[Federal Register: July 5, 2007 (Volume 72, Number 128)]
[Proposed Rules]
[Page 36821-36849]
[DOCID:fr05jy07-26]

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Part IV

Securities and Exchange Commission

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17 CFR Parts 230 and 239

Revisions to Rule 144 and Rule 145 to Shorten Holding Period for
Affiliates and Non-Affiliates; Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 239

[Release No. 33-8813; File No. S7-11-07]
RIN 3235-AH13

Revisions to Rule 144 and Rule 145 to Shorten Holding Period for
Affiliates and Non-Affiliates

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: Rule 144 under the Securities Act of 1933 creates a safe
harbor for the sale of securities under the exemption set forth in
Section 4(1) of the Securities Act. We are proposing a six-month
holding period requirement under Rule 144 for ``restricted securities''
of companies that are subject to the reporting requirements of the
Securities Exchange Act of 1934. The proposed six-month holding period
for restricted securities of reporting companies would be extended, for
up to an additional six months, by the amount of time during which the
security holder has engaged in hedging transactions. Restricted
securities of companies that are not subject to the Exchange Act
reporting requirements would continue to be subject to a one-year
holding period prior to any public resale. We also propose to
substantially reduce the restrictions on the resale of securities by
non-affiliates. In addition, we propose to simplify the Preliminary
Note to Rule 144, eliminate the manner of sale restrictions with
respect to debt securities, increase the Form 144 filing thresholds,
and codify several staff interpretive positions that relate to Rule
144. We also solicit comment on how best to coordinate Form 144 and
Form 4 filing requirements. Finally, we propose amendments to
Securities Act Rule 145, which establishes resale limitations on
certain persons who acquire securities in business combination
transactions, to eliminate the presumptive underwriter position in Rule
145(c), except for transactions involving a shell company, and to
revise the resale requirements in Rule 145(d). We believe that the
proposed changes will increase the liquidity of privately sold
securities and decrease the cost of capital for all companies without
compromising investor protection.

DATES: Comments should be received on or before September 4, 2007.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.
); or     Send an E-mail to<EMAIL_ADDRESS>Please include

File Number S7-11-07 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number S7-11-07. This file
number should be included on the subject line if e-mail is used. To
help us process and review your comments more efficiently, please use
only one method. The Commission will post all comments on the
Commission's Web site (http://www.sec.gov/rules/proposed.shtml).

Comments are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549. All comments received will be posted without change; we do not
edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Katherine Hsu, Special Counsel, and
Ray Be, Special Counsel, Office of Rulemaking, Division of Corporation
Finance, at<PHONE_NUMBER>, 100 F Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to
Rule 144,\1\ Rule 145,\2\ Rule 190,\3\ Rule 701 \4\ and Form 144 \5\
under the Securities Act of 1933.\6\
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    \1\ 17 CFR 230.144.
    \2\ 17 CFR 230.145.
    \3\ 17 CFR 230.190.
    \4\ 17 CFR 230.701.
    \5\ 17 CFR 239.144.
    \6\ 15 U.S.C. 77a et seq. ?>
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Table of Contents

I. Background and Overview
II. Discussion of Proposals
    A. Simplification of the Preliminary Note and Text of Rule 144
    B. Amendments to Holding Period Requirement and Reduction of
Requirements Applicable to Non-Affiliates
    1. Background
    2. Amendments to Holding Period in Rule 144(d)
    a. Six-Month Holding Period for Exchange Act Reporting Companies
    b. Tolling Provision
    3. Significant Reduction of Requirements Applicable to Non-
Affiliates
    C. Elimination of Manner of Sale Limitations for Debt Securities
    D. Increase of the Form 144 Filing Thresholds
    E. Codification of Several Staff Positions
    1. Securities Issued Under Section 4(6) of the Securities Act
Are Considered ``Restricted Securities''
    2. Tacking of Holding Periods When a Company Reorganizes Into a
Holding Company Structure
    3. Tacking of Holding Periods for Conversions and Exchanges of
Securities
    4. Cashless Exercise of Options and Warrants
    5. Aggregation of Pledged Securities
    6. Treatment of Securities Issued by ``Reporting and Non-
Reporting Shell Companies''
    7. Representations Required From Security Holders Relying on
Rule 10b5-1(c)
    F. Amendments to Rule 145
    G. Conforming and Other Amendments
    1. Underlying Securities in Asset-Backed Securities Transactions
    2. Securities Act Rule 701(g)(3)
III. Coordination of Form 144 Filing Requirements With Form 4 Filing
Requirements
IV. General Request for Comments
V. Paperwork Reduction Act
    A. Background
    B. Summary of Proposed Amendments
    C. Solicitation of Comments
VI. Cost-Benefit Analysis
    A. Background
    B. Description of Proposal
    C. Benefits
    D. Costs
    E. Request for Comments
VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
VIII. Initial Regulatory Flexibility Analysis
    A. Reasons for, and Objectives of, Proposed Action
    B. Legal Basis
    C. Small Entities Subject to Rule
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Overlapping of Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comments
IX. Small Business Regulatory Enforcement Fairness Act
X. Statutory Basis and Text of Proposed Amendments

I. Background and Overview

    The Securities Act requires registration of all offers and sales of
securities in interstate commerce or by use of the U.S. mail, unless an
exemption from the registration requirement is available.\7\ Section
4(1) of the Securities Act provides such an exemption for transactions
by any person other than an issuer, underwriter or dealer.\8\
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    \7\ See 15 U.S.C. 77e.
    \8\ 15 U.S.C. 77d(1).

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    The definition of the term ``underwriter'' is key to the operation
of the Section 4(1) exemption. Section 2(a)(11) of the Securities Act
defines an underwriter as ``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.'' \9\ The Securities
Act does not, however, provide specific criteria for determining when a
person purchases securities ``with a view to * * * the distribution''
of those securities. In 1972, the Commission adopted Rule 144 to
provide a safe harbor from this definition of ``underwriter'' to assist
security holders in determining whether the Section 4(1) exemption is
available for their resale of securities.\10\ If a selling security
holder satisfies all of Rule 144's applicable conditions in connection
with a transaction, he or she is deemed not to be an ``underwriter,''
and the Section 4(1) exemption would be available for the resale of the
securities.
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    \9\ 15 U.S.C. 77b(a)(11).
    \10\ Release No. 33-5223 (Jan. 14, 1972) [37 FR 591].
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    Since its adoption, we have reviewed and revised Rule 144 several
times. We last made major changes in 1997.\11\ At that time, we
shortened the required holding period for securities that are defined
as ``restricted securities.'' \12\ Before the 1997 amendments,
affiliates and non-affiliates could resell restricted securities,
subject to limitation, after two years, and non-affiliates (who had not
been affiliates during the prior three months) could resell restricted
securities without limitation after three years.\13\ The 1997
amendments changed these two-year and three-year periods to one-year
and two-year periods, respectively.
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    \11\ See Release No. 33-7390 (Feb. 28, 1997) [62 FR 9242].
    \12\ See 17 CFR 230.144(a)(3).
    \13\ The term ``affiliate'' is defined in 17 CFR 230.144(a)(1)
as ``a person that 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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    At the time we adopted those changes, we proposed and solicited
comment on several possible additional changes to Rule 144, Rule 145
and Form 144, including reducing the holding period further.\14\ We
received 38 comment letters on those proposed changes. As discussed
more fully below, most commenters were divided between supporting
further shortening of the holding period and waiting to see the results
of the 1997 amendments. We have not taken further action to adopt the
1997 proposals.
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    \14\ Release No. 33-7391 (Feb. 28, 1997) [62 FR 9246] (``the
1997 proposing release''). In that release, we proposed to (1)
revise the Preliminary Note to Rule 144 to restate the intent and
effect of the rule, (2) add a bright-line test to the Rule 144
definition of ``affiliate,'' (3) eliminate the Rule 144 manner of
sale requirements, (4) increase the Form 144 filing thresholds, (5)
include in the definition of ``restricted securities'' securities
issued pursuant to the Securities Act Section 4(6) exemption, (6)
clarify the holding period determination for securities acquired in
certain exchanges with the issuer and in holding company formations,
(7) streamline and simplify several Rule 144 provisions, and (8)
eliminate the presumptive underwriter provisions of Rule 145. We
also solicited comment on (1) further revisions to the Rule 144
holding periods, (2) elimination of the trading volume tests to
determine the amount of securities that can be resold under Rule
144, and (3) several possible regulatory approaches with respect to
certain hedging activities.
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    Rule 144 regulates the resale of two categories of securities--
restricted securities and control securities. Restricted securities are
securities acquired pursuant to one of the transactions listed in Rule
144(a)(3).\15\ Although it is not a term defined in Rule 144, ``control
securities'' is used commonly to refer to securities held by affiliates
of the issuer, regardless of how the affiliates acquired the
securities.\16\ Therefore, if an affiliate acquires securities in a
transaction that is listed in Rule 144(a)(3), those securities would be
both restricted securities and control securities.
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    \15\ 17 CFR 230.144(a)(3).
    \16\ See the 1997 proposing release.
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    Rule 144 states that a selling security holder shall be deemed not
to be engaged in a distribution of securities and therefore not an
underwriter with respect to such securities, thus making available the
Section 4(1) exemption from registration, if the resale meets
particular criteria. If the security holder is an affiliate of the
issuer, or a non-affiliate that has held the restricted securities for
less than two years,\17\ these criteria include the following:
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    \17\ See 17 CFR 230.144(k).
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     There must be available adequate current public
information about the issuer; \18\
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    \18\ 17 CFR 230.144(c).
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     If the securities being sold are restricted securities,
the seller must have held the security for a specified holding period;
\19\
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    \19\ 17 CFR 230.144(d).
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     The resale must be within specified sales volume
limitations; \20\
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    \20\ 17 CFR 230.144(e).
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     The resale must comply with the manner of sale conditions;
\21\ and
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    \21\ 17 CFR 230.144(f) and (g).
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     The selling security holder may be required to file a Form
144.\22\
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    \22\ 17 CFR 230.144(h).
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    Under the current rule, a non-affiliate may publicly resell
restricted securities without being subject to the above limitations if
he or she has held the securities for two years and if he or she is
not, and for the prior three months has not been, an ``affiliate'' of
the issuer.\23\
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    \23\ 17 CFR 230.144(k).
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    We now are proposing amendments that would:
     Simplify the Preliminary Note to Rule 144 and text of Rule
144, using plain English principles; \24\
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    \24\ See the proposed Preliminary Note, proposed paragraph (b),
proposed paragraph (c) and related note, and proposed paragraphs
(d)(3)(i), (e)(1), (e)(2)(vii) and (f).
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     Amend the Rule 144 holding period requirement for
restricted securities of companies that are required to file reports
under the Securities Exchange Act of 1934 \25\ to provide for a six-
month holding period if the security holder has not engaged in certain
hedging transactions; \26\
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    \25\ 15 U.S.C. 78a et seq.
    \26\ See proposed Rule 144(d).
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     Require that security holders toll, or suspend, the
holding period during the time they enter into certain hedging
transactions, although under no circumstance would the holding period
extend beyond one year; \27\
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    \27\ See proposed Rule 144(d)(3)(xi).
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     Substantially reduce the requirements for non-affiliates
so that they can resell securities freely after the holding period
(except that non-affiliates of reporting companies would be subject to
the current public information requirement until one year after the
acquisition of the securities); \28\
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    \28\ See proposed Rules 144(b)(1) and (d).
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     Eliminate the ``manner of sale'' limitations with respect
to debt securities; \29\
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    \29\ See proposed Rule 144(f).
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     Increase the thresholds that would trigger a Form 144
filing requirement; \30\
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    \30\ See proposed Rule 144(h).
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     Codify the staff's positions, as they relate to Rule 144,
concerning the following issues:
    [cir] Inclusion of securities acquired under Section 4(6) of the
Securities Act in the definition of ``restricted securities,'' \31\
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    \31\ See proposed Rule 144(a)(3)(viii).
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    [cir] The effect that creation of a holding company structure has
on a security holder's holding period,\32\
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    \32\ See proposed Rule 144(d)(3)(ix).
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    [cir] Holding periods for conversions and exchanges of
securities,\33\
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    \33\ See proposed Rule 144(d)(3)(ii).
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    [cir] Holding periods for the cashless exercise of options and
warrants,\34\
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    \34\ See proposed Rule 144(d)(3)(xi).

