

[Federal Register: July 5, 2007 (Volume 72, Number 128)]
[Proposed Rules]               
[Page 36821-36849]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jy07-26]                         


[[Page 36821]]

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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


[[Page 36822]]


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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 rule-comments@sec.gov. 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 (202) 551-3430, 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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[[Page 36823]]

    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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[[Page 36824]]

    [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
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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

[[Page 36825]]

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.
---------------------------------------------------------------------------

    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

[[Page 36826]]

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

[[Page 36827]]

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:

[[Page 36828]]



----------------------------------------------------------------------------------------------------------------
                                                                             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,

[[Page 36829]]

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

[[Page 36830]]

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

[[Page 36831]]

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\
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    \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.
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    \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\

[[Page 36832]]

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

[[Page 36833]]

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

[[Page 36834]]

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\
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    \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.
---------------------------------------------------------------------------

    \146\ 17 CFR 230.190 and Release No. 33-8518 (Dec. 22, 2004) [70 
FR 1506].
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \147\ 17 CFR 230.190(a)(3).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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

[[Page 36835]]

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\
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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:
---------------------------------------------------------------------------

    \159\ See also letter from Corporate Counsel.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \160\ See Exchange Act Rule 16a-3(g).
---------------------------------------------------------------------------

     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.
---------------------------------------------------------------------------

    \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.

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

    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 
securities sold in the three months prior to the sale, if a person has 
not been subject to the Section 16 reporting obligations for three 
months, that person's Section 16

[[Page 36836]]

reports would not provide complete information regarding sales of 
securities in the last three months. Also, Form 4 does not contain the 
proposed representation that is given by security holders that they do 
not know material adverse information about the company as of the date 
that they adopted a plan under Exchange Act Rule 10b5-1 or gave trading 
instructions, as applicable.\162\
---------------------------------------------------------------------------

    \162\ See Section II.E.7 of this release.
---------------------------------------------------------------------------

    We preliminarily believe that if we permit a security holder to 
satisfy a Form 144 filing requirement by filing a Form 4, Form 4 should 
be amended to require the security holder that wishes to satisfy a Form 
144 filing requirement to provide the following information regarding 
Rule 144 compliance in Form 4:
     The date that the securities were acquired (for purposes 
of the holding period calculation under Rule 144(d)); \163\
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    \163\ We believe that this item should be added to Form 4, 
because if the security holder was deemed to have acquired the 
securities on an earlier date under the tacking provisions in Rule 
144(d), the date that the security holder acquired the securities 
for Rule 144 purposes could differ from the date that would have 
been previously reported on the Form 4 covering the acquisition 
transaction.
---------------------------------------------------------------------------

     The name of the person from whom the securities were 
acquired;
     The date of payment for the securities; and
     The nature of the payment.
    Regarding the items in Form 144 relating to the nature of the 
acquisition transaction and the amount of securities acquired, we 
believe that such information or similar information could be available 
in a previously filed Form 4 reporting the purchase of the securities, 
unless the security holder was not subject to Section 16 requirements 
at the time the securities were acquired. We solicit comment on which 
Form 144 disclosure items we should preserve and transfer from Form 144 
to Form 4, if we were to permit security holders to satisfy their Form 
144 obligations with a Form 4.
    We also solicit comment on whether Form 4 should be expanded to 
include these additional disclosure items. We have concerns, however, 
that simply combining the required disclosures on the two forms into 
Form 4 may be confusing to filing persons as well as other market 
participants. For example, because some of the information required on 
Form 144 is not relevant to all persons filing Form 4, a person filing 
a Form 4 who is not required to file a Form 144 should not be required 
to provide that information. Similarly, the two forms also can report 
different events. Form 4 reports both purchases and sales, while Form 
144 reports only sales. In short, much of the information in each form 
may not be relevant to filers of the other form and may cause confusion 
among filers of the forms and investors.
    Because Form 4 is an electronic filing on the Commission's 
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR), one 
alternative may be to implement programming changes to EDGAR to modify 
the user interface for Form 4 in such a way as to provide access to the 
portion of that form that would request Rule 144 information only if 
the filer affirmatively asserts that he or she wishes to satisfy his or 
her Rule 144 notice obligations on Form 4. Programming changes also 
could be made to enable a filer to enter all relevant information on 
one user interface which would automatically create two separate 
filings, one on Form 4 and the other on Form 144. To the extent 
possible, we seek to reduce filing requirements without losing 
important disclosure or causing confusion to filers and users of Form 4 
and Form 144.
    Such coordination also would require a revision to the statement in 
Rule 144(g) that the broker would deemed to be aware of any facts or 
statements contained in the notice required by Rule 144(h).\164\ If a 
security holder has filed a Form 4 to satisfy his or her Form 144 
filing requirement, we preliminarily believe that a broker should also 
be deemed to be aware of any facts contained in a Form 4 that are 
relevant to Rule 144, if this is the approach we adopt in the end. We 
request comment on this point and how to best address this issue.
---------------------------------------------------------------------------

    \164\ Existing Note (i) of Rule 144(g)(3) also states that the 
broker, for his own protection, should obtain and retain in his 
files a copy of the notice required by paragraph (h).
---------------------------------------------------------------------------

