 summarizes the estimated effects of the amendments on
the paperwork burdens associated with the affected collections of
information listed in Section III.A.
PRA Table 1--Estimated Paperwork Burden Effects of the Amendments
------------------------------------------------------------------------
Proposed affected
Proposed amendments and collections of Estimated net
effects information effect
------------------------------------------------------------------------
Form ID:
Amend Rules Form ID........
101(a) and 101(b) of Increase of
Regulation S-T to 0.15 hour
mandate the electronic compliance
filing of all Form 144 burden per
filings for the sale of response to
securities of Exchange the new
Act reporting companies. collection of
information.
Form 144:
Eliminate the Form 144.......
requirement to file a Decrease of
Form 144 for resales of 1.0 hour
securities of issuers compliance
that are not subject to burden per
Exchange Act reporting. response to
the new
collection of
information.
------------------------------------------------------------------------
C. Incremental and Aggregate Burden and Cost Estimates
Below we estimate the incremental and aggregate changes in
paperwork burden as a result of the amendments. These estimates
represent the average burden for all issuers, both large and small. In
deriving our estimates, we recognize that the burdens will likely vary
among individual issuers based on a number of factors, including the
nature of their business. We believe that the amendments will change
the frequency of responses to the existing collections of information
and the burden per response.
PRA Table 2 below illustrates the incremental change to the total
annual compliance burden of affected forms, in hours and in costs, as a
result of the amendments' estimated effect on the paperwork burden per
response. The number of estimated affected responses shown in PRA Table
2 is based on the number of responses in the Commission's current OMB
PRA filing inventory adjusted to reflect the change in the number of
responses we estimate as a result of the proposed amendments.\128\
---------------------------------------------------------------------------
\128\ The OMB PRA filing inventory represents a three-year
average.
PRA Table 2--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden Proposed burden change
---------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Current Current Proposed Proposed Proposed Proposed Burden Cost Burden
annual burden Current change in change in change in annual Hours for for
responses hours cost burden annual burden professional affected Affected Affected
responses hours costs responses Responses Responses
(A) (B) (C) (D) (E) (F) (G) = (A) + (H) = (B) (I) = (C)
(D) + (E) + (F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form ID........................... 46,842 7,026 $0 9,188 1,378 $0 56,030 8,404 $0
Form 144.......................... 33,725 33,725 0 (313) (313) 0 33,412 33,412 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
D. Request for Comment
We request comments in order to evaluate: (1) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the proposed collection of information; (3) whether there are ways
to enhance the quality, utility, and clarity of the information to be
collected; and (4) whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques
[[Page 5082]]
or other forms of information technology.\129\
---------------------------------------------------------------------------
\129\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
the burdens. Persons who desire to submit comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy of the comments to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549, with reference to File No. S7-24-20. Requests
for materials submitted to the OMB by us with regard to these
collections of information should be in writing, refer to File No. S7-
24-20 and be submitted to the Securities and Exchange Commission,
Office of FOIA Services, 100 F Street NE, Washington DC 20549. Because
the OMB is required to make a decision concerning the collections of
information between 30 and 60 days after publication, a comment to the
OMB is best assured of having its full effect if the OMB receives it
within 30 days of publication.
IV. Initial Regulatory Flexibility Act Analysis
This Initial Regulatory Flexibility Analysis (``IRFA'') has been
prepared in accordance with the Regulatory Flexibility Act
(``RFA'').\130\ It relates to proposed amendments that would: (1) Amend
Rule 144(d)(3)(ii) to provide that the holding period for securities
acquired upon the conversion or exchange of certain, specific
securities that are market adjustable and issued by unlisted issuers
would not begin until the time of conversion or exchange; (2) mandate
electronic filing of Form 144 with respect to securities issued by
companies subject to Exchange Act reporting requirements; (3) eliminate
the requirement to file a Form 144 for resales of securities of issuers
that are not subject to Exchange Act reporting; (4) amend the filing
deadline for Form 144 to coincide with the filing deadline for Form 4;
and (5) amend Forms 4 and 5 to include a check box that would provide
the filer with the option to indicate if a transaction intended to
satisfy the affirmative defense conditions of Exchange Act Rule 10b5-
1(c). In addition, if we adopt the proposed amendments, we plan to
simplify and streamline the electronic filing of Form 144 and Form 4.