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    [cir] Aggregation of a pledgee's resales with resales by other
pledgees of the same security,\35\
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    \35\ See proposed note to Rule 144(e)(2)(ii).
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    [cir] The extent to which securities issued by ``reporting and non-
reporting shell companies'' are eligible for resale under Rule 144,\36\
and
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    \36\ See proposed Rule 144(i).
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    [cir] Representations required from security holders relying on
Rule 10b5-1(c); \37\ and
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    \37\ 17 CFR 240.10b5-1(c). See proposed amendments to Form 144.
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     Eliminate the presumptive underwriter provision in
Securities Act Rule 145, except for transactions involving a shell
company, and harmonize the resale requirements in Rule 145 with the
resale provisions for the securities of shell companies in Rule
144.\38\
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    \38\ See proposed Rule 145(d).
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    We also solicit comment on delaying the Form 144 filing deadline to
coincide with the deadline for filing a Form 4 \39\ under Section 16
\40\ of the Exchange Act and permitting persons who are subject to
Section 16 to meet their Form 144 filing requirement by filing a Form
4. \41\
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    \39\ 17 CFR 249.104.
    \40\ 15 U.S.C. 78p.
    \41\ Section 16 applies to every person who is the beneficial
owner of more than 10% of any class of equity securities registered
under Section 12 of the Exchange Act, and each officer and director
(collectively, ``reporting persons'' or ``insiders'') of the issuer
of such security. Section 16(a) of the Exchange Act requires that
reporting persons report changes in their beneficial ownership of
all equity securities of the issuer on Form 4 before the end of the
second business day following the day on which the subject
transaction (which caused the change in beneficial ownership) was
executed.
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    The following table briefly compares some of the most significant
proposed amendments to the current regulatory scheme:

------------------------------------------------------------------------
                               Current regulations   Proposed amendments
------------------------------------------------------------------------
Resales of Restricted         --Limited resales     --Unlimited resales
 Securities by Non-            after holding         after holding
 Affiliates Under Rule 144.    restricted            restricted
                               securities for one    securities of
                               year.                 Exchange Act
                                                     reporting companies
                                                     for six months if
                                                     they have not been
                                                     affiliates during
                                                     the prior three
                                                     months, except that
                                                     such resales would
                                                     be subject to the
                                                     current public
                                                     information
                                                     requirement between
                                                     the end of the six-
                                                     month holding
                                                     period and one year
                                                     after the
                                                     acquisition date of
                                                     the securities.
                              --Unlimited resales   --Unlimited resales
                               after holding         after holding
                               restricted            restricted
                               securities for two    securities of non-
                               years if they have    reporting companies
                               not been affiliates   for one year if
                               during the prior      they have not been
                               three months.         affiliates during
                                                     the prior three
                                                     months.
                              --No tolling of       --Specific provision
                               holding period as a   tolling the holding
                               result of hedging     period when engaged
                               transactions.         in certain hedging
                                                     transactions.
                                                     Maximum one-year
                                                     holding period.
Resales by Affiliates Under   --Limited resales     --Limited resales
 Rule 144.                     after holding         after holding
                               restricted            restricted
                               securities for one    securities of
                               year.                 Exchange Act
                                                     reporting companies
                                                     for six months.
                                                    --Limited resales
                                                     after holding
                                                     restricted
                                                     securities of non-
                                                     reporting companies
                                                     for one year.
                              --No tolling of       --Specific provision
                               holding period as a   tolling the holding
                               result of hedging     period when engaged
                               transactions.         in certain hedging
                                                     transactions.
                                                     Maximum one-year
                                                     holding period.
Manner of Sale Restrictions.  --Apply to resale of  --Would not apply to
                               any type of           resale of debt
                               security under Rule   securities by
                               144.                  affiliates or to
                                                     any resale by non-
                                                     affiliates.
Form 144....................  --Filing threshold    --With respect to
                               at 500 shares or      affiliates, filing
                               $10,000.              threshold at 1,000
                                                     shares or $50,000.
                                                    --No Form 144 filing
                                                     required for non-
                                                     affiliates.
Rule 145....................  --Presumptive         --Presumptive
                               underwriter           underwriter
                               provision applies     provision applies
                               to all Rule 145(a)    only to Rule 145(a)
                               transactions.         transactions
                                                     involving shell
                                                     companies, with
                                                     revised resale
                                                     requirements in
                                                     Rule 145(d).
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II. Discussion of Proposals

A. Simplification of the Preliminary Note and Text of Rule 144

    As in the 1997 proposing release, we again are proposing amendments
to simplify and clarify the Preliminary Note to Rule 144 and to
incorporate plain English principles.\42\ The current Preliminary Note
is complex and may be confusing to many security holders. These
proposed amendments to the Preliminary Note are not intended to alter
the substantive operation of the rule. The revised Preliminary Note
would briefly explain the benefits of complying with the rule. It also
would clarify that any person who sells restricted securities, and any
affiliate or any person who sells restricted securities or other
securities on behalf of an affiliate, shall not be deemed to be engaged
in a distribution of such securities and therefore not an underwriter
with respect to such securities if the sale in question is made in
accordance with all the applicable provisions of the rule. The
Preliminary Note would further clarify that, although Rule 144 provides
a safe harbor for establishing the availability of the exemption
provided by Section 4(1), it is not the exclusive means for reselling
securities without registration. Therefore, it does not eliminate or
otherwise affect the availability of any other exemption for
resales.\43\
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    \42\ In 1997, all commenters to such amendments favored the
simplification of the Preliminary Note. We note, however, that the
current proposal would result in a significantly shorter note than
the Preliminary Note proposed in 1997.
    \43\ Because we make this clarification in the Preliminary Note,
we propose to delete current Rule 144(j), which currently provides
that Rule 144 is a non-exclusive safe harbor.

In the original adopting release for Rule 144, we stated:
In view of the objectives and policies underlying the Act, the rule
shall not be available to any individual or entity with respect to
any transaction which, although in technical compliance with the
provisions of the rule, is part of a plan by such individual or
entity to distribute or redistribute securities to the public. In
such case, registration is required.\44\

    \44\ Release No. 33-5223.

    Consistent with this statement, we propose to add a statement to
the Preliminary Note that the Rule 144 safe harbor is not available
with respect to any transaction or series of transactions

that, although in technical compliance with the rule, is part of a plan
or scheme to evade the registration requirements of the Act.\45\
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    \45\ See proposed Preliminary Note to Rule 144. Similar language
can also be found in other rules such as in the Preliminary Note to
Securities Act Rule 144A [17 CFR 230.144A].
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    In addition, we are proposing changes throughout the rule to
attempt to make the rule less complex and easier to read.
Request for Comment
     Should we adopt the simplified Preliminary Note? Should we
keep more detail in the Preliminary Note than proposed? Does the
Preliminary Note need further revision? If so, how should we revise it?
     Does the proposed language of the Preliminary Note delete
or omit any information that should be addressed? Does the proposed
language change the meaning of any information in the existing
Preliminary Note?
     Should we not make any changes to the Preliminary Note?
Does the existing Preliminary Note provide useful background
information on Rule 144, the Section 2(a)(11) definition of an
underwriter, or the Section 4(1) exemption? Is the Preliminary Note
necessary or helpful? Should we eliminate it entirely?
     We also have streamlined and proposed plain English
changes to various portions of the rule other than the Preliminary
Note. Would any of the proposed language inadvertently change the
substantive requirements of the rule? Do any of the changes create
ambiguity with respect to settled issues?

B. Amendments to Holding Period Requirement in Rule 144(d) for
Restricted Securities and Reduction of Requirements Applicable to Non-
Affiliates

1. Background
    As stated above, in 1997, we reduced the Rule 144 holding periods
for restricted securities for both affiliates and non-affiliates.\46\
Before the 1997 amendments, under Rule 144(d), security holders could
sell limited amounts of restricted securities after holding their
securities for two years if they satisfied all other conditions imposed
by Rule 144.\47\ Under 144(k), non-affiliates could sell restricted
securities without limitation and be subject to no other conditions
after holding their securities for three years. The 1997 amendments to
Rule 144 reduced the two-year Rule 144(d) holding period to one year
and amended Rule 144(k) so that non-affiliates could freely sell an
unlimited amount of securities after two years, instead of three.
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    \46\ Release No. 33-7390 (Feb. 28, 1997) [62 FR 9242]. See 17
CFR 230.144(d) and (k).
    \47\ These other conditions included the availability of current
public information, the volume of sale limitations, the manner of
sale limitations, and the filing of a notice. See 17 CFR 230.144(c),
(e), (f) and (h).
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    In the 1997 proposing release, we solicited comment on whether
these holding periods should be reduced even further, with a focus on
six months for the Rule 144(d) holding period. We received numerous
comments on this issue. Twelve commenters recommended that we further
reduce the holding period to six months.\48\ Two other commenters
thought that we should maintain the holding periods adopted in
1997.\49\ Eight commenters recommended that we gain more experience
with the new holding periods created in 1997 before proposing further
amendments to those holding periods.\50\
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    \48\ See letters from American Society of Corporate Secretaries
(ASCS); Association for Investment Management & Research (AIMR);
Association of the City Bar of New York (NY City Bar); Baltimore Gas
& Electric (BG&E); Investment Company Institute (ICI); Charles
Lilienthal (Lilienthal); Loeb & Loeb; New York Bar Association (NY
Bar); Schwartz Investments; Sullivan & Cromwell; Testa, Hurwitz &
Thibeault (Testa Hurwitz); and Willkie, Farr & Gallagher (Willkie
Farr).
    \49\ See letters from Argent and The Corporate Counsel
(Corporate Counsel).
    \50\ See letters from ABA; joint letter from Goldman Sachs, JP
Morgan, Morgan Stanley and Salomon Brothers (Four Brokers); Lehman
Brothers; Merrill Lynch; Morgan Stanley; Regional Investment Bankers
Association (Regional Bankers); Securities Industry Association
(SIA); and Smith Barney.
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2. Amendments to Holding Period in Rule 144(d)
a. Six-Month Holding Period for Exchange Act Reporting Companies
    We now propose amendments to provide for a reduced holding period
under Rule 144(d) for restricted securities of Exchange Act reporting
companies held by affiliates and non-affiliates. Under the proposed
revisions to Rule 144(d), affiliates and non-affiliates would both be
permitted to resell restricted securities of Exchange Act reporting
companies \51\ publicly after holding the securities for six months,
subject to other conditions of Rule 144, when applicable, if they have
not engaged in hedging transactions with respect to the securities.\52\
We believe that shortening the holding period in this way would
increase the liquidity of privately sold securities and decrease the
cost of capital for reporting companies without compromising investor
protection.\53\ By reducing the holding period for restricted
securities, the proposed amendments could enable companies to raise
capital more often through the issuance of securities in unregistered
transactions, such as offshore offerings under Regulation S \54\ or
other transactions not involving a public offering, rather than through
financing structures such as extremely dilutive convertible securities.
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    \51\ As proposed, the six-month holding period would apply to
securities of the issuer that is, and has been for at least 90 days
before the sale, subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act. As proposed, a non-reporting issuer
would be an issuer that is not, or has not been for at least 90 days
immediately before the sale, subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act. This delineation between
reporting and non-reporting companies and the 90-day waiting period
for reporting companies are similar to the provisions in Rule
144(c).
    \52\ See proposed Rule 144(d)(1)(i). These proposed amendments
would not change the Rule 144(d) requirement that, if the acquiror
takes by purchase, the holding period will not commence until the
full purchase price is paid.
    \53\ See Section VI. of this release.
    \54\ 17 CFR 230.901 through 230.905 and Preliminary Notes.
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    The fundamental purpose of Rule 144 is to provide objective
criteria for determining whether an investor is an underwriter or has
acquired securities for distribution. At the same time, we do not want
the holding period to be longer than necessary or impose any
unnecessary costs or restrictions on capital formation. Assumption of
the economic risk of investment is a critical factor in determining
whether a security holder purchased the securities for
distribution.\55\ After observing the operation of Rule 144 since the
1997 amendments, with regard to reporting companies, we believe that
holding securities for six months is a reasonable indication that an
investor has assumed the economic risk of investment in those
securities.\56\
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    \55\ See Release No. 33-5223 (Jan. 14, 1972) [37 FR 591].
    \56\ See also letter to John W. White, Director, SEC Division of
Corporation Finance, from Keith F. Higgins, Chair, Committee on
Federal Regulation of Securities, ABA Section of Business Law (Mar.
22, 2007) (``the 2007 ABA Letter''), available at http://www.abanet.org/buslaw/committees/CL410000pub/comments/20070322000000.pdf.
 The 2007 ABA Letter recommended that the

