Definition
Rule 144
An SEC safe harbor that governs the resale of restricted securities (acquired in unregistered transactions such as private placements) and control securities (held by affiliates or insiders, however acquired). Restricted securities carry a holding period of 6 months for an SEC-reporting company or 1 year for a non-reporting company. Affiliate sales are further capped each 90-day period at the greater of 1% of the outstanding shares of that class or the average weekly trading volume over the preceding 4 weeks.
A venture firm buys unregistered shares in a Regulation D private placement of a public, SEC-reporting company. Because the shares are restricted, the firm must hold them at least 6 months before reselling under Rule 144. Separately, a director of the same company who bought shares in the open market holds control securities: those never had a holding period, but any resale by the director is still capped by the volume limit, must be an ordinary broker transaction, and triggers a Form 144 filing once it crosses 5,000 shares or $50,000 in a 90-day window.
Students confuse restricted securities (defined by how they were acquired, in an unregistered sale) with control securities (defined by who holds them, an affiliate). A frequent error is assuming control securities carry their own holding period: the 6-month/1-year holding period applies to restricted securities, so control stock bought in the open market can be sold right away (subject to the volume limit and other affiliate conditions). Another common slip is reversing the 6-month and 1-year figures, or treating the Form 144 threshold (5,000 shares or $50,000) as the actual sales ceiling rather than just a filing trigger.
How is Rule 144 tested on the exam?
- Distinguishing restricted securities (acquired in unregistered sales) from control securities (held by affiliates) and applying the correct conditions to each
- Recalling the holding period: 6 months for a reporting issuer versus 1 year for a non-reporting issuer
- Calculating the maximum shares an affiliate may sell using the greater of 1% of outstanding shares or average weekly trading volume
- Identifying when Form 144 must be filed (sale exceeds 5,000 shares or $50,000 in a 3-month period)
- Recognizing that non-affiliates can resell freely once the holding period and current-information conditions are met, while affiliates remain subject to all conditions
Regulatory limits
Regulatory Limits
| Description | Limit | Notes |
|---|---|---|
| Holding period (restricted securities of a reporting company) | 6 months | Applies when the issuer is subject to SEC reporting requirements (files 10-K, 10-Q, 8-K) |
| Holding period (restricted securities of a non-reporting company) | 1 year | Longer period because the market has less public information about the issuer |
| Volume limitation (affiliates / control securities), per 90-day period | Greater of 1% of outstanding shares of the class OR average weekly reported trading volume (4 weeks preceding the notice) | Caps how much an affiliate can sell into the public market; a non-affiliate faces no volume limit after the holding period |
| Form 144 filing trigger (affiliates) | Sale exceeds 5,000 shares OR $50,000 in any 3-month period | A notice filed with the SEC, not a request for approval; it is a filing trigger, not a sales ceiling |
| Manner of sale (affiliates) | Must be an ordinary broker's transaction | Current public information about the issuer must also be available |
Two kinds of stock, two separate tests. Restricted = how you got it (bought unregistered), so it carries the hold: 6 months if the company reports, 1 year if it does not. Control = who you are (an affiliate), so it carries the volume cap: the GREATER of 1% or the 4-week average weekly volume, plus Form 144 once you cross 5,000 shares or $50,000. Think "Restricted waits, Control caps."
Practice questions
Test your understanding with the questions below. Pick an answer to reveal the explanation.
Marcus is the chief financial officer of Apex Industries, an SEC-reporting company. Two years ago he bought 40,000 Apex shares on the open market through his brokerage account. He now wants to sell some of those shares. Which statement best describes how Rule 144 applies to Marcus?
B is correct. Marcus holds control securities: stock held by an affiliate (the CFO), acquired in the open market. The 6-month/1-year holding period applies to restricted securities (those acquired in an unregistered sale), not to open-market shares, so no holding period applies to Marcus. But because he is an affiliate, his resale is still subject to the volume limit (greater of 1% of outstanding shares or average weekly trading volume), the ordinary-broker-transaction requirement, current public information, and a Form 144 filing once the sale exceeds 5,000 shares or $50,000 in a 90-day period.
A is incorrect because the holding period attaches to restricted securities, not to control stock bought on the open market. C is incorrect because affiliates are not banned from selling; they simply must meet Rule 144's affiliate conditions. D is incorrect because affiliate status, not how the shares were acquired, triggers the volume limit and other control-security conditions.
The Series 7 and Series 65 exams frequently test the difference between restricted and control securities. Understanding that the holding period tracks how shares were acquired while the volume limit and Form 144 track affiliate status is essential to answering these questions correctly, because the exam deliberately mixes the two dimensions in scenario stems.