    Because some information on Form 144 would no longer be provided if 
we were to adopt these amendments, we believe that additional 
disclosure in registration statements or periodic reports filed by the 
issuer of the securities may help to inform the market about the number 
of restricted securities available for resale. We solicit comment on a 
possible amendment to Item 701 of Regulations S-K and S-B that would 
require disclosure regarding: (1) Whether the securities issued in 
unregistered transactions were restricted securities, as defined in 
Rule 144(a)(3); (2) if the securities were not restricted securities, 
the resale status of such securities under Rule 144; and (3) if the 
securities were restricted securities, the first date when such 
securities could be deemed to meet the holding period requirement in 
Rule 144(d).
Request for Comment
     Should we permit persons who are subject to Section 16 
reporting obligations to provide the disclosure required by Form 144 on 
Form 4 instead? Is there any particular information currently disclosed 
on Form 144 that would otherwise not be disclosed on Form 4 which 
industry participants or security holders want or find material? If so, 
what is that information?
     Could relevant information be reported elsewhere? Should 
we revise Item 701 of Regulations S-K and S-B to require added 
disclosure in a company's registration statement or periodic reports 
about the resale status of securities issued in unregistered 
transactions at the time when the company first sells the securities? 
What other types of disclosure regarding restricted securities (other 
than the resale status of the securities) would be useful to the 
market? Would disclosure regarding the securities at the time they were 
first issued be beneficial, or would such disclosure be premature and 
speculative?
     If we permit persons subject to Section 16 reporting 
obligations to file a Form 4 in lieu of a Form 144, is it appropriate 
to delay the filing deadline of Form 144 to two business days after the 
transaction is completed? \165\ Is there a benefit to having this 
information at an earlier time, rather than two business days after the 
transaction is completed? How do market participants use the 
information in Form 144 today?
---------------------------------------------------------------------------

    \165\ Such an amendment would also necessitate revising the rule 
to modify or delete the requirement in proposed Rule 144(h) that the 
security holder filing the notice shall have a bona fide intention 
to sell the securities referred to therein within a reasonable time 
after the filing of such notice.
---------------------------------------------------------------------------

     If we expand Form 4 by adding requirements from Form 144, 
would Form 144 information contained in Form 4 be more difficult to 
find? Should we provide a means to allow persons searching on EDGAR to 
determine whether a Form 4 is being used to disclose Form 144 
information (e.g., a checkbox on Form 4)?
     Should we mandate that Form 144 be filed electronically on 
EDGAR when the form relates to the securities of a reporting company?
     Should we expand Form 4 to add disclosure requirements 
from Form 144 for these purposes? If so, which disclosures from Form 
144 should we retain? Should we modify Form 4 to incorporate them or 
should this

[[Page 36837]]

information be provided as a supplement to Form 4? For example, should 
Form 144 information be in a new separate table? Would a combined Form 
4/Form 144 be confusing to investors, other persons using the forms, or 
persons submitting the forms?
     Should we require only persons that seek to satisfy both 
their Rule 144 and Form 4 requirements with one form to fill out all of 
the questions on a combined Form 4/Form 144? If so, what mechanisms can 
we use to prevent confusion and assist filers in providing only the 
information that they are required to provide? For example, should we 
implement programming changes to EDGAR that would electronically filter 
out any filers not seeking to report information pursuant to Rule 144 
on their Form 4 by withholding questions relevant to Rule 144 unless 
the filer indicates that he or she intends to provide such information 
on Form 4?
     Would combining the forms and delaying the Rule 144 filing 
date make it more difficult for brokers to perform the inquiries 
required in order to qualify the transaction as a ``brokers' 
transaction''? Do brokers and transfer agents need to see Form 144 
information prior to executing the transaction? Is there a better way 
for these parties to obtain this information prior to executing the 
transaction other than a separate filing? Should brokers be deemed to 
be aware of facts contained in Form 4 to the extent that the form is 
filed for Rule 144 purposes?
     Should we implement programming changes to EDGAR that 
would enable security holders to create two separate filings, one Form 
4 and one Form 144, at the same time by completing only one submission 
to EDGAR? Would this lessen the probability of confusion that would 
result if items on Form 144 were transferred to Form 4?

IV. General Request for Comments

    We request and encourage any interested person to submit comments 
regarding:
     The proposed rule changes that are the subject of this 
release;
     Additional or different changes; or
     Other matters that may have an effect on the proposals 
contained in this release.
    We request comment from the point of view of registrants, investors 
and other users of information about the resale of restricted 
securities and securities owned by affiliates of the issuer.

V. Paperwork Reduction Act

A. Background

    Our proposals contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 (``PRA''). 
\166\ We are submitting the proposed revisions to Form 144 to the 
Office of Management and Budget (OMB) for review in accordance with the 
PRA.\167\ The title for the information collection is ``Notice of 
Proposed Sale of Securities Pursuant to Rule 144 under the Securities 
Act of 1933'' (OMB Control No. 3235-0101). An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a current valid control number.
---------------------------------------------------------------------------

    \166\ 44 U.S.C. 3501 et seq.
    \167\ See 44 U.S.C. 3507 and 5 CFR 1320.11.
---------------------------------------------------------------------------

B. Summary of Proposed Amendments

    The proposed amendments would eliminate the need for non-affiliates 
of the issuer to file Form 144. In addition, the proposal would raise 
the filing threshold for Form 144 to 1,000 shares or $50,000 worth of 
securities during a three-month period. Currently, the Form 144 filing 
threshold is 500 shares and $10,000. Form 144 may be filed in paper or 
electronically using the EDGAR filing system. The proposed amendments 
also include two limited changes to Form 144.\168\ The primary purpose 
of this collection of information is the disclosure of a proposed sale 
of securities by security holders deemed not to be engaged in the 
distribution of the securities. The filings are publicly available. 
Persons reselling securities in reliance on Rule 144 are the 
respondents to the information required by Form 144. The information 
collection requirements imposed by Form 144 are mandatory.
---------------------------------------------------------------------------

    \168\ We propose to amend Form 144 to include information 
regarding security holders' hedging activities and to allow security 
holders to represent that they do not know of material adverse 
information about the company as of the date they adopt a plan under 
Exchange Act Rule 10b5-1.
---------------------------------------------------------------------------