Commission reconsider the 1997 proposals and shorten the Rule 144(d)
holding period to six months and the Rule 144(k) period to one year.
The letter pointed out that, in light of the increased volatility of
today's marketplace, holding periods of six months and one year
represent greater economic risk than they did when the current
holding periods were adopted, and they are more than long enough to
ensure that a purchaser has assumed the economic risk of investment.
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    Because we are concerned that the market does not have sufficient
information and safeguards with respect to non-reporting companies, we
propose that the holding period for restricted securities in non-
reporting companies

would remain at one year for affiliates and non-affiliates.\57\
However, as discussed below, we propose to eliminate the resale
restrictions imposed on non-affiliates of non-reporting companies after
the one-year holding period. Non-affiliates of non-reporting companies
would be subject to no other Rule 144 condition after meeting the one-
year holding period under the proposals.\58\
---------------------------------------------------------------------------

    \57\ See proposed Rule 144(d)(1)(ii). The 2007 ABA letter also
recommended that in the case of non-reporting companies, the
Commission should consider permitting resales without restriction
under Rule 144 after a one-year holding period.
    \58\ The proposals would delete paragraph (k) of Rule 144 and
permit non-affiliates to resell restricted securities of non-
reporting companies freely after one year.
---------------------------------------------------------------------------

b. Tolling Provision
    In 1990, we eliminated a Rule 144 provision that tolled the holding
period of a security holder maintaining a short position in, or any put
or other option to dispose of, securities equivalent to the restricted
securities owned by the security holder.\59\ We eliminated this
provision in conjunction with an amendment to broaden a security
holder's ability to tack the holding periods of prior owners to the
security holder's own holding period.\60\
---------------------------------------------------------------------------

    \59\ See Release No. 33-6862 (Apr. 23, 1990) [55 FR 17933].
    \60\ We reasoned that, ``a single period running from the date
of the purchase from the issuer or an affiliate of the issuer is
sufficient to prevent the distribution by the issuer of securities
to the public.'' Release No. 33-6862.
---------------------------------------------------------------------------

    Despite the prior elimination of the tolling provision, we are
concerned about the effect of hedging activities designed to shift the
economic risk of investment away from the security holder with respect
to restricted securities to be resold under Rule 144.\61\ It becomes
more difficult to conclude that the security holder who engages in
hedging transactions, and thereby transfers the economic risk of the
investment to a third party, soon after acquiring the security, has
held the security for investment purposes and not with a view to
distribution.
---------------------------------------------------------------------------

    \61\ For a discussion on hedging arrangements in prior releases,
see Section IV.B of the 1997 proposing release and Section II.A of
Release No. 33-7187 (Jul. 10, 1995) [60 FR 35645].
---------------------------------------------------------------------------

    For example, prior to the expiration of the required holding
period, a security holder may enter into an equity swap agreement with
a third party, under which the security holder exchanges the dividends
received on the restricted securities for the dividends on, for
example, a securities index. In addition, that shareholder may agree to
exchange, at a set date, any price change in the security since the
date of the agreement for any price change in the securities index. The
effect of such a transaction would be the economic equivalent of
selling the restricted securities before the holding period has expired
and purchasing the securities index.
    The concern regarding hedging transactions is particularly acute if
we provide for a six-month holding period requirement, as proposed. At
the time of the 1990 amendments, Rule 144 provided for a two-year
holding period before a security holder could sell limited amounts of
restricted securities, and a three-year period before a non-affiliate
security holder could sell an unlimited amount of the securities. The
proposed six-month holding period requirement could make the entry into
such hedging arrangements significantly easier and less costly because
they would cover a much shorter period.
    The 1997 proposing release proposed several alternatives for
addressing these concerns.\62\ Seven commenters recommended that we
adopt measures to eliminate or restrict hedging activities during the
holding period.\63\ Six commenters recommended maintaining the status
quo.\64\ Six commenters suggested that we adopt a safe harbor for
certain hedging activities that would be deemed permissible under Rule
144.\65\ Because the proposed shortening of the holding period
requirement would make hedging arrangements significantly easier, we
believe that it is appropriate to reintroduce a tolling provision to
Rule 144. Therefore, we propose to add a new paragraph to Rule 144 to
toll the holding period for restricted securities of Exchange Act
reporting companies while an affiliate or a non-affiliate is engaged in
certain hedging transactions.\66\
---------------------------------------------------------------------------

    \62\ See the 1997 proposing release. In that release, we
proposed five different alternatives. These were the following: (1)
Make the Rule 144 safe harbor unavailable to persons who hedge
during the restricted period; (2) independent of Rule 144,
promulgate a rule that would define a sale for purposes of Section 5
to include specified hedging transactions; (3) adopt a shorter
holding period during which hedging could not occur without losing
the safe harbor; (4) reintroduce a tolling provision in Rule 144
similar to the provision that was included prior to 1990; or (5)
maintain the status quo with no specific prohibition against
hedging. We believe that the proposed tolling provision in this
release offers a balanced approach to addressing hedging activities
in Rule 144.
    \63\ See letters from ABA; AIMR; Argent; ASCS; Constantine
Katsoris; Corporate Counsel; and Schwartz Investments.
    \64\ See letters from Bear Stearns; BG&E Intel; Paine Webber;
Wilkie Farr; and XXI Securities.
    \65\ See letters from Four Brokers; NY Bar; SIA; Merrill Lynch;
Citibank; and Lehman Brothers.
    \66\ See proposed Rule 144(d)(3)(xi).
---------------------------------------------------------------------------

    We also propose to expand the scope of the earlier tolling
provision, which covered only short sales and options. Since 1990, many
new risk-hedging products such as equity swaps and single stock futures
have been introduced into the market that also have the effect of
limiting or eliminating risk. We are proposing to exclude from the
holding period any period in which the security holder had a short
position, or had entered into a ``put equivalent position,'' as defined
by Exchange Act Rule 16a-1(h),\67\ with respect to the same class of
securities (or in the case of nonconvertible debt, with respect to any
nonconvertible debt securities of the same issuer).
---------------------------------------------------------------------------

    \67\ 17 CFR 240.16a-1(h). Rule 16a-1(h) defines a ``put
equivalent position'' as a derivative security position that
increases in value as the value of the underlying equity decreases,
including, but not limited to, a long put option and a short call
option position.
---------------------------------------------------------------------------

    Given that the proposed tolling provision would work in conjunction
with the Rule 144 provisions that permit tacking of holding
periods,\68\ a selling security holder would be required to determine
whether a previous owner of the securities had engaged in hedging
activities with respect to the securities, if the holding period
includes a period in which a previous owner held the securities.
Accordingly, we propose to provide that the holding period should not
include any period in which the previous owner held a short position or
put equivalent position with respect to the securities. There would be
no tolling of the previous owner's holding period, if the security
holder for whose account the securities are to be sold reasonably
believes that no such short or put equivalent position was held by the
previous owner.\69\ In other words, the proposed provision would permit
a security holder to tack the period during which the security holder
reasonably believes that the previous owner did not engage in hedging
activities to his or her holding period. We are proposing a
``reasonable belief'' standard, because it may be difficult for a
selling security holder to determine definitively whether a previous
owner had engaged in hedging activities with respect to the securities.
---------------------------------------------------------------------------

    \68\ ``Tacking'' the holding period is the ability of the
security holder to count the period that the securities are held by
a previous owner as part of his or her own holding period for the
purposes of Rule 144(d). Further discussion about tacking is located
in Section II.E.2 of this release.
    \69\ See proposed Rule 144(d)(3)(xi)(C). If the security holder
relying on Rule 144 is unable to determine that the previous owner
did not engage in hedging activities with respect to the securities,
then the security holder should omit the period in which the
security holder is not able to determine whether the previous owner
had a short position or a put equivalent position when calculating
the holding period under Rule 144(d).
---------------------------------------------------------------------------

    Also, we believe that the proposed tolling provision should not
result in a

longer holding period than under the current rule. Because the fact
that the current rule does not toll the one-year holding period while
the security holder has engaged in hedging activities has not raised
concerns, we believe, on balance, that one year between the acquisition
date of the securities from the issuer or affiliate of the issuer and
the resale date sufficiently protects against the indirect distribution
of the securities by the issuer to the public. The proposed rule would
therefore impose a ceiling on the proposed tolling provision so that,
regardless of the security holder's hedging transactions, the holding
period, as computed under all other paragraphs in Rule 144(d), would in
no event extend beyond one year.\70\ Under the proposed rules, security
holders who wish to rely on Rule 144 to resell restricted securities of
non-reporting companies already would be required to hold their
securities for at least one year, and therefore would not be subject to
the tolling provision.
---------------------------------------------------------------------------

    \70\ See proposed note to Rule 144(d)(3)(xi).
---------------------------------------------------------------------------

    In concert with the proposed tolling provision, we also propose
other related changes to Rule 144. First, we propose to require that
information be provided in Form 144 regarding any short or put
equivalent position held with respect to the securities prior to the
resale of the securities. A similar requirement was part of Form 144
before the tolling provision was eliminated in 1990.\71\
---------------------------------------------------------------------------

    \71\ See Release No. 33-5223.
---------------------------------------------------------------------------

