SEC Votes to Adopt Amendments to Rules 144 and 145
November 15, 2007
At its open meeting on November 15, 2007, the Securities and Exchange Commission voted to adopt amendments to Rule 144 and Rule 145 under the Securities Act of 1933 (the “Securities Act”). These changes are part of the Commission’s efforts to facilitate public and private capital raising and ease disclosure requirements, particularly for smaller companies, but have significant implications for larger companies as well.
The final amendments to Rule 144, with one significant exception, appear to be generally similar to those proposed in June 2007. A key difference between the proposed and adopted rule, however, is that the Commission has determined not to reinstitute tolling at this time. In the open meeting, the staff noted that the reinstitution of tolling had been proposed in connection with concerns raised by hedging activity, but that it had been persuaded by commenters that the reinstitution of tolling would unduly complicate Rule 144 and cause the incurrence of significant costs in the absence of strong evidence that hedging has led to abuses under Rule 144. The staff noted, however, that it would continue to monitor this situation and would revisit the rule to the extent it felt necessary to do so.
The staff also concurred with a number of other suggestions made by commenters on the original proposal.
The principal amendments recommended by the staff and adopted by the Commission with respect to Rule 144 include:
- shortening to six months the restricted security holding period under Rule 144 applicable to reporting companies (i.e., companies that are, and have been for at least 90 days prior to the Rule 144 sale, subject to the reporting requirements of the Securities Exchange Act of 1934);
- allowing non-affiliates to resell freely securities of reporting companies after a six-month holding period (so long as the company in question continues to comply with the Rule 144(c) public information requirement), and allowing non-affiliates to resell freely securities of non-reporting companies and reporting companies that fail to comply with Rule 144(c) after a one-year holding period;
- eliminating “manner of sale” requirements with respect to sales of debt securities by affiliates and revising such requirements with respect to sales of equity securities by affiliates;
- relaxing the volume limitations in Rule 144(e) for sales of debt securities by affiliates by providing a new alternative that would permit resale of up to 10% of a securities tranche in any three-month period;
- increasing the Form 144 filing threshold for affiliates to trades of either 5,000 shares or $50,000 within a three-month period; and
- making a number of other changes initially proposed in June 2007, including simplifying and streamlining the Preliminary Note to (and other parts of) Rule 144, eliminating the requirement for non-affiliate sellers to file Form 144 and codifying certain staff positions relating to Rule 144.
The amendments to Rule 145 will, as proposed, eliminate the presumptive underwriter provision other than with respect to transactions involving securities of shell companies (other than certain business combination shell companies), and revise the resale provisions of Rule 145(d). The staff also indicated that it had determined not to act on the proposal to combine Form 4 and Form 144 at this time, as the proposal had raised several issues that the staff expects would be potentially costly and complex to resolve. It is, however, continuing to consider this approach.
There was also a colloquy at the open meeting regarding the discussion in the adopting release of the interaction between short sales and Section 5 of the Securities Act. While the text of the adopting release is not yet available, in his commentary on the adopting release Commissioner Atkins referred to a footnote in the release in which the staff purports to summarize the historical positions that the Commission has taken on that issue. Commissioner Atkins asked the staff to clarify that this was not a new interpretation, and the staff responded that, in its view, the footnote was consistent with prior positions. The staff also indicated that it is currently considering codification of the existing position or the issuance of additional guidance on that matter in the relatively near term.
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The summary above is based on the webcast of the open meeting and the Commission’s press release; the full text of the rule amendments are not yet available. The webcast is available at http://www.connectlive.com/events/secopenmeetings/ and the related press release may be found at http://www.sec.gov/news/press/2007/2007-233.htm. The amendments will become effective 60 days after their publication in the Federal Register.
For additional information regarding the Commission’s originally proposed changes to Rules 144 and 145, see http://www.clearygottlieb.com/english/news/alertdetail.aspx?id=730.
Questions can be directed to your regular contacts at the firm or to any of our partners and counsel listed under Capital Markets in the “Our Practice” section of this web site.
CLEARY GOTTLIEB STEEN & HAMILTON LLP