    Currently, an estimated 60,500 notices on Form 144 are filed 
annually for a total burden of 121,000 hours.\169\ If adopted, the 
amendments would eliminate the need for non-affiliates to ever file a 
Form 144. We currently estimate that approximately 45%, or 27,127, of 
the total 60,500 filings are filed by non-affiliates.\170\ Under the 
proposals, these filings would no longer be required. In addition, we 
estimate that increasing the Form 144 filing thresholds from 500 shares 
or $10,000 to 1,000 shares or $50,000 would reduce the number of 
filings by affiliates by approximately 5%, or 3,025 filings.\171\ We 
estimate that each notice on Form 144 imposes a burden for purposes of 
the Paperwork Reduction Act of two hours.\172\ Therefore, we estimate 
that the proposals would reduce the burden on selling security holders 
by approximately 60,300 burden hours.\173\
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    \169\ This reflects current OMB estimates.
    \170\ The Office of Economic Analysis obtained data from the 
Thomson Financial Wharton Research Database. The estimate is based 
on information contained in notices on Form 144 filed in 2005.
    \171\ This estimate is based on information contained in notices 
on Form 144 filed in 2005.
    \172\ This is the same as the current OMB estimate.
    \173\ (27,127 filings + 3,025 filings) * 2 hours/filing = 60,304 
hours.
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C. Solicitation of Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comments to (1) 
evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
whether the information would have practical utility; (2) evaluate the 
accuracy of our estimate of the burden of the proposed collection of 
information; (3) determine whether there are ways to enhance the 
quality, utility and clarity of the information to be collected; and 
(4) evaluate whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-9303, with reference to File No. S7-11-07. Requests for materials 
submitted to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-11-07, and be 
submitted to the Securities and Exchange Commission, Records 
Management, Office of Filings and Information Services, 100 F Street, 
NE., Washington, DC 20549. OMB is required to make a decision 
concerning the collection of information between 30 and 60 days after 
publication of this release. Consequently, a comment to OMB is best 
assured of having its full effect if OMB receives it within 30 days of 
publication.

[[Page 36838]]

VI. Cost-Benefit Analysis

A. Background

    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. Specifically, a selling shareholder is deemed not 
an underwriter under Section 2(a)(11), and therefore may take advantage 
of the Section 4(1) exemption and need not register its sale of 
securities, if the sale complies with the provisions of the rule. Rule 
145 requires Securities Act registration of certain types of business 
combination transactions. Rule 145 contains a safe harbor provision 
similar to Rule 144 for presumed underwriters who receive securities in 
such a business combination transaction. Form 144 is required to be 
filed by persons intending to sell securities in reliance on Rule 144 
if the amount of securities to be sold in any three-month period 
exceeds 500 shares or other units or the aggregate sales price exceeds 
$10,000. The primary purpose of the form is to publicly disclose the 
proposed sale of securities by persons not deemed to be engaged in the 
distribution of the securities.

B. Description of Proposal

    We are proposing amendments to Rule 144, Rule 145, and Form 144 
that would accomplish the following:
     Simplify the Preliminary Note to Rule 144 and text of Rule 
144, using plain English principles;
     Reduce the Rule 144(d) holding period for restricted 
securities of reporting companies to six months for both affiliates and 
non-affiliates;
     Significantly reduce requirements applicable to non-
affiliates of reporting and non-reporting companies so that:
    [cir] Non-affiliates of reporting companies would be subject only 
to the current public information requirement after meeting the six-
month (or more depending on hedging activities) holding period and up 
until one year since the date they acquired their securities; and
    [cir] Non-affiliates of non-reporting companies would be able to 
resell freely after the one-year holding period;
     Require that security holders toll the holding period 
during the time they enter into certain hedging transactions, but in no 
event would the holding period extend beyond one year;
     Eliminate the ``manner of sale'' limitations with respect 
to debt securities;
     Increase the thresholds that would trigger a Form 144 
filing requirement;
     Codify the staff's positions, as they relate to Rule 144, 
concerning the following issues:
    [cir] Inclusion of securities acquired in a transaction under 
Section 4(6) of the Securities Act in the definition of ``restricted 
securities,''
    [cir] The effect that creation of a holding company structure has 
on a security holder's holding period,
    [cir] Holding periods for conversions and exchanges of securities,
    [cir] Holding periods for cashless exercise of options and 
warrants,
    [cir] Aggregation of a pledgee's resales with resales by other 
pledgees of the same security for the purpose of determining the amount 
of securities sold,
    [cir] The extent to which securities issued by reporting and non-
reporting shell companies are eligible for resale under Rule 144, and
    [cir] Representations required from security holders relying on 
Rule 10b5-1(c); and
     Eliminate the presumptive underwriter status in Securities 
Act Rule 145, except for transactions involving a shell company, and 
harmonize the resale requirements in that rule with the proposed resale 
requirements for securities of shell companies in Rule 144.
    We also solicit comment on how best to coordinate the Form 144 
filing deadline with the Form 4 filing deadline and permit persons who 
are subject to Section 16 to meet their Form 144 filing requirement by 
filing a Form 4.

C. Benefits

    If adopted, the proposed amendments should reduce the cost of 
complying with Rules 144 and 145. We have examined the Forms 144 that 
have been filed with the Commission since 1997.\174\ In 2006, the 
volume of transactions filed under Rule 144 exceeded $71 billion, and 
more than 50% of U.S. public companies, large and small alike, have 
reported every year at least one transaction on Form 144. Reducing the 
burden associated with these transactions can reduce the cost of 
capital to these companies.
---------------------------------------------------------------------------

    \174\ These filings were obtained through Thomson Financial's 
Wharton Research Database which includes Forms 144 filed from 1996 
through 2007.
---------------------------------------------------------------------------