---------------------------------------------------------------------------
\130\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
A. Reasons for, and Objectives of, the Proposed Action
One purpose of the proposed amendments is to mitigate the risk of
unregistered distributions in connection with sales of market-
adjustable securities. The proposed amendments are also intended to
facilitate more efficient transmission, dissemination, and analysis, of
certain forms, and to reduce the costs of storing and retrieving
documents that are currently filed in paper.
B. Legal Basis
We are proposing the amendments under the authority set forth in
Sections 4, 6, 7, 8, 10, 19(a) and 28 of the Securities Act, and
Sections 3, 16, and 23(a) of the Exchange Act.
C. Small Entities Subject to the Proposed Rules
The proposed amendments would affect small entities that issue
securities as well as those that hold securities. The RFA defines
``small entity'' to mean ``small business,'' ``small organization,'' or
``small governmental jurisdiction.'' \131\ For purposes of the RFA,
under our rules, a registrant, other than an investment company, is a
``small business'' or ``small organization'' if it had total assets of
$5 million or less on the last day of its most recent fiscal year and
is engaged or proposing to engage in an offering of securities that
does not exceed $5 million.\132\ An investment company, including a
business development company,\133\ is considered to be a ``small
business'' if it, together with other investment companies in the same
group of related investment companies, has net assets of $50 million or
less as of the end of its most recent fiscal year.\134\ We estimate
that there are 1,056 issuers that file with the Commission, other than
investment companies, which may be considered small entities and are
potentially subject to the final amendments.\135\ In addition, we
estimate that there are 37 investment companies that would be subject
to the proposed amendments that may be considered small entities.\136\
---------------------------------------------------------------------------
\131\ 5 U.S.C. 601(6).
\132\ See 17 CFR 240.0-10(a).
\133\ Business development companies are a category of closed-
end investment company that are not registered under the Investment
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53--64].
\134\ 17 CFR 270.0-10(a).
\135\ This estimate is based on staff analysis of issuers,
excluding co-registrants, with EDGAR filings of Form 10-K, 20-F and
40-F, or amendments filed during the calendar year of January 1,
2019 to December 31, 2019. This analysis is based on data from XBRL
filings, Compustat, and Ives Group Audit Analytics.
\136\ This estimate is based on staff review of Forms N-CEN
filed with the Commission as of November 5, 2020 and is based on the
definition of small entity under Investment Company Act Rule 0-10.
See 17 CFR 240.0-10.
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D. Proposed Reporting, Recordkeeping, and Other Compliance Requirements
As noted above, the proposed amendment to Rule 144(d)(3)(ii) would
provide that the holding period for securities acquired upon the
conversion or exchange of certain, specific securities that are market
adjustable and issued by unlisted issuers would not begin until the
time of conversion or exchange. We expect the proposed amendment to
reduce the number of market-adjustable securities transactions. As
noted in Section III, we do not anticipate that the proposed amendments
would affect the reporting or compliance burdens associated with Form
144, including those for small entities, because the requirement to
file the form only applies to affiliates of the issuer and the
investors in these securities generally do not meet the definition of
affiliate in our regulations. Affected parties may decide to adjust
their recordkeeping methods if needed to account for the change in the
start date for the holding period.
Additionally, the proposed amendments would mandate electronic
filing of Form 144 with respect to securities issued by companies
subject to Exchange Act reporting requirements. We anticipate that this
proposed amendment would cause a number of filers, including small
entities, using EDGAR to file their Form 144 electronically who do not
currently do so, thereby modestly increasing their compliance
obligations.
Further, the proposed amendments would eliminate the requirement to
file a Form 144 to report the resale of securities of issuers that are
not subject to the reporting requirements of Sections 13 or 15(d) of
the Exchange Act. As a result, some filers, including small entities
would no longer be required to file Form 144, which would reduce their
compliance obligations.
The proposed amendments to revise the filing deadline for Form 144
and to include an optional check box in Forms 4 and 5 would not change
the reporting, recordkeeping, or compliance requirements or otherwise
affect the overall compliance burden for small entities.
Compliance with the proposed amendments may require the use of
[[Page 5083]]
professional skills, including legal skills.