    The second related change concerns the manner of sale requirements
in Rule 144(f), which we propose to retain for equity securities of
affiliates. One option to meet the manner of sale requirements is to
sell the securities through ``brokers' transactions'' within the
meaning of Section 4(4) of the Securities Act.\72\ Rule 144(g)
specifies transactions by a broker that are deemed to be included as
``brokers' transactions.'' One criteria for these ``brokers'
transactions'' is that the broker, after reasonable inquiry, is not
aware of circumstances indicating that the person for whose account the
securities are sold is an underwriter with regard to the securities or
that the transaction is a part of a distribution of the securities of
an issuer. Existing Note (ii) of Rule 144(g)(3) \73\ contains a list of
some questions that brokers should ask in order to satisfy this
inquiry. We are proposing to amend Note (ii) to Rule 144(g)(3) to
explain that in order to satisfy the reasonable inquiry requirement, a
broker should also inquire into, if the securities have been held for
less than one year, the existence and character of any short position
or put equivalent position with regard to the securities held by the
person for whose account the securities are to be sold, whether such
person has made inquiries into the existence and character of any short
position or put equivalent position held by the previous owner of the
securities, and the results of such person's inquiries.\74\ We believe
that an inquiry into such positions would not impose an undue burden on
brokers as part of their existing inquiry. We believe that this
proposed amendment would be a valuable component in determining and
monitoring whether security holders have met their holding period
requirement under Rule 144.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 77d(4).
    \73\ 17 CFR 230.144(g)(3).
    \74\ See proposed Paragraph 2 of Note 2 to Rule 144(g)(3).
---------------------------------------------------------------------------

3. Significant Reduction of Requirements Applicable to Non-Affiliates
    Non-affiliates currently are required to hold their restricted
securities for one year under Rule 144(d). During this one-year period,
non-affiliates are not permitted to resell any securities under the
rule. When selling restricted securities that have been held for
between one and two years, non-affiliates, like affiliates, are subject
to all other applicable conditions of Rule 144, including the
requirement that current information be publicly available about the
issuer of the securities, limitations on the amount of securities that
can be sold in any three-month period, manner of sale limitations and
Form 144 filing requirements.\75\ We believe that, for the most part,
holding the securities for the length of the holding period should be a
sufficient indication that these non-affiliates have assumed the
economic risk of investment in those securities.\76\ As such, we
believe that it is appropriate to reduce the complexity of resale
restrictions that may inhibit sales by, and impose costs on, non-
affiliates.\77\
---------------------------------------------------------------------------

    \75\ See 17 CFR 230.144(b) and (d). A person who has held
restricted securities for more than two years and has not been an
affiliate for at least the most recent three months may resell those
securities without complying with Rule 144's other requirements. See
17 CFR 230.144(k)..
    \76\ We have concerns, however, about the indirect distribution
of securities through resales by non-affiliates when those non-
affiliates hold securities in shell companies. As discussed below,
we propose to codify the staff's interpretive position that security
holders cannot rely on Rule 144 in the resale of securities of
reporting and non-reporting shell companies.
    \77\ While the SEC Advisory Committee on Smaller Public
Companies did not specifically address Rule 144 in its final report,
the Committee acknowledged the need to reduce the complexity of our
rules for the benefit of smaller companies. See Final Report of the
Advisory Committee on Smaller Public Companies to the United States
Securities and Exchange Commission (Apr. 23, 2006), available at
http://www.sec.gov/info/smallbus/acspc.shtml. See also Report on the

Advisory Committee on the Capital Formation and Regulatory Process
(Jul. 24, 1996) (suggesting that the SEC minimize the resale
restrictions on restricted securities), available at http://www.sec.gov/news/studies/capform.htm
.

---------------------------------------------------------------------------

    Because Rule 144 is relied upon by many individuals to resell their
restricted securities, we believe that it would be particularly helpful
to streamline and reduce the complexity of the rule as much as possible
while retaining its integrity. We therefore propose to reduce the
restrictions for a person who is not an affiliate of the issuer at the
time of the sale of the securities and has not been an affiliate during
the three months prior to the sale of the securities. These non-
affiliates with restricted securities of reporting companies would be
permitted to resell their securities after their holding period,
subject only to the requirement in Rule 144(c) that current information
regarding the issuer of the securities be publicly available.\78\ We
preliminarily believe that retaining the current public information
requirement would continue to be important in this instance so that the
market has adequate information regarding the issuer of the securities
and also would not impose an undue burden on a non-affiliate selling
security holder. Non-affiliates of both reporting and non-reporting
companies would be able to freely resell their restricted securities
publicly one year after the acquisition date of the securities (as
computed under Rule 144(d)) and without having to comply with any of
the other conditions of the rule.\79\
---------------------------------------------------------------------------

    \78\ See proposed Rule 144(b)(1)(i). As set forth in paragraphs
(c) and (d) of the proposed rules, a reporting company is an issuer
that is, and has been for at least 90 days immediately before the
sale, subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act. A non-reporting company is an issuer that is
not, or has not been for at least 90 days immediately before the
sale, subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act.
    \79\ See proposed Rule 144(b)(1).
---------------------------------------------------------------------------

    The proposed requirements for the resale of restricted securities
held by affiliates and non-affiliates under Rule 144 can be summarized
as follows:

----------------------------------------------------------------------------------------------------------------
                                                                             Non-affiliate (and has not been an
                                    Affiliate or person selling on behalf     affiliate during the prior three
                                               of an affiliate                            months)
----------------------------------------------------------------------------------------------------------------
Restricted Securities of           During six-month holding period*--no    During six-month holding period*--no
 Reporting Companies.               resales under Rule 144 permitted.       resales under Rule 144 permitted.
                                   After six-month holding period*--may    After six-month holding period* but
                                    resell in accordance with all Rule      before one year-- may resell in
                                    144 requirements including:             accordance with the current public
                                    Current public information,     information requirement.
                                    Volume limitations,            After one year--unlimited public
                                    Manner of sale for equity       resale under Rule 144; need not
                                    securities, and                         comply with other Rule 144
                                    Filing of Form 144.             requirements.
Restricted Securities of Non-      During one-year holding period--no      During one-year holding period--no
 Reporting Companies.               resales under Rule 144 permitted.       resales under Rule 144 permitted.
                                    Tolling provision does not apply.       Tolling provision does not apply.
                                   After one-year holding period--may      After one-year holding period--
                                    resell in accordance with all Rule      unlimited public resale under Rule
                                    144 requirements except holding         144; need not comply with other Rule
                                    period, including:                      144 requirements.
                                    Current public information,
                                    Volume limitations,
                                    Manner of sale for equity
                                    securities, and
                                    Filing of Form 144.
----------------------------------------------------------------------------------------------------------------
* Such holding period may be longer than six months (but not longer than one year), depending on hedging
  activities.

Request for Comment
     Should the holding period requirement for restricted
securities of reporting companies be shortened to six months? Is six
months sufficient time to indicate that the affiliate has not acquired
the securities for distribution? Are there any concerns that six months
would lead to an increase in abuse with regard to the resale of
restricted securities? Should a six-month holding period requirement
apply to restricted securities of reporting companies held by non-
affiliates as well as affiliates? If you suggest that either affiliates
or non-affiliates should be required to comply with a holding period
that is shorter than six months, what objective criteria demonstrate
that such holding period is sufficient to indicate that the security
holder has not acquired the securities for distribution?
     Should the one-year holding period requirement continue to
apply to restricted securities of non-reporting companies held by non-
affiliates as well as affiliates? Should the holding period for
restricted securities of non-reporting companies also be shortened to
six months? Should affiliates and non-affiliates of non-reporting
companies be subject to the same holding period, or should they be
required to comply with a longer or shorter holding period?
     For the purposes of the holding period, is it appropriate
that a reporting company is an issuer that is, and has been for at
least 90 days immediately before the sale, subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act? Is there a
more appropriate formulation?
     Should we amend Regulation S to conform the one-year
distribution compliance period in Rule 903(b)(3)(iii) \80\ to the
proposed six-month holding period? When Regulation S was amended in
1998,\81\ the distribution compliance period applicable to U.S.
companies (Category 3 issuers) was conformed to the one-year holding
period under Rule 144. The purpose of the distribution compliance
period in Regulation S is to ensure that during the offering period and
the subsequent aftermarket trading that takes place offshore, the
persons relying on the Rule 903 safe harbor (issuers, distributors and
their affiliates) are not engaged in an unregistered, non-exempt
distribution into the United States capital markets. We are now
proposing to shorten the Rule 144 holding period for the resale of
restricted securities of Exchange Act reporting companies to six
months. Should we amend Regulation S to conform the one-year
distribution compliance period for reporting U.S. companies under Rule
903(b)(3)(iii) to the proposed six-month holding period under Rule 144?
In light of problematic practices with respect to offerings of U.S.
companies under Regulation S, should the distribution compliance period
for reporting U.S. companies remain one year consistent with the
longest distribution compliance period that would be applicable to
securities offered under Regulation S and with the default one-year
holding period under Rule 144?
---------------------------------------------------------------------------

    \80\ 17 CFR 230.903(b)(3)(iii).
    \81\ Offshore Offers and Sales, Release No. 33-7505 (Feb. 17,
1998).
---------------------------------------------------------------------------

     Is it appropriate to retain the current public information
requirement for non-affiliates with restricted securities in reporting
companies during the period between the end of the six-month holding
period (which may be longer depending on hedging activities) and one
year after the securities were acquired? Should non-affiliates be
subject to the current public information condition for a longer period
of time? If so, how long?
     Should non-affiliates with restricted securities of non-
reporting companies remain subject after the holding period to all
conditions of Rule 144 for an additional year, as under the current
rule? Are there any specific conditions to which non-affiliates with
restricted securities of reporting companies should still be subject
after the holding period, other than the current public information
requirement? Are there any specific conditions to which non-affiliates
with restricted securities of non-reporting companies should still be
subject after the holding period? For example, should non-affiliates
continue to be subject to volume limitations during a specified period
of time after the holding period? What should that specified time be
(e.g., six months, one year)? Should non-affiliates be subject to some
sort of notice requirement when they have made a sale above the
specified threshold amount? What are the benefits if non-affiliates are
still subject to such requirements or concerns if they are not?
     Is the proposed language requiring that the security
holder toll the holding period if the holder had ``a short position, or
had entered into a `put equivalent position' as defined by Exchange Act
Rule 16a-1(h)'' appropriate? Does the proposed tolling provision
sufficiently cover the hedging transactions that would result in the
circumvention of the purposes of Rule 144? Does it cover too few or too
many hedging transactions? If too many, what specific forms of hedging
transactions should be excluded and why? If too few,