    One item on Form 144 requires security holders to provide 
information on the nature of the acquisition transaction. Some Form 144 
filers acquire their securities from the company as a private 
investment, while others receive the securities as part of their 
employee awards, or as a form of payment for services to the company. 
Reducing the burden associated with selling these securities not only 
can reduce the cost of raising capital, but also may increase the value 
of these securities in non-cash transactions and reduce the cost of 
services and employment.
    For the most part, transactions that were filed on Form 144 have 
been small. In 2006, about 90% of the transactions had a market value 
of less than $2 million and 99% of these transactions had a market 
value of less than $20 million. More than half of the investors report 
total annual transactions of a market value of less than $240,000 with 
any specific company. Thus, reducing the costs associated with filing 
Form 144 and raising the thresholds that trigger a Form 144 filing 
requirement are likely to affect many small investors.
    We expect that the increase in the value of these securities would 
come from several sources under the proposed rule. The first is the 
increase in the liquidity of the securities. Investors, suppliers, or 
employees who are restricted from selling securities and who cannot 
hedge their positions are generally exposed to more risk than those who 
are not subject to such limitations, and generally require higher 
compensation (or a larger discount) for this risk.\175\ We should also 
expect that the longer the non-trading period, the higher the premium 
that investors charge for their lack of liquidity.\176\

[[Page 36839]]

Thus, reducing the time limit for selling these securities in the 
market is likely to reduce the discount that investors will charge for 
these securities, or the amount of securities that the company will 
need to provide for services. The actual reduction in this cost of 
capital will depend on the extent to which the six-month limit has a 
binding impact on security holders' decisions to resell their 
securities, and the extent to which investors, employees, or service 
providers can protect themselves against such exposure.
---------------------------------------------------------------------------

    \175\ There is also evidence that the non-trading period is 
associated with the premium that investors charge for lack of 
liquidity. See, for example, Silber, W.L., Discounts on restricted 
stock: The impact of illiquidity on stock prices, Financial Analysts 
Journal, 47, 60-64 (1991). Several studies have attempted to 
separate the discount associated with the non-transferability of the 
shares from other factors that affect the discount. See, for 
example, Wruck, K.H., Equity Ownership Concentration and Firm Value, 
Evidence from Private Equity Financings, Journal of Financial 
Economics, 23, 3-28 (1989); Hertzel, M., and R.L. Smith, Market 
Discounts and Shareholder Gains for Placing Equity Privately, 
Journal of Finance, 459-485 (1993); Bajaj, M., Denis, D., Ferris, 
S.P., and A. Sarin, Firm Value and Marketability Discounts, Journal 
of Corporate Law, 27, 89-115 (2001); Finnerty, J.D., The Impact of 
Transfer Restrictions on Stock Prices (Fordham U. Working Paper, 
2002). The average discounts attributed to lack of transferability 
across these studies is estimated between 7% and 20%. Other factors 
that could affect the discount are the amount of resources that 
private investors need to expend to assess the quality of the 
issuing firm or to monitor the firm, the ability of the investors to 
diversify the risk associated with the investment, whether the 
investors are cash constrained, the financial situation of the firm, 
etc.
    \176\ We are not aware of any empirical work that examines the 
effect of shortening the holding period in Rule 144 on the discount. 
Longstaff (1995) calculates an upper bound for percentage discounts 
for lack of marketability. According to his model, drops in a 
restriction from two years to one year and from one year to 180 days 
are associated each with a 30% drop in the discount. Longstaff, 
F.A., How Much Can Marketability Affect Security Values? Journal of 
Finance, 50, 1767-1774 (1995).
---------------------------------------------------------------------------

    Also, resale transactional costs for non-affiliate selling security 
holders should decrease as a result of the removal of all conditions 
other than the holding period and the current public information 
condition applicable to non-affiliates. Reducing restrictions on 
resales by non-affiliates would streamline the rule and reduce the 
complexity of the rule. This and other simplifications of the rule and 
Preliminary Note to Rule 144 should make it easier to understand and 
follow, reducing the time that investors must spend analyzing whether 
or not they can rely on the rule as a safe harbor from the requirement 
to register the resale of their securities. However, because we are 
proposing to shorten the holding period only with respect to securities 
of reporting companies, the proposals would add some additional 
complexity that would diminish the effect of simplifying the other 
aspects of the rule.
    If the proposals are adopted, non-affiliates would no longer have 
to file a Form 144. Therefore, they would save the cost of preparing 
and filing this form, as well as the transactional costs related to 
Rule 144's manner of sale requirements and volume of sale limitations. 
The increase in the Form 144 filing thresholds should further reduce 
the number of transactions for which a Form 144 needs to be filed for 
affiliates of the issuer. This would eliminate the cost of filing the 
form for transactions that fall below the thresholds.
    The elimination of the manner of sale limitations would reduce 
costs for debt security holders. It is difficult to estimate the amount 
of reduction. Among the Forms 144 filed in 2005, we found at least 200 
filings covering a sale of debt securities, although we believe the 
actual number of debt securities resales relying on Rule 144 may be 
higher than this.\177\ The elimination of the manner of sale limitation 
may also reduce brokers' fees, and therefore result in a reduction of 
revenue for brokers.
---------------------------------------------------------------------------

    \177\ We base the estimate on number of filings that indicated 
that the securities were debt securities in the section of the Form 
144 that requests information on the nature of the acquisition 
transaction.
---------------------------------------------------------------------------

    The codification of existing staff positions should create no added 
cost to companies or investors because, substantively, there is no 
expected change in practice. However, these codifications should 
provide substantial benefit to the investing community by clarifying 
and better publicizing the staff's positions. Greater clarity and 
transparency of our rules should reduce security holders' transactional 
costs by eliminating uncertainty and reducing the need for legal 
analysis.
    The proposed amendments to Rule 145 remove what we preliminarily 
believe are unnecessary restraints on the resale of securities by 
parties or their affiliates to a merger, recapitalization, or other 
transaction listed in Rule 145(a). The proposed amendments to Rule 145 
would reduce costs incurred by companies, parties to the transaction, 
and their affiliates to comply with the resale and other restrictions 
of the rule. Retaining the presumptive underwriter provision for 
transactions involving shell companies is intended to afford investors 
with additional protection against manipulative practices or abusive 
sales by parties to the transaction and their affiliates after the 
completion of the Rule 145 transaction.
    The primary benefit of permitting an affiliate to satisfy a Form 
144 filing requirement by timely filing a Form 4 reporting the sale of 
securities would be to reduce duplicative paperwork costs incurred by 
these individuals. We solicit comment on a number of alternatives to 
address this point, including which items on Form 144 could be 
transferred to Form 4 in order to ascertain which items on Form 144 are 
more important to the market and should therefore be preserved. While 
the market would receive the information later if the Form 144 filing 
deadline were to be revised to coincide with the Form 4 filing 
deadline, the information that would have been contained on Form 144 
may be more easily accessible to users of the information, if 
transferred to Form 4, which is filed electronically.