Section I discusses the proposed amendments in detail. Sections II
and III discuss the economic impact, including the estimated costs and
benefits, of the proposed amendments to all affected entities.
E. Duplicative, Overlapping, or Conflicting Federal Rules
The proposed amendments would not duplicate, overlap, or conflict
with other Federal rules.
F. Significant Alternatives
The RFA directs us to consider alternatives that would accomplish
our stated objectives, while minimizing any significant adverse impact
on small entities. In connection with the proposed amendments, we
considered the following alternatives:
Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
Clarifying, consolidating or simplifying compliance and
reporting requirements under the rules for small entities;
Using performance rather than design standards; and
Exempting small entities from all or part of the
requirements.
We are proposing to amend Rule 144(d)(3)(ii) to provide that the
holding period for the securities acquired upon conversion or exchange
of certain market-adjustable securities issued by unlisted issuers
would not begin until conversion or exchange. We recognize that the
proposal could disproportionately affect small issuers because it is
those entities that typically issue market-adjustable securities \137\
but we believe this proposal would benefit issuers and investors by
mitigating the risk of unregistered distributions in connection with
sales of market-adjustable securities. The features of certain market-
adjustable securities, combined with the tacking provisions of Rule
144, can undermine one of the key premises of Rule 144, which is that
holding securities at risk for an appropriate period of time prior to
resale can demonstrate that the seller did not purchase the securities
with a view to distribution and, therefore, is not an underwriter. We
could propose to exempt the securities of small entities from the
proposed amendment or establish a different holding period for their
securities, but doing so would not address the risk that holders may
participate in unregistered distributions of the market-adjustable
securities of these issuers.
---------------------------------------------------------------------------
\137\ See supra note 73 and accompanying text.
---------------------------------------------------------------------------
The proposed amendments to mandate the electronic filing of Form
144 clarify and streamline the filing requirements for the form and
should benefit all filers, as well as benefit users of the information
in Form 144 by facilitating easier access to, and faster retrieval of
such information. We do not believe that it is necessary to partially
or completely exempt small entities from the proposed amendments to
require the electronic filing of Form 144 because the amendments are
expected to result in cost benefits on an ongoing basis compared to
paper filing, and increased efficiencies for all filers who would be
required to file Form 144, including small entities that are filers. We
preliminarily believe that it is not necessary to establish different
compliance timetables for small entities or to further clarify,
consolidate, or simplify the proposed amendments' requirements. But we
are proposing a six-month transition period after the effective date of
the amendments to Regulation S-T to give Form 144 paper filers who
would be first-time electronic filers, including any small entities,
sufficient time to apply for codes to make filings on EDGAR. In
addition, we solicit comment on whether we should provide a different
timetable for paper Form 144 filers to transition to electronic filing.
We have used design rather than performance standards in connection
with the proposed filing revisions to Form 144 in order to promote
uniform filing requirements and also to facilitate a simpler and less
costly filing method for Form 144 filers.
G. Request for Comment
We encourage the submission of comments with respect to any aspect
of this Initial Regulatory Flexibility Analysis. In particular, we
request comments regarding:
The number of small entity issuers that may be affected by
the proposed amendments;
The existence or nature of the potential impact of the
proposed amendments on small entity issuers discussed in the analysis;
How the proposed amendments could further lower the burden
on small entities; and
How to quantify the impact of the proposed amendments.
Please describe the nature of any impact and provide empirical data
supporting the extent of the impact. Such comments will be considered
in the preparation of the Final Regulatory Flexibility Analysis, if the
proposed amendments are adopted, and will be placed in the same public
file as comments on the proposed amendments themselves.
V. Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\138\ the Commission must advise OMB as to
whether the proposed amendments constitute a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results,
or is likely to result, in:
---------------------------------------------------------------------------
\138\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------
An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment or
innovation.
We request comment on whether the proposed amendments would be a
``major rule'' for purposes of SBREFA. We solicit comment and empirical
data on: (a) The potential effect on the U.S. economy on an annual
basis; (b) any potential increase in costs or prices for consumers or
individual industries; and (c) any potential effect on competition,
investment or innovation. Commenters are requested to provide empirical
data and other factual support for their views to the extent possible.