what other forms of hedging transactions should be covered?
     Given that the proposed tolling provision is not
applicable if the security holder has held the securities for one year,
would a security holder be able to determine whether and how long
previous owners entered into hedging transactions in order to properly
calculate the holding period? Would the proposed tolling provision make
it too difficult to determine whether a security holder has complied
with the holding period requirement? By what other methods could we
ensure that persons do not attempt to skirt the purposes of Rule 144 by
engaging in hedging transactions?
     Should security holders be held to a ``reasonable belief''
standard with regard to the previous owner's hedging activities, or is
a ``bona fide belief'' or some other standard more appropriate? Should
we specify what statements or documentation could security holders rely
upon in order to formulate a reasonable belief that the previous owner
has not engaged in hedging activities in the securities? If so, what
documentation should they be permitted to rely upon?
     Is it unnecessarily restrictive to require tolling if the
security holder has engaged in hedging transactions with respect to any
of his or her securities of the same class (or, in the case of
nonconvertible debt, with respect to any nonconvertible debt securities
of the same issuer)? Are there any circumstances in which the proposed
tolling provision would not be appropriate? If so, describe the
circumstances and explain why the proposed tolling provision would not
be appropriate.
     Should we address hedging in a different manner? For
example, should we preclude security holders who hedge securities
during the holding period from relying on Rule 144? Should we treat
such hedging transactions as ``sales'' of the securities?
     Should the tolling provision apply only during the first
year after the date of the acquisition of the securities from the
issuer or affiliate? Is one year the appropriate time period, or should
the period be longer than one year?
     Is there any reason why we should not amend Note (ii) to
Rule 144(g)(3) to add that if the securities have been held for less
than one year, the broker's reasonable inquiry should also include an
inquiry into the existence and character of any short position or put
equivalent position with regard to the securities held by the person
for whose account the securities are to be sold and whether that person
has made inquiries into the existence and character of any short
position held by a previous owner with regard to the securities? Is the
proposed amendment sufficiently clear? Does the proposed amendment
place an undue burden on the broker or the holder of the securities?
What level of inquiry should the brokers be required to conduct into
the security holder's hedging transactions or the previous owner's
hedging transactions? What statements or documentation, if any,
regarding hedging transactions should security holders be required to
provide to brokers?
     What level of due diligence did brokers conduct to
determine compliance with the holding period requirement before we
eliminated the Rule 144 tolling provision in 1990? Were there any
problems with tracking hedging positions when the tolling provision was
in place, especially in relation to the limited provisions that
permitted tacking that existed prior to 1990?
     Is there any reason we should not amend Form 144 to
require disclosure of hedging transactions? Is the proposed disclosure
appropriate and should it be changed in any way?

C. Elimination of Manner of Sale Limitations for Debt Securities

    Rule 144(f) currently requires that securities be sold in
``brokers'' transactions,'' \82\ or in transactions directly with a
``market maker,'' as that term is defined in Section 3(a)(38) of the
Exchange Act.\83\ Additionally, the rule prohibits a seller from: (1)
soliciting or arranging for the solicitation of orders to buy the
securities in anticipation of, or in connection with, the Rule 144
transaction; or (2) making any payment in connection with the offer or
sale of the securities to any person other than the broker who executes
the order to sell the securities. These manner of sale limitations do
not apply to securities sold for the account of a non-affiliate of an
issuer after the two-year period in Rule 144(k) has elapsed.\84\
---------------------------------------------------------------------------

    \82\ Current Rule 144(g) defines the term for purposes of Rule
144.
    \83\ 15 U.S.C. 78c(a)(38).
    \84\ The manner of sale requirements also do not apply to
securities sold for the account of the estate of a deceased person
or for the account of a beneficiary of such estate, provided the
estate or beneficiary is not an affiliate of the issuer.
---------------------------------------------------------------------------

    The limitations on manner of sale were intended to assure that
special selling efforts and compensation arrangements usually
associated with a distribution are not present in a Rule 144 sale.\85\
In the 1997 proposing release, we proposed to eliminate the manner of
sale requirement entirely. Commenters were split as to that proposal.
Eleven commenters supported the proposal,\86\ while seven commenters
opposed it.\87\ Commenters who opposed the proposal noted that brokers
act as gatekeepers to ensure selling shareholders are complying with
the requirements of Rule 144. Two commenters supported the proposal
because transfer agents would not transfer shares without a release
from the issuer.\88\
---------------------------------------------------------------------------

    \85\ Release No. 33-5186 (Sept. 10, 1971) [36 FR 18586].
    \86\ See letters from ABA; AT&T ASCS; Intel; BG&E Lehman
Brothers; Morgan Stanley; NY Bar; NY City Bar; Sullivan & Cromwell;
and Testa Hurwitz.
    \87\ See letters from Corporate Counsel; Matthew Crain;
Constantine Katsoris; Merrill Lynch; Regional Bankers; SIA; and
Smith Barney.
    \88\ See letters from ASCS and BG&E.
---------------------------------------------------------------------------

    We agree that, as financial intermediaries, brokers serve an
important function as gatekeepers for promoting compliance with Rule
144,\89\ and we are concerned that eliminating the manner of sale
limitations for equity securities may lead to abusive transactions.
However, we believe that the fixed income securities market does not
raise the same concerns, and that the manner of sale provision may
place an unnecessary burden on the resale of such securities.\90\ Such
securities generally are traded in dealer transactions in which the
dealer seeks buyers for securities to fill sell orders instead of
through the means prescribed in Rule 144(f). Thus, we are proposing
that the manner of sale limitations would not apply to resales of debt
securities.\91\ This would allow holders of debt securities greater
flexibility in the resale of their securities, including, as discussed
in the 1997 proposing release, the option to privately negotiate the
resale of the securities.\92\
---------------------------------------------------------------------------

    \89\ Brokers also must comply with the criteria set forth in
Rule 144(g) in order to claim the ``brokers'' transactions''
exemption under Section 4(4) of the Securities Act.
    \90\ See also the 2007 ABA Letter.
    \91\ See proposed Rule 144(f). As discussed above, we also
propose to eliminate the manner of sale limitations for resales by
non-affiliates.
    \92\ Section III.C. of the 1997 proposing release.
---------------------------------------------------------------------------

    In addition, we believe that non-participating preferred stock,
which has debt-like characteristics, and asset-backed securities, where
the predominant purchasers are institutional investors, including
financial institutions, pension funds, insurance companies, mutual
funds and money managers,\93\ should be treated similarly to debt
securities. Thus, we have included these securities in the ``debt
securities'' category for the

purpose of the proposed revisions to the manner of sale limitations in
Rule 144.\94\
---------------------------------------------------------------------------

    \93\ See Release No. 33-8518 (Dec. 22, 2004) [70 FR 1506].
    \94\ See proposed Rule 144(f). This proposal is for Rule 144(f)
purposes only and does not affect the classification of these
securities as debt or equity for other purposes. This treatment is
consistent with the treatment of such securities under Regulation S.
See Release No. 33-7505.
---------------------------------------------------------------------------

Request for Comment
     Would eliminating the manner of sale requirement be
appropriate for debt securities, as proposed? Is there a need for
brokers to serve as an intermediary for such a secondary market? Would
transfer agents be able to adequately confirm compliance with Rule 144?
     Should we eliminate the manner of sale requirement for
equity securities as well? If so, why? What problems or abuses may
arise if the proposal were extended to equity securities? Would removal
of the manner of sale requirements for equity securities diminish
security transaction transparency by encouraging more privately
negotiated transactions? If so, would the markets be adversely
affected, particularly for stocks of smaller companies and more thinly
traded securities?
     Are there other purposes served by the manner of sale
requirements that justify retaining those requirements? How would the
removal of the manner of sale requirements affect participants, such as
transfer agents, brokers and market makers, in Rule 144 transactions?
Would transfer agents assume a greater role in determining compliance
with the resale provisions? How would removing the manner of sale
limitations affect brokers' obligations with respect to their ability
to qualify for the ``brokers' transactions'' exemption under Section
4(4) of the Securities Act?
     Is it appropriate to include asset-backed securities and
non-participating preferred stock as debt securities for the purposes
of this rule? Are there any other types of securities to which the
limitations on manner of sale should not apply? If so, why?
     Are there any other conditions in Rule 144 to which debt
securities should not be subject? For example, should we raise the
volume limitations in Rule 144(e) for debt securities, or eliminate the
volume limitations for debt securities altogether? \95\
---------------------------------------------------------------------------

    \95\ See discussion in 2007 ABA Letter.
---------------------------------------------------------------------------

D. Increase of the Form 144 Filing Thresholds

    Rule 144(h) requires a selling security holder to file Form 144 if
the security holder's intended sale exceeds either 500 shares or
$10,000 within a three-month period.\96\ These filing thresholds have
been in place since 1972.\97\ In the 1997 proposing release, we
proposed to increase the filing thresholds to 1,000 shares or $40,000.
Thirteen commenters supported raising the filing threshold and no
commenters opposed it.\98\ Six commenters suggested that we eliminate
Form 144.\99\ One commenter suggested raising the threshold to
$100,000.\100\ Another commenter suggested raising it to $250,000.\101\
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    \96\ 17 CFR 230.144(h).
    \97\ The 500 share and $10,000 thresholds have remained constant
since Rule 144's inception in 1972. However, in 1978, we shortened
the relevant time period during which sales volume is to be
calculated from six months to three months to conform to a change
shortening the time period in which sale volume should be calculated
for the purposes of the Rule 144 volume limitation condition from
six months to three months. Release No. 33-5995 (Nov. 8, 1978) [43
FR 54229].
    \98\ See letters from ABA; ASCS; AT&T BG&E Corporate Counsel;
Merrill Lynch; Morgan Stanley; NY Bar; NY City Bar; Regional
Bankers; SIA; Smith Barney; and Sullivan & Cromwell.
    \99\ See letters from ABA; Benesch, Friedlander, Coplan &
Aranoff (Benesch Friedlander); NY Bar; NY City Bar; and Sullivan &
Cromwell.
    \100\ See letter from ABA.
    \101\ See letter from NY Bar.
---------------------------------------------------------------------------

    As discussed above, under the proposed rules, only affiliates of
the issuer would be required to file a notice of proposed sale on Form
144 when relying on Rule 144. We now are proposing to increase the Form
144 filing thresholds to trades of 1,000 shares or $50,000 within a
three-month period for affiliates.\102\ The purpose of raising the
dollar threshold to $50,000 is to adjust for inflation since 1972.\103\
We believe that the 1,000 share threshold is an appropriate alternate
threshold that would capture trades which merit notice but for which
the dollar amount of the trades may not be as significant. In addition
to this proposed amendment to Rule 144(h), we solicit comment below on
how best to coordinate the filing deadline for Form 144 with the filing
deadline for Form 4 and permit affiliates subject to Section 16 filing
requirements to, at their option, satisfy their Form 144 filing
requirements by timely filing a Form 4 to report the sale of their
securities.
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    \102\ See proposed Rule 144(h).
    \103\ The adjustment would be approximately $42,000 if based on
the Personal Consumption Expenditures Chain-Type Price Index, as
published by the Department of Commerce. In addition, if based on
the Consumer Price Index, the adjustment would be approximately
$50,000. To achieve a round number, we are proposing to raise the
filing threshold to $50,000.
---------------------------------------------------------------------------

Request for Comment
     Should the dollar threshold be higher or lower than
proposed (e.g., $25,000, $75,000, or $100,000)? Should the threshold
based on the number of shares be higher or lower than proposed (e.g.,
500, 1,500, 2,000 or 2,500 shares)?
     Should the threshold be based solely on the number of
shares sold, or solely on the dollar amount of the transaction? Should
it be based on a formula using both variables? Should we allow for
adjustments to the dollar amount threshold every five years that would
reflect changes due to inflation?
     Should thresholds be based on a different number such as a
percentage of the company's public float, or a different self-adjusting
index?
     If you believe the thresholds should be different, please
explain why your suggested threshold would be appropriate, including
information and data to support your beliefs.