D. Costs

    The proposal to reintroduce a provision that tolls the holding 
period if the shareholder had entered into a transaction that hedges 
the economic risk of ownership of the securities may increase the cost 
of a private offering. The proposal provides that regardless of the 
presence of such hedging, the holding period would not extend beyond 
one year, which is the current holding period before security holders 
may begin to sell their restricted securities. After one year, 
affiliates would be able to trade subject to the conditions to which 
they are subject under the current rules. However, the tolling 
provision may add a layer of complexity to calculating whether the 
holding period requirement has been met between the six-month and one-
year marks because subsequent purchasers must determine whether 
previous owners of the securities have entered into such hedging 
transactions. We seek to minimize the burden on security holders of 
making this determination by providing, under the proposed rules, that 
the holding period need not be suspended if the security holder 
reasonably believes that the previous owner has not engaged in hedging 
transactions. We also believe that the ceiling on the proposed tolling 
provision minimizes burdens. For example, a security holder who wishes 
to rely on proposed Rule 144 but is unable to determine the previous 
owner's hedging activities would be able to omit the period in which 
the previous owner held the securities in the calculation of the 
holding period or be subject to a maximum one-year holding period, as 
under the current rule, and a non-affiliate security holder would be 
permitted to resell the securities after one-year, regardless of any 
hedging activities in connection with the securities. Also, as provided 
under the proposed revision to Note (ii) of Rule 144(g)(3), brokers 
would also be required to inquire into security holders' hedging 
transaction which may increase some costs for them, although we 
preliminarily believe such costs would not be significant.
    Under the proposed amendments, after one year, non-affiliates would 
be permitted to sell their restricted securities freely without being 
subject to any other condition. One concern is whether, in cases of the 
securities of a non-reporting company, relieving non-affiliates from 
compliance with Rule 144's existing conditions, including the current 
public information condition requiring that there be adequate available 
current information with respect to the issuer of the securities, would 
lead to abuse.
    Reducing the requirements under Rule 144 might also cause a 
substitution effect, where companies might choose to rely more on 
private transactions than on public transactions to raise capital. 
There is also the risk that the market would not be informed about the 
nature of these transactions, given that these transactions would not 
need to be registered and given the changes to the

[[Page 36840]]

Form 144 filing requirements. The market may also be less informed, 
given that restricted securities of reporting companies could be resold 
by non-affiliates earlier without complying with the condition that 
current information on the issuer of the securities be publicly 
available, and restricted securities of non-reporting companies could 
be resold by non-affiliates without ever complying with the current 
public information condition. This, in return, could lead to a less 
efficient price formation. Direct negotiated deals with companies could 
also lead to informational advantage of some investors. Reducing the 
requirements could also lead to movement of certain investors from 
public transactions to private transactions. The effect of the proposed 
rule on these movements and their effect on investor wealth are thus 
subject to many factors.
    While these are potential costs, we believe that they are justified 
by the potential benefits of the proposal and may not be significant in 
the aggregate. First, there is some evidence that, on average, the 
announcement of resales under Rule 144 by security holders has no 
adverse effect on stock prices, suggesting that the market does not 
attribute an information advantage to these security holders at the 
time of selling.\178\ Second, the rule provides several barriers to 
selling restricted securities by affiliated investors to alleviate 
these concerns. Third, to the extent that privately negotiated deals 
give private investors lucrative terms at the expense of public 
investors, public investors may avoid such companies, and these 
companies may eventually be worse off. We solicit comment as to whether 
information regarding the resale status of an issuer's securities 
should be provided by other means such as pursuant to Item 701 of 
Regulation S-K or Regulation S-B.
---------------------------------------------------------------------------

    \178\ Osborne, Alfred E., Rule 144 Volume Limitations and the 
Sale of Restricted Securities in the Over-The-Counter Market, 
Journal of Finance, 37,505-523 (1982).
---------------------------------------------------------------------------

    As noted above, the proposed amendments to Rule 145 would reduce 
costs incurred by companies, parties to the transaction, and their 
affiliates to comply with the resale and other restrictions of the 
presumed underwriter provision. The magnitude of such reduction may 
vary.