VI. Statutory Authority
The amendments contained in this release are being proposed under
the authority set forth in Sections 4, 6, 7, 8, 10, 19(a), and 28 of
the Securities Act, and Sections 3, 16, and 23(a) of the Exchange Act.
List of Subjects in 17 CFR Parts 230, 232, 239, and 249
Reporting and recordkeeping requirements, Securities.
Text of the Proposed Amendments
For the reasons set out in the preamble, the Commission is
proposing to amend Title 17, chapter II of the Code of Federal
Regulations as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
1. The authority citation for part 230 continues to read as follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L.
[[Page 5084]]
112-106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless
otherwise noted.
0
2. Amend Sec. 230.144 by:
0
a. Removing the Preliminary Note;
0
b. Adding introductory text and paragraph (b)(3);
0
c. Revising paragraphs (d)(3)(ii) and (h); and
0
d. Adding Notes 1 through 5 to Sec. 230.144.
The additions and revisions to read as follows:
Sec. 230.144 Persons deemed not to be engaged in a distribution and
therefore not underwriters.
A Notes section appears at the end of this rule to assist in
understanding its provisions.
* * * * *
(b) * * *
(3) Not part of a scheme to evade: Section 230.144 (Rule 144) is
not available to any person with respect to any transaction or series
of transactions that, although in technical compliance with this Sec.
230.144, is part of a plan or scheme to evade the registration
requirements of the Act.
* * * * *
(d) * * *
(3) * * *
(ii) Conversions and exchanges. If the securities sold were
acquired from the issuer solely in exchange for other securities of the
same issuer, the newly acquired securities shall be deemed to have been
acquired at the same time as the securities surrendered for conversion
or exchange, even if the securities surrendered were not convertible or
exchangeable by their terms, unless:
(A) The newly acquired securities were acquired from an issuer
that, at the time of conversion or exchange, 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 (15
U.S.C. 78f); and
(B) The convertible or exchangeable security contains terms, such
as conversion rate or price adjustments, that offset, in whole or in
part, declines in the market value of the underlying securities
occurring prior to conversion or exchange, other than terms that adjust
for stock splits, dividends or other issuer-initiated changes in its
capitalization.
Note 1 to paragraph (d)(3)(ii). If the surrendered securities
originally did not provide for cashless conversion or exchange by their
terms and the holder provided consideration, other than solely
securities of the same issuer, in connection with the amendment of the
surrendered securities to permit cashless conversion or exchange, then
the newly acquired securities shall be deemed to have been acquired at
the same time as such amendment to the surrendered securities, so long
as, in the conversion or exchange, the securities sold were acquired
from the issuer solely in exchange for other securities of the same
issuer.3
* * * * *
(h) Notice of sale or proposed sale. (1) If the issuer is, and has
been for a period of at least 90 days immediately before the sale,
subject to the reporting requirements of section 13 or 15(d) of the
Exchange Act and the amount of securities to be sold in reliance upon
this rule during any period of three months exceeds 5,000 shares or
other units or has an aggregate sale price in excess of $50,000, a
notice on Form 144 (Sec. 239.144 of this chapter) shall be filed
electronically with the Commission.
(2) The Form 144 shall be signed by the security holder and shall
be filed before the end of the second business day following the day on
which the subject transaction has been executed. Provided however, if
the transaction satisfies the affirmative defense conditions of Sec.
240.10b5-1(c) of this chapter, and the security holder does not select
the date of execution, the date on which the executing broker, dealer
or plan administrator notifies the security holder of the execution of
the transaction is deemed the date of execution for a transaction.
Neither the filing of such notice nor the failure of the Commission to
comment on such notice shall be deemed to preclude the Commission from
taking any action that it deems necessary or appropriate with respect
to the sale of the securities referred to in such notice. The security
holder filing the notice required by this paragraph shall have sold or
have a bona fide intention to sell the securities referred to in the
notice within a reasonable time after the filing of such notice.
Note 1 to Sec. 230.144. Certain basic principles are essential to
an understanding of the registration requirements in the Securities Act
of 1933 (the Act or the Securities Act) and the purposes underlying
Rule 144. If any person sells a non-exempt security to any other
person, the sale must be registered unless an exemption can be found
for the transaction. Section 4(a)(1) of the Securities Act provides one
such exemption for a transaction ``by a person other than an issuer,
underwriter, or dealer.'' Therefore, an understanding of the term
``underwriter'' is important in determining whether or not the Section
4(a)(1) exemption from registration is available for the sale of the
securities.