E. Codification of Several Staff Positions

    The following are proposed codifications of staff positions issued
by the Division of Corporation Finance. These codifications should
simplify the rule by making these staff positions more transparent and
readily available to the public. The first three proposals were
included in the 1997 proposing release. The last four proposals are new
proposed codifications of existing staff positions.
1. Securities Acquired Under Section 4(6) of the Securities Act Are
Considered ``Restricted Securities''
    The 1997 proposing release proposed to codify the Division of
Corporation Finance's interpretive position that securities acquired
from the issuer pursuant to an exemption from registration under
Section 4(6) of the Securities Act \104\ are considered ``restricted
securities'' under Rule 144(a)(3).\105\ We did not receive any comments
on this proposal.
---------------------------------------------------------------------------

    \104\ 15 U.S.C. 77d(6). Section 4(6) was included in the
Securities Act pursuant to the Small Business Investment Incentive
Act of 1980 [Pub. L. No. 96-477 (Oct. 21, 1980)].
    \105\ 17 CFR 230.144(a)(3). See the Division of Corporation
Finance's Compliance and Disclosure Interpretations on Rule 144
(Updated April 2, 2007), at Section 104 (Rule 144(a)(3)), Question
No. 104.03.
---------------------------------------------------------------------------

    Section 4(6) provides for an exemption from registration for an
offering that does not exceed $5,000,000 that is made only to
accredited investors, that does not involve any advertising or public
solicitation by the issuer or anyone acting on the issuer's behalf and
for which a Form D has been filed.\106\ Because the resale status of
securities acquired in Section 4(6) exempt transactions should be the
same as securities received in other non-public offerings that are
included in the definition of restricted securities, we

believe that securities acquired under Section 4(6) should be defined
as restricted securities for purposes of Rule 144. Therefore, we are
proposing an amendment to Rule 144 to codify the staff's position that
securities acquired under Section 4(6) of the Securities Act are
``restricted securities'' under Rule 144(a)(3).\107\
---------------------------------------------------------------------------

    \106\ See 15 U.S.C. 77d(6).
    \107\ See proposed Rule 144(a)(3)(viii).
---------------------------------------------------------------------------

2. Tacking of Holding Periods When a Company Reorganizes Into a Holding
Company Structure
    The 1997 proposing release also proposed codifying the Division of
Corporation Finance's interpretive position that holders may tack the
Rule 144 holding period in connection with transactions made solely to
form a holding company.\108\ In ``tacking,'' holders may count the
period that the securities are held before the transaction made to form
a holding company as part of period they hold the securities used to
meet the Rule 144(d) requirement. We did not receive any comments on
this proposal.
---------------------------------------------------------------------------

    \108\ Morgan Olmstead (Jan. 8, 1988).
---------------------------------------------------------------------------

    We are proposing again to codify that interpretive position.\109\
This provision would permit tacking of the holding period if the
following three conditions are satisfied:
---------------------------------------------------------------------------

    \109\ See proposed Rule 144(d)(3)(ix).
---------------------------------------------------------------------------

     The newly formed holding company's securities are issued
solely in exchange for the securities of the predecessor company as
part of a reorganization of the predecessor company into a holding
company structure;
     Security holders receive securities of the same class
evidencing the same proportional interest in the holding company as
they held in the predecessor company, and the rights and interests of
the holders of such securities are substantially the same as those they
possessed as holders of the predecessor company's securities; and
     Immediately following the transaction, the holding company
has no significant assets other than securities of the predecessor and
its existing subsidiaries and has substantially the same assets and
liabilities on a consolidated basis as the predecessor had before the
transaction.
    In such transactions, tacking would be appropriate because the
securities being exchanged are substantially equivalent, and there is
no significant change in the economic risk of the investment in the
restricted securities. We believe that the codification of this
interpretation and as well as the codification of the following two
interpretations below would assist security holders in determining
whether they have met the Rule 144(d) holding period requirement.
3. Tacking of Holding Periods for Conversions and Exchanges of
Securities
    The 1997 proposing release proposed codifying the Division of
Corporation Finance's position that 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.\110\ As noted in the 1997 release, Rule
144 does not state whether the surrendered securities must have been
convertible by their terms in order for tacking to be permitted, which
led to some confusion on how to calculate the Rule 144 holding period.
We did not receive any comments on this proposal.
---------------------------------------------------------------------------

    \110\ See Planning Research Corp. (Dec. 8, 1980).
---------------------------------------------------------------------------

    We are proposing again these amendments to Rule 144(d)(3)(ii).\111\
In addition, we are proposing a note to this provision that clarifies
the Division's position that if:
---------------------------------------------------------------------------

    \111\ See proposed Rule 144(d)(3)(ii).
---------------------------------------------------------------------------

     The original securities do not permit cashless conversion
or exchange by their terms;
     The parties amend the original securities to allow for
cashless conversion or exchange; and
     The security holder provides consideration, other than
solely securities of the issuer, for that amendment,

then shares will be deemed to have been acquired on the date that the
original securities were so amended.\112\
---------------------------------------------------------------------------

    \112\ See Morgan Stanley & Co., Inc. (June 30, 1993).
---------------------------------------------------------------------------

4. Cashless Exercise of Options and Warrants
    Several commenters responding to the 1997 release suggested that we
codify the Division of Corporation Finance's position that, upon a
cashless exercise of options or warrants, the newly acquired underlying
securities are deemed to have been acquired when the corresponding
options or warrants were acquired, even if the options or warrants
originally did not provide for cashless exercise by their terms.\113\
We are proposing to revise Rule 144 to codify that position in response
to those comments.\114\
---------------------------------------------------------------------------

    \113\ See the Division of Corporation Finance's Compliance and
Disclosure Interpretations on Rule 144 (Updated April 2, 2007), at
Section 212 (Rule 144(d)(3)), Interpretation No. 212.01.
    \114\ See proposed Rule 144(d)(3)(x).
---------------------------------------------------------------------------

    In addition, we are proposing to add two notes to this new
paragraph. The first note would codify the Division's position that if:
     The original options or warrants do not permit cashless
exercise by their terms; and
     The holder provides consideration, other than solely
securities of the issuer, to amend the options or warrants to allow for
cashless exercise,

then the options or warrants would be deemed to have been acquired on
the date that the original options or warrants were so amended.\115\
This treatment is analogous to our treatment of conversions and
exchanges.
---------------------------------------------------------------------------

    \115\ See Morgan Stanley & Co., Inc. (June 30, 1993).
---------------------------------------------------------------------------

    The second note would codify the Division's position that the grant
of certain options or warrants that are not purchased for cash or
property does not create any investment risk in the holder in a manner
that would justify identification of the holding period of the
securities received upon exercise of the options or warrants with that
of the options or warrants.\116\ This is the case for employee stock
options. The note would clarify that in such instances, the holder
would not be allowed to tack the holding period of the option or
warrant and would be deemed to have acquired the underlying securities
on the date the option or warrant was exercised, if the conditions of
Rule 144(d)(1) and Rule 144(d)(2) are met at the time of exercise.
---------------------------------------------------------------------------

    \116\ See Morgan Stanley & Co., Inc. (June 30, 1993) and Malden
Trust Corporation (Feb. 21, 1989).
---------------------------------------------------------------------------

5. Aggregation of Pledged Securities
    In response to suggestions from commenters, we are proposing to add
a note to Rule 144(e)(2)(ii) \117\ that would address calculation of
the volume of securities that a pledgee of securities may sell.\118\ It
would codify the Division of Corporation Finance's position that, so
long as the pledgees are not the same ``person'' under Rule 144(a)(2),
a pledgee of securities may sell the pledged securities without having
to aggregate the sale with sales by other pledgees of the same
securities from the same pledgor, as long as there is no concerted
action by those pledgees.\119\

As an example, assume that a security holder (the pledgor) pledges the
securities he owns in Company A to two banks, Bank X and Bank Y (the
pledgees). If the pledgor defaults:
---------------------------------------------------------------------------

    \117\ 17 CFR 230.144(e)(2)(ii).
    \118\ If the proposed amendments eliminating certain
requirements for non-affiliates are adopted, then the volume
limitations in Rule 144(e) would apply only to affiliates.
    \119\ See the Division of Corporation Finance's Compliance and
Disclosure Interpretations on Rule 144 (Updated April 2, 2007), at
Section 216 (Rule 144(e)(3)), Interpretation No. 216.01. See also
Standard Chartered Bank (June 22, 1987).
---------------------------------------------------------------------------

     Upon default, Bank X does not have to aggregate its sales
of Company A securities with Bank Y's sales of Company A securities
unless Bank X and Bank Y are acting in concert, but
     Bank X individually still must aggregate its sales with
the pledgor's sales, and
     Bank Y individually still must aggregate its sales with
the pledgor's sales.
    Provided that the loans and pledges are bona fide transactions and
there is no concerted action among pledgees and no other aggregation
provisions under Rule 144(e) apply, we do not believe that extra
burdens on pledgees to track and coordinate resales by other pledgees
are warranted.
6. Treatment of Securities Issued by ``Reporting and Non-reporting
Shell Companies''
    A blank check company is a company that:
     Is in the development stage;
     Has no specific business plan or purpose, or has indicated
that its business plan is to merge with or acquire an unidentified
third party; and
     Issues penny stock.\120\
---------------------------------------------------------------------------

    \120\ 17 CFR 230.419. The term ``penny stock'' is defined in 17
CFR 240.3a51-1.
---------------------------------------------------------------------------

    Such companies historically have provided opportunity for abuse of
the federal securities laws, particularly by serving as vehicles to
avoid the registration requirements of the securities laws.\121\ Rule
419 under the Securities Act \122\ was adopted in 1992 to control the
extent to which such companies are able to access funds from a public
offering.
---------------------------------------------------------------------------

    \121\ See Release No. 33-6932 (Apr. 28, 1992) [57 FR 18037].
    \122\ 17 CFR 230.419.
---------------------------------------------------------------------------

    In 2005, we amended Securities Act Rule 405 to define a ``shell
company'' to mean a registrant, other than an asset-backed issuer, that
has:
    (1) no or nominal operations; and
    (2) either:
     no or nominal assets;
     assets consisting solely of cash and cash equivalents; or
     assets consisting of any amount of cash and cash
equivalents and nominal other assets.\123\
---------------------------------------------------------------------------

    \123\ See 17 CFR 230.405 and Release No. 33-8587 (Jul. 15, 2005)
[70 FR 42234].
---------------------------------------------------------------------------

    On January 21, 2000, the Division of Corporation Finance concluded
in a letter to NASD Regulation, Inc. that Rule 144 is not available for
the resale of securities issued by companies that are, or previously
were, blank check companies.\124\ In an effort to curtail misuse of
Rule 144 by security holders through transactions in the securities of
blank check companies, we are proposing to codify this position with
some modifications.\125\ First, we propose to modify the staff
interpretation to address securities of all companies, other than
asset-backed issuers, that meet the definition of ``shell company.''
\126\ These companies would include any company, including a blank
check company, that meets the definition. The category of companies to
whom the staff interpretation is proposed to apply would be broader
than the definition of ``shell company'' in Rule 405, however, as it
would apply to any ``issuer'' meeting that standard, whereas the Rule
405 definition refers only to ``registrants.'' We believe that this
provision better describes the companies that are the subject of the
abuse that the staff interpretation is designed to address. For the
purposes of the discussion in this release only, we call these
companies, ``reporting and non-reporting shell companies.'' Under the
proposed rule, a person who wishes to resell securities issued by a
company that is, or was, a reporting or a non-reporting shell company,
other than a business combination related shell company,\127\ would not
be able to rely on Rule 144 to sell the securities.
---------------------------------------------------------------------------