E. Request for Comments

    We seek comments and empirical data on all aspects of this Cost-
Benefit Analysis. Specifically, we ask the following:
     What would be the effect on the liquidity discount for 
privately issued securities of reducing the holding period for 
securities of reporting companies to six months? Would this effect 
significantly increase a company's ability to raise capital in private 
securities transactions? Would the reduced holding period have an 
impact, in particular, on the ability of smaller businesses to raise 
capital?
     Would shortening the holding period to six months for 
reporting companies increase the frequency of abusive transactions 
where the security holder has not taken a sufficient economic risk of 
investment? What if the holding period for non-reporting companies is 
shortened to six months as well?
     What is the impact of eliminating the conditions to which 
non-affiliates are currently subject for a period of time prior to free 
public resale (i.e., the current public information requirement, the 
volume limitations, the manner of sale limitations, and the notice 
requirement)? Do any of the current conditions to which non-affiliates 
are subject provide a measurable benefit to the market? For example, 
would buyers of restricted securities of non-reporting companies be 
disadvantaged because sellers relying on Rule 144 are no longer subject 
to the condition requiring that current information of the issuer be 
publicly available?
     Who uses the information filed on Form 144? Would the 
proposed elimination of the requirement to file a Form 144 by non-
affiliates and the proposed filing thresholds result in a loss of 
important information for these individuals?
     What would be the effect of reintroducing the tolling 
concept to Rule 144? How would it affect a company's ability to raise 
capital? Would the tolling provision impose undue costs on brokers and 
security holders due to the additional duties relating to tracking the 
security holders' or previous owners' hedging transactions? Would the 
tolling provision impose costs on transfer agents?
     What would be the impact of the proposed elimination of 
the limitations on the manner of sale for debt securities? How much 
would debt security holders save in fees that they would no longer 
incur under the proposed amendments? What impact would the elimination 
have on brokers? Would this proposal increase the burden on transfer 
agents?
     What are the benefits and costs of codifying the staff's 
existing interpretations under Rule 144?
     What is the effect of the elimination of the presumptive 
underwriter provision in Rule 145 for all transactions except those 
involving a shell company?

VII. Consideration of Burden of Competition and Promotion of 
Efficiency, Competition and Capital Formation

    Securities Act Section 2(b) \179\ requires us when engaging in 
rulemaking that requires us to consider or determine whether an action 
is necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \179\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    The proposed amendments are intended to reduce regulatory 
requirements for the resale of securities and simplify the process of 
reselling such securities. Currently, a shareholder owning restricted 
securities must wait until at least one year after the securities are 
last sold by the issuer or an affiliate before that shareholder can 
rely on Rule 144 safe harbor to resell those securities. The amendments 
would reduce this holding period to as little as six months for 
restricted securities of Exchange Act reporting companies if the 
security holder did not engage in hedging transactions with respect to 
the securities. The holding period would extend past six months to the 
extent the security holder engaged in hedging transactions, but in no 
event would the holding period extend beyond one year. Restricted 
securities of non-reporting companies would continue to be subject to a 
one-year holding period. A shorter holding period for restricted 
securities of reporting companies may increase the liquidity of 
securities sold in private transactions. This could result in increased 
efficiency in securities offerings because companies will be able to 
sell securities in private offerings at prices closer to prices that 
they may obtain in public markets, without the need to register those 
securities, and otherwise obtain better terms in private offerings. We 
also believe that this would promote capital formation, particularly 
for smaller companies, because the proposals would increase the 
liquidity of securities sold in private transactions. The amendments 
should increase a company's ability to raise capital in private 
securities transactions, which may improve the competitiveness of those 
companies, particularly smaller businesses that do not have ready 
access to public markets.
    We do not believe that the proposed tolling provision that suspends 
the holding period while a security holder

[[Page 36841]]

is engaged in hedging transactions places an undue burden on 
competition. The proposed tolling provision also may decrease 
efficiency somewhat by discouraging security holders from engaging in 
hedging with respect to their securities, however this effect should 
not be significant, as the proposed tolling provision would apply only 
for up to six months.
    The other proposed amendments to Rule 144 generally should increase 
efficiency and assist in capital formation. We believe that the 
proposed elimination of most of the Rule 144 conditions applicable to 
non-affiliates may further increase the liquidity of privately sold 
securities. We anticipate that the proposed elimination of the manner 
of sale limitations for debt securities would provide security holders 
with greater flexibility in the resale of their securities, thereby 
increasing efficiency. Raising the Form 144 filing thresholds, as 
proposed, should also improve efficiency by reducing security holders' 
paperwork burden.
    Under the proposed amendment to Rule 145, individuals and small 
entities owning stock in companies that engage in transactions 
specified in Rule 145(a) would no longer be subject to the presumptive 
underwriter provision, except in the case of transactions involving a 
shell company. These proposed amendments should improve competitiveness 
of many small entities by permitting them to resell securities without 
the restrictions imposed by the current rule.
    We request comment on whether the proposals, if adopted, would 
promote efficiency, competition, and capital formation. Commenters are 
requested to provide empirical data and other factual support for their 
views, if possible.
    Section 23(a)(2) of the Exchange Act \180\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act. We do not believe that the proposed coordination 
of the Form 144 filing requirements with Form 4 filing requirements, if 
implemented, would cause a burden on competition. We request comment on 
whether such amendments would have competitively harmful effects, and 
how we can minimize those effects.
---------------------------------------------------------------------------

    \180\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

VIII. Initial Regulatory Flexibility Analysis

    We have prepared this Initial Regulatory Flexibility Analysis in 
accordance with Section 603 of the Regulatory Flexibility Act.\181\ 
This analysis relates to the proposed amendments to Rules 144 and 145 
and Form 144 under the Securities Act.
---------------------------------------------------------------------------