Note 2 to Sec. 230.144. Section 2(a)(11) of the Securities Act
defines the term ``underwriter'' broadly to mean any person who has
purchased from an issuer with a view to, or offers or sells for an
issuer in connection with, the distribution of any security, or
participates, or has a direct or indirect participation in any such
undertaking, or participates or has a participation in the direct or
indirect underwriting of any such undertaking. The interpretation of
this definition traditionally has focused on the words ``with a view
to'' in the phrase ``purchased from an issuer with a view to . . .
distribution.'' An investment banking firm which arranges with an
issuer for the public sale of its securities is clearly an
``underwriter'' under that section. However, individual investors who
are not professionals in the securities business also may be
``underwriters'' if they act as links in a chain of transactions
through which securities move from an issuer to the public.
Note 3 to Sec. 230.144. Since it is difficult to ascertain the
mental state of the purchaser at the time of an acquisition of
securities, prior to and since the adoption of Rule 144, subsequent
acts and circumstances have been considered to determine whether the
purchaser took the securities ``with a view to distribution'' at the
time of the acquisition. Emphasis has been placed on factors such as
the length of time the person held the securities and whether there has
been an unforeseeable change in circumstances of the holder. Experience
has shown, however, that reliance upon such factors alone has led to
uncertainty in the application of the registration provisions of the
Act.
Note 4 to Sec. 230.144. The Commission adopted Rule 144 to
establish specific criteria for determining whether a person is not
engaged in a distribution. Rule 144 creates a safe harbor from the
Section 2(a)(11) definition of ``underwriter.'' A person satisfying the
applicable conditions of the Rule 144 safe harbor is deemed not to be
engaged in a distribution of the securities and therefore not an
underwriter of the securities for purposes of Section 2(a)(11).
Therefore, such a person is deemed not to be an underwriter when
determining whether a sale is eligible for the Section 4(a)(1)
exemption for ``transactions by any person other than an issuer,
underwriter, or dealer.'' If a sale of securities complies with all of
the applicable conditions of Rule 144: Any affiliate or other person
who sells
[[Page 5085]]
restricted securities will be deemed not to be engaged in a
distribution and therefore not an underwriter for that transaction; any
person who sells restricted or other securities on behalf of an
affiliate of the issuer will be deemed not to be engaged in a
distribution and therefore not an underwriter for that transaction; and
the purchaser in such transaction will receive securities that are not
restricted securities.
Note 5 to Sec. 230.144. Rule 144 is not an exclusive safe harbor.
A person who does not meet all of the applicable conditions of Rule 144
still may claim any other available exemption under the Act for the
sale of the securities.
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
3. The general authority citation for part 232 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c),
80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C. 1350,
unless otherwise noted.
0
4. Amend Sec. 232.101 by adding paragraph (a)(1)(xxii), and removing
and reserving paragraphs (b)(4) and (c)(6), to read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(a) * * *
(1) * * *
(xxii) Form 144 (Sec. 239.144 of this chapter), where the issuer
of the securities is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 78o(d),
respectively).
* * * * *
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
0
5. The general authority citation for part 239 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-
3, 77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a),
78ll, 78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24,
80a-26, 80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106,
126 Stat. 312, unless otherwise noted.
0
6. Amend Sec. 239.144 by revising paragraphs (a) and (b) to read as
follows:
(a) Except as indicated in paragraph (b) of this section, each
person who intends to sell securities in reliance upon Sec. 230.144 of
this chapter shall file this form in electronic format by means of the
Commission's Electronic Data, Gathering, Analysis, and Retrieval system
(EDGAR) in accordance with the EDGAR rules set forth in Regulation S-T
(17 CFR part 232 of this chapter).
(b) This form need not be filed if the amount of securities to be
sold during any period of three months does not exceed 5,000 shares or
other units and the aggregate sale price does not exceed $50,000.