    \124\ Ken Worm, NASD Regulation, Inc. (Jan. 21, 2000). In that
letter, the Division stated that ``transactions in blank check
company securities by their promoters or affiliates * * * are not
the kind of ordinary trading transactions between individual
investors of securities already issued that Section 4(1) [of the
Securities Act] was designed to exempt.'' The Division stated its
view that ``both before and after the business combination or
transaction with an operating entity or other person, the promoters
or affiliates of blank check companies, as well as their
transferees, are `underwriters' of the securities issued. * * * Rule
144 would not be available for resale transactions in this
situation, regardless of technical compliance with that rule,
because these resale transactions appear to be designed to
distribute or redistribute securities to the public without
compliance with the registration requirements of the Securities
Act.''
    \125\ See proposed Rule 144(i).
    \126\ See proposed paragraph (i)(1) of Rule 144.
    \127\ ``Business combination related shell company'' is defined
in Securities Act Rule 405.
---------------------------------------------------------------------------

    Second, because the reasons for prohibiting reliance on Rule 144 do
not appear to be present after a reporting company has ceased to be a
shell company and there is adequate disclosure in the market that would
serve to protect against further abuse,\128\ we propose to permit the
availability of Rule 144 for resales under provisions that are similar
to our provisions that permit the use of a Securities Act Form S-8
\129\ registration statement by reporting companies that were formally
shell companies.\130\ We propose to permit reliance on Rule 144 for
resales by a security holder when:
---------------------------------------------------------------------------

    \128\ We are not proposing a comparable provision for security
holders of non-reporting companies that have ceased to be shell
companies because they have business operations or more than nominal
non-cash assets. We have not proposed a comparable provision for
these companies, because we preliminarily believe that the
information that a non-reporting company would provide to the market
does not adequately protect against potential abuse in those
situations.
    \129\ 17 CFR 239.16b.
    \130\ See Release No. 33-8587. These provisions are consistent
with the Form S-8 provisions for shell companies, except that Form
S-8 requires a former shell company to wait 60 days, rather than 90
days, before it is able to use the form to register securities.
---------------------------------------------------------------------------

     the issuer of the securities that was formally a reporting
or non-reporting shell company has ceased to be a shell company;
     the issuer of the securities is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act;
     the issuer of the securities has filed all reports and
material required to be filed during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports and materials); and
     at least 90 days have elapsed from the time the issuer
files current ``Form 10 information'' with the Commission reflecting
its status as an entity that is not a shell company.
    Form 10 information is equivalent to information that a company
would be required to file if it were registering a class of securities
on Form 10, Form 10-SB, or Form 20-F under the Exchange Act,\131\ and
such information is ordinarily filed on Form 8-K.\132\
---------------------------------------------------------------------------

    \131\ 17 CFR 249.210; 17 CFR 249.210b; and 17 CFR 249.220f.
    \132\ 17 CFR 249.308. Items 2.01(f) and 5.01(a)(8) of Form 8-K
require a company in a transaction where the company ceases being a
shell company to file a current report on Form 8-K containing the
information (or identifying the previous filing in which the
information is included) that would be required in a registration
statement on Form 10 or Form 10-SB to register a class of securities
under Section 12 of the Exchange Act.
---------------------------------------------------------------------------

    Under the proposed amendments, an affiliate security holder selling
control securities would have to wait at least 90 days before being
permitted to resell the securities, and a security holder selling
restricted securities would be required to wait the duration of the
holding period before being permitted to resell the securities.\133\
The 90-day delay or

the duration of the holding period would provide the market with time
to absorb the Form 10 information filed with the Commission regarding
the company, and the 90-day delay here is consistent with the 90-day
waiting period in Rule 144(c) and proposed Rule 144(d).
---------------------------------------------------------------------------

    \133\ For the purposes of computing the holding period under the
proposed rule, the securities shall be deemed to have been acquired
either at the time the securities were acquired from the issuer or
affiliate of the issuer, or at the time the ``Form 10 information''
is filed with the Commission, whichever is the latest date. See
proposed Rule 144(d)(3)(xii).
---------------------------------------------------------------------------

7. Representations Required From Security Holders Relying on Exchange
Act Rule 10b5-1(c)
    Rule 10b5-1 \134\ under the Exchange Act defines when a purchase or
sale constitutes trading ``on the basis of'' material nonpublic
information in insider trading cases brought under Exchange Act Section
10(b) \135\ and Rule 10b-5.\136\ 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. However, Rule 10b5-1(c) provides
an affirmative defense that a person's purchase or sale was not ``on
the basis of'' material nonpublic information. For this defense to be
available, the person must demonstrate that:
---------------------------------------------------------------------------

    \134\ 17 CFR 240.10b5-1.
    \135\ 15 U.S.C. 78j(b).
    \136\ 17 CFR 240.10b-5. As stated in Rule 10b5-1(a), the
``manipulative and deceptive devices'' prohibited by Section 10(b)
and Rule 10b-5 include, among other things, the purchase or sale of
a security of any issuer, on the basis of material nonpublic
information about that security or issuer, in breach of a duty of
trust or confidence that is owed directly, indirectly, or
derivatively, to the issuer of that security or the shareholders of
that issuer, or to any other person who is the source of the
material nonpublic information.
---------------------------------------------------------------------------

     before becoming aware of the material nonpublic
information, he or she had entered into a binding contract to purchase
or sell the securities, provided instructions to another person to
execute the trade for the instructing person's account, or adopted a
written plan for trading the securities;
     the contract, instructions or written trading plan satisfy
the conditions of Rule 10b5-1(c); and
     the purchase or sale that occurred was pursuant to the
contract instruction or plan.
    Currently, 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.'' The Division of
Corporation Finance has indicated that a selling security holder who
satisfies Rule 10b5-1(c) may modify the Form 144 representation to
indicate that he or she had no knowledge of material adverse
information about the issuer as of the date on which the holder adopted
the written trading plan or gave the trading instructions, specifying
that date and indicating that the representation speaks as of that
date.\137\
---------------------------------------------------------------------------

    \137\ See the Division of Corporation Finance Manual of Publicly
Available Telephone Interpretations, Fourth Supplement (May 30,
2001), at Rule 10b5-1; Form 144, Interpretation No. 2.
---------------------------------------------------------------------------

    In order to reconcile the Form 144 representation with Rule 10b5-1,
we are proposing to codify this interpretive position. Under the
proposed amendments, Form 144 filers would be able to make the required
representation as of the date that they adopted written trading plans
or gave trading instructions that satisfy Rule 10b5-1(c).
Request for Comments
     Should we codify all of the above staff positions? Is the
codification of the staff position on securities acquired under Section
4(6) appropriate and consistent with the purposes of Rule 144? Would
codification of the staff positions on the Rule 144 holding period help
to resolve any confusion regarding how to calculate the holding period?
Would codification of the position on the aggregation of pledgees
securities assist security holders in determining their volume
limitations? If you believe we should not codify any of these
positions, which one or ones should we not codify? If so, why?
     Should we revise any of the staff's existing positions on
these matters? If so, which position and why? Does the wording of any
of the proposed language suggest a change, or create ambiguity, in the
staff's position?
     Would codification of the staff position on the treatment
of securities issued by blank check companies protect against abuse
relating to the resale of such securities? Should we expand the staff
position to preclude reporting and non-reporting shell companies from
relying on Rule 144?
     Should we permit reliance on Rule 144 for the resale of
securities of former shell companies if the company is a reporting
company, the company is no longer a shell company, the company has
filed Form 10 information reflecting its status as an entity that is
not a shell company, and either 90 days have elapsed since the filing
of the Form 10 information or the holding period has been met? Is 90
days an appropriate amount of time? Should the delay be longer (e.g.,
180 days or one year)? Are there any reasons not to adopt such an
amendment? Should we expand the proposed revision to permit reliance on
Rule 144 also for the resale of securities of non-reporting companies
that were formerly non-reporting shell companies where there is
publicly available information (provided under Rule 15c2-11) \138\
reflecting that such companies have obtained business operations or
more than nominal assets?
---------------------------------------------------------------------------

    \138\ 17 CFR 240.15c2-11.
---------------------------------------------------------------------------

F. Amendments to Rule 145

    Securities Act Rule 145 provides that exchanges of securities in
connection with reclassifications of securities, mergers or
consolidations or transfers of assets that are subject to shareholder
vote constitute sales of those securities. Rule 145(c) deems persons
who were parties to such a transaction, other than the issuer, or
affiliates of such parties to be underwriters. Rule 145(d) sets forth
the restrictions on the resale of securities received in such
transactions by persons deemed underwriters. In the 1997 proposal, we
proposed to eliminate the presumed underwriter and resale provisions in
Rule 145(c) and (d). Many commenters supported the 1997 proposal.\139\
---------------------------------------------------------------------------

    \139\ See letters from ABA; ASCS; AT&T BG&E Brobeck, Phleger &
Harrison, LLP (Brobeck); Corporate Counsel; Intel; NY Bar; NY City
Bar; SIA; Smith Barney; Sullivan & Cromwell; and Testa Hurwitz.
---------------------------------------------------------------------------

    After reviewing comments on the proposal, we believe it is
appropriate to eliminate the presumptive underwriter provision in Rule
145, as it is no longer necessary in most circumstances. However, based
on our experience with business combinations involving shell companies
that have resulted in abusive sales of securities, we believe that
there continues to be a need to apply the presumptive underwriter
provision to shell companies and their affiliates and promoters.
Accordingly, we propose amendments to Rule 145(c) and (d) that would:
\140\
---------------------------------------------------------------------------

    \140\ We also propose to add the definition of ``affiliate'' to
paragraph (e) and transfer the definition of ``party'' from
paragraph (c) to paragraph (e).
---------------------------------------------------------------------------

     Eliminate the presumed underwriter status provision in
Rule 145(c) except with regard to Rule 145(a) transactions that involve
a shell company (other than a business related shell company); \141\
and
---------------------------------------------------------------------------

    \141\ See proposed Rule 145(c). The terms, ``shell company'' and
``business combination related shell company,'' are defined in
Securities Act Rule 405. See also Release No. 33-8587 (Jul. 15,
2005) [70 FR 42233].
---------------------------------------------------------------------------

     Harmonize the requirements in Rule 145(d) with the
proposed

provisions in Rule 144 that would apply to securities of shell
companies.\142\
---------------------------------------------------------------------------

    \142\ See proposed Rule 145(d).
---------------------------------------------------------------------------

    Under the proposed rule, parties to the transaction in Rule 145(a),
other than the issuer, and their affiliates, where a party to the
transaction is a shell company, other than a business combination
related shell company, could resell securities acquired in connection
with the transaction only in accordance with Rule 145(d).
    Under proposed Rule 145(d), the persons and parties that are deemed
presumed underwriters would be permitted to resell their securities to
the same extent that affiliates of a shell company would be permitted
to resell their securities under Rule 144, as proposed. The securities
could be only sold after any company that was a shell company and a
party to the transaction has ceased to be a shell company and at least
90 days have elapsed since the securities were acquired in the
transaction, subject to Rule 144 conditions.\143\ The 90-day delay is
consistent with the 90-day delay that we are proposing in paragraph (i)
of Rule 144 relating to the use of Rule 144 for the resale of
securities of a former shell company. As in the proposed amendments to
Rule 144, after six months have elapsed since the securities were
acquired in the transaction, the persons and parties would be permitted
to resell their securities, subject only to the current public
information condition in Rule 144, provided that the sellers are not
affiliates of the issuer at the time of sale and have not been
affiliates during the three months before the sale. As in the proposed
amendments to Rule 144, one year after the securities were acquired in
the transaction the persons and parties would be permitted to freely
resell their securities, provided that they are non-affiliates at the
time of sale and have not been affiliates during the three months
before the sale.
---------------------------------------------------------------------------