    \181\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, Proposed Action

    Rule 144 creates a safe harbor for the sale of securities under the 
exemption set forth in Section 4(1) of the Securities Act. If a selling 
security holder satisfies its conditions, that selling security holder 
may resell his or her securities publicly without registration and 
without being deemed an underwriter.
    Rule 145 governs the offer and sale of certain securities received 
in connection with reclassifications, mergers, consolidations and asset 
transfers. It imposes restrictions similar to Rule 144 on a party to 
such transactions and to persons who are affiliates of that party at 
the time the transaction is submitted for vote or consent, with regard 
to securities acquired in that transaction. Rule 145 contains holding 
period requirements similar to those in Rule 144.
    Form 144 is required to be filed by persons intending to sell 
securities in reliance on Rule 144 if the amount of securities to be 
sold in any three-month period exceeds 500 shares or other units or the 
aggregate sales price exceeds $10,000. The primary purpose of the form 
is to publicly disclose the proposed sale of securities by persons 
deemed not to be engaged in the distribution of the securities.
    We are proposing amendments that would make Rule 144 easier to 
understand and apply. We propose to streamline both the Preliminary 
Note to Rule 144 and the rule. In addition to codifying several staff 
interpretive positions, the proposals would reduce the Rule 144 holding 
period and substantially reduce requirements for non-affiliates. The 
proposals would reintroduce a provision tolling the holding period but 
only up to one year after the acquisition of the securities from the 
issuer or an affiliate of the issuer, which is the holding period under 
the current rules.
    The reduction of the Rule 144 holding periods for restricted 
securities of reporting companies for affiliates and non-affiliates 
should increase the liquidity of privately issued securities, enabling 
companies to raise private capital more efficiently. An increase in the 
Form 144 filing threshold would take into account the effects of 
inflation since the last amendment to that provision in 1972. Although 
the codification of several staff interpretive positions is not 
intended to substantively change the rules, they should simplify 
analyses under Rule 144 by compiling these interpretations in one 
readily accessible location. The objectives of the proposed amendments 
are to simplify Rule 144, to reduce its burdens on investors where 
consistent with investor protection, and to facilitate capital 
formation.
    The release solicits comment on how best to coordinate the Form 144 
filing deadline with the Form 4 filing deadline and permit a person who 
is subject to Section 16 of the Exchange Act to meet a Form 144 filing 
requirement with a Form 4 filing, to the extent possible. Such 
amendments could simplify filing requirements for Section 16 persons 
even further by allowing them to file only one form to meet the 
requirements of both Rule 144 and Form 4.

B. Legal Basis

    The amendments are proposed pursuant to Sections 2(a)(11), 4(1), 
4(4), 7, 10, 19(a) and 28 of the Securities Act, as amended.

C. Small Entities Subject to Rule

    The proposed rules would affect both small entities that issue 
securities and small entities that hold such securities. An issuer, 
other than an investment company, is considered a ``small business'' 
for purposes of the Regulatory Flexibility Act if that issuer:
     Has assets of $5 million or less on the last day of its 
most recent fiscal year, and
     Is engaged or proposing to engage in a small business 
financing.\182\
---------------------------------------------------------------------------

    \182\ 17 CFR 230.157. See 5 U.S.C. 601(2).

An issuer is considered to be engaged in a small business financing if 
it is conducting or proposes to conduct an offering of securities that 
does not exceed the dollar limitation prescribed by Section 3(b) \183\ 
of the Securities Act. This dollar amount is currently $5 million. When 
used with reference to an issuer or person, other than an investment 
company, Exchange Act Rule 0-10 \184\ defines small entity to mean an 
issuer or person that, on the last day of its most recent fiscal year, 
had total assets of $5 million or less.
---------------------------------------------------------------------------

    \183\ 15 U.S.C. 77c(b).
    \184\ 17 CFR 240.0-10.
---------------------------------------------------------------------------

    We are aware of approximately 1,100 Exchange Act reporting 
companies that currently satisfy the definition of ``small

[[Page 36842]]

business'' and may be affected by the proposed amendments as 
issuers.\185\ The proposed amendments also may affect companies that 
are small businesses, but that are not subject to Exchange Act 
reporting requirements. As noted above, we currently estimate that 
approximately 60,500 notices on Form 144 are filed annually.\186\ The 
Commission does not collect information about the size of private 
companies about which a Form 144 is filed, but some of these non-
reporting issuers may be ``small.'' The proposed tolling provision and 
the proposals to eliminate the manner of sale limitations may also 
affect brokers that qualify as small entities. We estimate that 910 
broker-dealers registered with the Commission are small entities for 
the purposes of the Regulatory Flexibility Act.\187\ We ask for 
comments regarding an estimate of the number of small entities that may 
be affected if the proposed amendments are adopted.
---------------------------------------------------------------------------

    \185\ The estimated number of reporting small entities is based 
on 2007 data including the Commission's EDGAR database and Thomson 
Financial's Worldscope database. This represents an update from the 
number of reporting small entities estimated in prior rulemakings. 
See, for example, Executive Compensation and Related Disclosure, 
Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158] (in which the 
Commission estimated a total of 2,500 small entities, other than 
investment companies).
    \186\ This reflects current OMB estimates.
    \187\ For purposes of the Regulatory Flexibility Act, a broker 
or dealer is small entity if it (i) had total capital of less than 
$500,000 on the date in its prior fiscal year as of which its 
audited financial statements were prepared or, if not required to 
file audited financial statements, on the last business day of its 
prior fiscal year, and (ii) is not affiliated with any person that 
is not a small entity and is not affiliated with any person that is 
not a small entity. 17 CFR 240.0-1.
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D. Reporting, Recordkeeping and Other Compliance Requirements