* * * * *
0
7. Amend Form 144 (referenced in Sec. 239.144) by:
0
a. Removing the title text ``NOTICE OF PROPOSED SALE OF SECURITIES
PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933'' and add in its
place ``NOTICE OF SALE OR PROPOSED SALE OF SECURITIES PURSUANT TO RULE
144 UNDER THE SECURITIES ACT OF 1933'';
0
b. Removing the text ``ATTENTION: Transmit for filing 3 copies of this
form concurrently with either placing an order with a broker to execute
sale or executing a sale directly with a market maker.'' and add in its
place ``ATTENTION: This form must be filed in electronic format by
means of the Commission's Electronic Data Gathering, Analysis, and
Retrieval system (EDGAR) in accordance with the EDGAR rules set forth
in Regulation S-T (17 CFR part 232). For assistance with technical
questions about EDGAR or to request an access code, call the EDGAR
Filer Support Office at (202) 551-8900.'';
0
c. Removing the text ``INSTRUCTION: The person filing this notice
should contact the issuer to obtain the I.R.S. Identification Number
and the SEC. File Number.'' and add in its place ``INSTRUCTION: The
filer should contact the issuer to obtain the SEC. File Number.'';
0
d. Removing the data field box ``1(b)'';
0
e. Redesignating the data field boxes 1(c) through 1(e) as 1(b) through
1(d);
0
f. Removing the data field box ``2(c)'';
0
g. Removing Instructions 1(b) and 2(c);
0
h. Redesignating Instructions 1(c) through 1(e) as 1(b) through 1(d);
and
0
i. Removing ``(d) Aggregate market value of the securities to be sold
as of a specified date within 10 days prior to the filing of this
notice'' and add in its place ``(d) Aggregate market value of the
securities to be sold as of a specified date within 10 days prior to
the filing of this notice. For completed sales, provide instead the
total sales proceeds (amount of securities sold multiplied by the price
per share)''.
Note: The text of Form 144 does not and this amendment will not
appear in the Code of Federal Regulations.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
8. The general authority citation for part 249 continues to read as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec.
107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001 Pub. L.
114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
0
9. Amend Form 4 (referenced in Sec. 249.104) by:
0
a. Adding new General Instruction 10; and
0
b. Adding text and a check box at the top of the first page immediately
below the text ``Check this box if no longer subject to Section 16.
Form 4 or Form 5 obligations may continue. See Instruction 1(b).''
The additions to read as follows:
Note: The text of Form 4 does not, and this amendment will not,
appear in the Code of Federal Regulations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 4
* * * * *
General Instructions
* * * * *
10. Optional Rule 10b5-1(c) Transaction Indication
If a transaction was made pursuant to a contract, instruction or
written plan for the purchase or sale of equity securities of the
issuer that satisfies the conditions of Rule 10b5-1(c) under the
Exchange Act [Sec. 240.10b5-1(c) of this chapter], a reporting person
may elect to check the Rule 10b5-1 box appearing on this Form.
Additional information, such as the date of a Rule 10b5-1 plan, may be
provided at the filer's option in the ``Explanation of Responses''
portion of the Form.
* * * * *
[square] Check this box to indicate that a transaction was made
pursuant to Rule 10b5-1(c). See Instruction 10.
* * * * *
10. Amend Form 5 (referenced in Sec. 249.105) by:
a. Adding new General Instruction 10; and
b. Adding text and a check box at the top of the first page
immediately below the text ``Form 4 Transactions Reported''.
The additions to read as follows:
[[Page 5086]]
Note: The text of Form 5 does not, and this amendment will not,
appear in the Code of Federal Regulations.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 5
* * * * *
General Instructions
* * * * *
10. Optional Rule 10b5-1(c) Transaction Indication
If a transaction was made pursuant to a contract, instruction or
written plan for the purchase or sale of equity securities of the
issuer that satisfies the conditions of Rule 10b5-1(c) under the
Exchange Act [Sec. 240.10b5-1(c) of this chapter], a reporting person
may elect to check the Rule 10b5-1 box appearing on this Form.
Additional information, such as the date of a Rule 10b5-1 plan, may be
provided at the filer's option in the ``Explanation of Responses''
portion of the Form.
* * * * *
[square] Check this box to indicate that a transaction was made
pursuant to Rule 10b5-1(c). See Instruction 10.
* * * * *
By the Commission.
Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28790 Filed 1-15-21; 8:45 am]
BILLING CODE 8011-01-P