    \143\ The securities acquired by the parties and persons deemed
presumed underwriters would be acquired pursuant to an effective
registration statement. As in the proposed Rule 144 amendments, this
90-day delay would allow the market extra time to absorb the
information in the registration statement before these persons and
parties can publicly resell the securities.
---------------------------------------------------------------------------

    In addition, similar to the proposal for the Preliminary Note in
Rule 144, we propose to add a note that Rule 145(c) and (d) are not
available with respect to any transaction or series of transactions
that, although in technical compliance with the rule, is part of a plan
or scheme to evade the registration requirements of the Act.\144\ We
also propose to clarify language in Rule 145(d) regarding the
securities that were acquired in a transaction specified in paragraph
Rule 145(a).\145\
---------------------------------------------------------------------------

    \144\ See proposed Note to Paragraphs (c) and (d) of Rule 145.
    \145\ We propose to revise the phrase in Rule 145(d) relating to
``registered securities'' to say instead ``securities acquired in a
transaction specified in paragraph (a) that was registered under the
Act,'' which we believe is a more accurate description.
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Request for Comment
     Should we limit the Rule 145 presumptive underwriter
provision only to transactions involving shell companies? Are there any
other transactions for which the presumptive underwriter provision
should continue to apply? Should we eliminate this provision with
respect to transactions involving shell companies?
     Are the proposed amendments to Rule 145(d) appropriate?
Should we retain the requirement that the issuer of the securities must
meet the current public information requirements of Rule 144(c) for a
prescribed period of time before the party is permitted to resell
freely its securities in the issuer?
     Are the time periods that the parties and their affiliates
must wait before being permitted to resell the securities in proposed
Rule 145(d) appropriate? Is it appropriate to require those deemed
underwriters to wait at least 90 days before being permitted to resell
their securities? Should the requirement be shorter or longer (e.g.,
30, 60, 120, or 180 days, or one year)? If so, why?
     Should we add the note that Rule 145(c) and (d) are not
available with respect to any transaction or series of transactions
that, although in technical compliance with the rule, is part of a plan
or scheme to evade the registration requirements of the Act?

G. Conforming and Other Amendments

1. Underlying Securities in Asset-Backed Securities Transactions
    The proposals we make today necessitate consideration of proposed
changes to other rules that refer to Rule 144. In particular, we are
proposing changes to the asset-backed rules. We adopted Securities Act
Rule 190 to clarify when registration of the sale of underlying
securities in asset-backed securities transactions is required.\146\
One of the basic premises underlying ABS offerings is that an investor
is buying participation in the underlying assets. Therefore, if the
assets being securitized are themselves securities under the Securities
Act (commonly referred to as a ``resecuritization''), the offering of
the underlying securities must itself be registered or exempt from
registration under the Securities Act. Rule 190 provides the framework
for determining if registration of the sale of these underlying assets
is required at the time of the registered ABS offering.
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    \146\ 17 CFR 230.190 and Release No. 33-8518 (Dec. 22, 2004) [70
FR 1506].
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    One of the requirements of Rule 190 is that the depositor would be
free to publicly resell the securities without registration under the
Securities Act.\147\ This provision currently notes as an example that
if the underlying securities are Rule 144 restricted securities, they
must meet the condition of 144(k) (e.g., a two-year holding period by
non-affiliates). Because of the manner of sale restrictions on asset-
backed securities, this example means that in order to meet this
condition under Rule 190, at least two years must have elapsed from the
date the securities were acquired from the issuer of the underlying
securities, or an affiliate, and the date they are pooled and
resecuritized pursuant to Rule 190.
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    \147\ 17 CFR 230.190(a)(3).
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    Our proposed revisions to Rule 144 with no concurrent revision to
Rule 190 would allow privately placed debt or other ABS to be publicly
resecuritized in as little as six months after their original issuance
without registration of the underlying securities.\148\ Given that that
Rule 190 addresses the public distribution of privately placed
securities via resecuritization transactions, we are proposing
revisions to Rule 190 in order to keep the current two-year period for
resecuritizations that do not require registration of the underlying
securities.\149\
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    \148\ Although the ABS securities we are discussing may be
privately placed, the issuing trust will have also registered the
sale of other ABS and may have a reporting obligation under Section
15(d) for some time.
    \149\ This proposed change would not in any way impact the
disclosure requirements for resecuritizaitons.
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    A particular issuance of asset-backed securities often involves one
or more publicly offered classes (e.g., classes rated investment grade)
as well as one or more privately placed classes (e.g., non-investment
grade subordinated classes). In most instances, the subordinated
classes act as structural credit enhancement for the publicly offered
senior classes by receiving payments after, and therefore absorbing
losses before, the senior classes. These unregistered asset-backed
securities are typically rated below investment grade or are unrated
and as such could not be offered on Form S-3. They typically are not
fungible with registered securities from the same offering and are held
by very few investors. Further, the trust or issuing entity usually
ceases reporting under the Exchange Act with respect to

the publicly offered classes after its initial Form 10-K is filed. We
understand the privately placed subordinated securities in these
transactions are often the types of securities that are pooled and
resecuritized into new asset-backed securities.\150\
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    \150\ See Saskia Scholtes, Left in the Dark on Debt Obligations,
FT.com (Mar. 27, 2007) (describing privately placed collateralized
debt obligations (CDOs) vehicles used to repackage portfolios of
other debt and noting that ``the biggest category of deals, at 44%,
consisted of CDOs backed by asset-backed securities such as those
backed by subprime mortgages'').
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    Due to the particular circumstances of asset-backed securities and
the established experience with a two-year period under both the ABS
rules and the prior staff positions that were codified by those rules,
we are not persuaded at this time that we should shorten the current
two-year holding period for restricted securities that are to be sold
into publicly-registered securitizations. As a result, we are proposing
to amend Rule 190 to provide that if the underlying securities are Rule
144 restricted securities, Rule 144 must be available for the sale of
the securities in the resecuritization, except that at least two years
must have elapsed since the later of the date the securities were
acquired from the issuer of the underlying securities or from an
affiliate of the issuer of the underlying securities. Of course, the
underlying securities could still be resecuritized if they do not meet
this requirement; their sale would just need to be concurrently
registered with the offering of the asset-backed securities on a form
for which the offering of the class of underlying securities would be
eligible. In addition, nothing in Rule 190 as we propose to amend it
would lengthen the holding period of the underlying securities for
resales other than in connection with publicly registered
resecuritizations.
2. Securities Act Rule 701(g)(3)
    Securities Act Rule 701(g)(3) \151\ outlines the resale limitations
for securities issued under Rule 701. The limitations for resales by
non-affiliates includes references to paragraphs (e) and (h) of Rule
144, which under the proposed rules, would no longer apply to resales
by non-affiliates. Accordingly, it is appropriate to propose a
conforming amendment to remove references to Rule 144(e) and (h) from
Rule 701.\152\
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    \151\ 17 CFR 230.701(g)(3).
    \152\ See proposed Rule 701(g)(3).
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Request for Comment
     Is the revision to Rule 190 appropriate? Are we correct in
understanding that privately placed securities that are resecuritized
pursuant to Rule 190 typically were acquired from the issuer two or
more years ago? Should we shorten the two-year period for
resecuritizations, but to not as short as the six months we propose for
certain other resales under Rule 144? What interim length would be
appropriate (e.g., one year)?
     Should we limit our revision to just underlying securities
that are asset-backed securities and allow non-asset-backed securities
such as corporate debt to be securitized without registration in the
revised Rule 144 periods?
     Are there other instances where our rules reference Rule
144 or Rule 145 that would warrant change as a result of our proposed
revisions to those rules?
     Is the proposed change to Rule 701 appropriate?

III. Coordination of Form 144 Filing Requirements with Form 4 Filing
Requirements

    Rule 144 requires a seller to transmit a Form 144 for filing
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, if the sale has exceeded
certain filing thresholds.\153\ The proposed amendments above eliminate
the Form 144 filing requirement for non-affiliates, and therefore, the
Form 144 filing requirements would apply only to affiliates of the
issuer.\154\
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    \153\ See Rule 144(h). As noted above, we are proposing to raise
the thresholds that trigger the Form 144 filing requirement.
    \154\ See Section II.B above.
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    Many affiliates of an issuer under Rule 144 are also insiders of
the issuer under Section 16 of the Exchange Act.\155\ Pursuant to
Exchange Act Rule 16a-3,\156\ insiders are required to report changes
in beneficial ownership, including purchases and sales of securities,
on Form 4.\157\ Some of the items required by Form 144 are duplicative
of the requirements on Form 4. The Sarbanes-Oxley Act of 2002 \158\
changed the Form 4 filing deadline to two business days after the
transaction is executed. As a result, affiliates selling securities
under Rule 144 often are required to file a Form 4 just a few days
after they file a Form 144 to report information regarding the same
sale of securities.
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    \155\ Section 16 requirements apply to every person who is
directly or indirectly the beneficial owner of more than 10% of any
class of any equity security (other than an exempted security) which
is registered pursuant to Section 12, or who is a director or an
officer of the issuer.
    \156\ 17 CFR 240.16a-3.
    \157\ 17 CFR 249.104 and 17 CFR 274.203.
    \158\ Pub. L. No. 107-204, 116 Stat. 745.
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    In order to reduce duplicative requirements on individuals who are
subject to both the Form 144 filing requirements and the Section 16
filing requirements, we solicit comment on how best to coordinate the
Form 144 filing requirement with the filing requirements under Section
16 of the Exchange Act for an affiliate who wishes to rely on Rule 144
and is subject to the Section 16 filing requirements.\159\
Specifically, we solicit comment on the following:
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    \159\ See also letter from Corporate Counsel.
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     Revising the filing deadline for Form 144 to coincide with
the filing deadline for Form 4 (before the end of the second business
day following the day on which the subject transaction was executed);
\160\
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    \160\ See Exchange Act Rule 16a-3(g).
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     Permitting affiliates subject to Section 16 filing
requirements to, at their option, satisfy their Form 144 filing
requirements by timely filing a Form 4 to report the sale of their
securities; and
     Revising Item 701 of Regulations S-B and S-K \161\ to
require additional disclosure about the resale status of securities
issued in unregistered transactions at the time the company first
issues the securities.
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    \161\ 17 CFR 228.701 and 229.701. We recently proposed to
integrate Regulation S-B disclosure requirements into Regulation S-K
disclosure requirements. See SEC Press Release No. 2007-102 (May 23,
2007), available at http://www.sec.gov/news/press.shtml.

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    While Form 144 and Form 4 both provide information regarding the
title of the class of securities sold, the number of shares subject to
sale, the aggregate market value of those shares, and the date of sale,
there are, however, some differences in the disclosure required by Form
144 and Form 4 with respect to sales of securities. For example, Form 4
does not request some information that is required to be provided in
Form 144, including:
     The date that the securities were acquired;
     The nature of the acquisition transaction;
     The name of the person from whom the securities were
acquired;
     The amount of securities acquired;
     The date of payment for the securities; and
     The nature of payment.
    In addition, while Form 144 requires disclosure regarding