Under Rule 144, what is the required holding period for restricted securities of an issuer that is NOT subject to SEC reporting requirements?
C is correct. Restricted securities of a non-reporting company carry a 1-year holding period. A non-reporting issuer does not file regular 10-K, 10-Q, and 8-K reports, so the market has less public information about it, and Rule 144 requires a longer hold before resale.
A (3 months) is not a Rule 144 holding period; it echoes the 3-month (90-day) window used for the volume limit and Form 144 counting, not the holding period. B (6 months) is the holding period for a reporting company, the reverse of what the question asks. D (2 years) was the old pre-2008 holding period and is now outdated.
The exam routinely asks candidates to recall the 6-month versus 1-year holding periods and to match each to the correct issuer type. Reversing them or citing the outdated 2-year figure is a common wrong answer, so the distinction between reporting and non-reporting issuers is worth memorizing precisely.
An affiliate of Delta Corporation wants to sell restricted shares under Rule 144. Delta has 8,000,000 shares outstanding, and the average weekly reported trading volume over the 4 weeks preceding the notice is 90,000 shares. What is the maximum number of shares the affiliate may sell in the applicable 90-day period?
C is correct. The volume limit is the GREATER of two figures. First, 1% of outstanding shares: 8,000,000 x 0.01 = 80,000 shares. Second, the average weekly trading volume over the preceding 4 weeks: 90,000 shares. The greater of 80,000 and 90,000 is 90,000 shares, so that is the cap.
A (8,000) mistakenly uses 0.1% instead of 1% of the outstanding shares. B (80,000) is the 1% figure, but the rule uses the greater of the two, and here the weekly-volume number is higher. D (170,000) incorrectly adds the two figures (80,000 + 90,000) instead of taking the greater of them.
Volume-limit calculations are a classic Rule 144 exam item. The trap is choosing the 1% figure by default or adding the two numbers; the candidate must remember the test is the greater of 1% of outstanding shares or the average weekly trading volume, computed per 90-day period.
All of the following are conditions an affiliate must satisfy to resell control securities under Rule 144 EXCEPT
C is correct (the EXCEPT answer). Rule 144 never requires SEC approval of a sale. When an affiliate crosses the Form 144 threshold, Form 144 is only a notice filed concurrently with the sell order; the SEC does not approve or clear the trade.
A is a genuine condition: affiliate sales are capped by the volume limitation (greater of 1% of outstanding shares or average weekly trading volume) each 90-day period. B is a genuine condition: current public information about the issuer must be available. D is a genuine condition: affiliate sales must be routed as ordinary broker's transactions (or directly with a market maker), not as specially solicited sales.
The exam tests whether candidates understand that Rule 144 is a self-executing safe harbor, not an approval process. Form 144 is a notice, not a request, and no regulator signs off on the sale. Recognizing the conditions that DO apply (volume limit, current information, manner of sale) versus the myth of SEC pre-approval is a frequent distractor pattern.
A non-affiliate purchased restricted securities of an SEC-reporting company in a Regulation D private placement and has now held them for well over one year. Current public information about the issuer is available. Which of the following statements are accurate?
1. The investor may resell the securities without regard to the affiliate volume limitation
2. The investor must file Form 144 before each sale
3. The 6-month holding period requirement for a reporting issuer has been satisfied
4. The securities were restricted because they were acquired in an unregistered transaction
C is correct. Statements 1, 3, and 4 are accurate.
Statement 1 is TRUE: the volume limitation applies to affiliates. A non-affiliate who has met the holding period and current-information conditions may resell freely, with no volume cap.
Statement 2 is FALSE: Form 144 is a filing obligation of affiliates. A non-affiliate is not required to file Form 144.
Statement 3 is TRUE: for a reporting issuer the holding period is 6 months, and the investor has held for over a year, so the period is clearly satisfied.
Statement 4 is TRUE: the securities are restricted precisely because they were acquired in an unregistered transaction (the Regulation D private placement).
The exam tests the sharp contrast between affiliate and non-affiliate resales. Once a non-affiliate clears the holding period and current-information conditions, the volume limit, manner-of-sale rule, and Form 144 filing all fall away. Sorting which conditions bind affiliates versus non-affiliates is exactly what Roman-numeral items on this topic probe.
What concepts relate to Rule 144?
This term is part of this cluster :
Where does Rule 144 appear on the Series 65 exam?
This term is tested in the following Series 65 exam topics:
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