    We expect several of the proposed amendments to reduce the number 
of Form 144 filings made to the SEC by selling security holders. These 
proposed amendments are:
     Elimination of all Rule 144 requirements, other than the 
holding period and the current public information requirement for six 
months, for non-affiliates; and
     Increased share number and dollar amount thresholds for 
filing Form 144.
    As a result of the elimination of all requirements for non-
affiliate security holders, other than the holding period and the 
current public information requirement, non-affiliates no longer would 
have to file a Form 144, regardless of the amount of securities sold. 
We estimate that 45% of the Form 144 filings that we currently receive 
are from non-affiliates. Therefore, this particular amendment should 
result in a corresponding reduction in Form 144 filings.
    The increase in the filing threshold for Form 144 should decrease 
the number of Form 144 filings filed by affiliates. Based on studies by 
the Commission's Office of Economic Analysis, we expect the number of 
Form 144 filings to decrease by approximately 5%, or 3,025 filings, if 
the thresholds are increased to 1,000 shares or $50,000 in sales price.
    Clerical skills are necessary to complete Form 144.
    Also, because the proposed amendments would significantly reduce 
the conditions in Rule 144 to which non-affiliates are subject, non-
affiliates would also no longer be required to keep track of compliance 
with those conditions. Non-affiliates with securities of both reporting 
companies and non-reporting companies would no longer be required to 
comply with the manner of sale limitations and volume limitations. Non-
affiliates of non-reporting companies would no longer be required to 
comply with the requirement that there be current information regarding 
the issuer that is publicly available.
    The reintroduction of the tolling provision would require the 
security holder and brokers to determine whether the security holder or 
a previous owner had engaged in hedging transactions with respect to 
the securities, which may require them to maintain some additional 
documentation. However, the holding period need not be suspended if the 
security holder reasonably believes that the previous owner had not 
engaged in hedging transactions in the securities. Also, a 
determination regarding hedging activities would only need to be made 
where the issuer of the securities is a reporting company and the 
securities are sold before a year has passed since the date the 
securities were acquired from the issuer or affiliate.
    The proposal to eliminate the manner of sale limitation for debt 
securities would also obviate the need for security holders to 
determine whether such condition has been met in the resale of their 
debt securities. The amendments to Rule 145 eliminate the need for 
parties to a Rule 145(a) transaction or their affiliates to determine 
whether they have met the resale provisions of Rule 145, except when 
the transaction involves a shell company.

E. Overlapping or Conflicting Federal Rules

    No current federal rules duplicate, overlap or conflict with the 
rules and forms that we are proposing, except that persons subject to 
the reporting requirements under Section 16 of the Securities Exchange 
Act of 1934 may need to file reports on Form 4 as well as Form 144 
under certain circumstances. However, the class of Form 144 filers is 
different than that for Form 4 filers because affiliates of companies 
not subject to the Exchange Act reporting requirements must file Form 
144, but not Form 4. Further, persons who may be deemed affiliates 
under Rule 144 may not necessarily be the same persons who also are 
subject to Section 16. Also, Form 144 is required to be filed earlier 
than Form 4 and Form 144 contains some information that is not required 
to be included on Form 4. As noted above, the release also solicits 
comment on whether Form 4 and Form 144 filing requirements should be 
coordinated to delay the Form 144 filing deadline to match the Form 4 
filing deadline and so that persons subject to Section 16 could be 
exempt from filing a Form 144 regarding a particular transaction if 
they have already filed a Form 4 with respect to that transaction.

F. Significant Alternatives

    We considered different compliance standards for small entities 
that would be affected by the proposed amendments. In the 1997 
proposing release, we solicited comment regarding the possibility of 
different standards for small entities. However, we believe that such 
differences would be inconsistent with the purposes of the rules. 
Commenters on this issue in the 1997 proposing release unanimously 
agreed that different standards would not be feasible and would only 
add to the complexity and difficulty of applying the rules.
    We also considered the other types of alternatives set forth in the 
Regulatory Flexibility Act to minimize the economic impact of the 
amendments on small entities. These included the following:
     the clarification, consolidation, or simplification of 
compliance and reporting requirements for small entities;
     the use of performance rather than design standards; and
     an exemption from some or all of the proposed amendments 
for small entities.
    Because the proposed amendments would benefit all companies and 
holders of restricted securities, differing compliance timetables or 
standards for small entities would not be appropriate. In addition, the 
proposed holding period would likely have a favorable

[[Page 36843]]

impact on small entities by increasing a company's ability to raise 
capital in private securities transactions, which may improve the 
competitiveness of those companies, particularly smaller businesses 
that do not have ready access to public markets. The amendments which 
clarify and streamline Rule 144 should benefit all companies, including 
small entities. We continue to believe that further changes such as the 
use of performance standards or other exemptions with regard to small 
entities would overly complicate the rule, which would be contrary to 
our stated purpose. The proposed hedging provision seeks to ensure that 
any security holder relying on Rule 144 has taken sufficient economic 
risk of investment in the securities and the prohibition against 
security holders of reporting and non-reporting shell companies protect 
against abuses relating to the resale of privately issued securities.
    The proposed changes to Rule 145 would eliminate presumptive 
underwriter provision and resale restrictions on parties to a 
transaction specified in Rule 145(a) and their affiliates, including 
small entities and their affiliates, except when the transaction 
involves a shell company. We believe that retaining the presumptive 
underwriter provision when the transaction involves a shell company is 
necessary, given the potential for abuse relating to such transactions.

G. Solicitation of Comments

    We encourage you to submit written comments with respect to any 
aspect of this Initial Regulatory Flexibility Analysis. In particular, 
we seek comment on: (a) The number of small entities that would be 
affected by the proposed rule; (b) the expected impact on small 
entities of the proposals as discussed above; and (c) a reliable means 
to quantify the number of small entities that would be affected by the 
proposed rules and the rules' impact on small entities.
    We ask commenters to describe the nature of any impact and provide 
empirical data supporting the extent of the impact. We will consider 
comments when we prepare the Final Regulatory Flexibility Analysis if 
the proposed revisions are adopted. Persons wishing to submit written 
comments should file them with: Nancy M. Morris, Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549. All 
comments received will be available for public inspection and copying 
at the SEC's Public Reference Room at the same address.

IX. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\188\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \188\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on whether our proposals would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment or 
innovation.

X. Statutory Basis and Text of Proposed Amendments

    We are proposing to adopt the amendments pursuant to Sections 
2(a)(11), 4(1), 4(4), 7, 10, 19(a) and 28 of the Securities Act, as 
amended.

List of Subjects

17 CFR Part 230

    Advertising, Reporting and recordkeeping requirements, Securities.

17 CFR Part 239

    Reporting and recordkeeping requirements, Securities.

    For the reasons set out above, title 17, chapter II of the Code of 
Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. Revise the authority citation for Part 230 to read, in part, as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 
78mm, 78t, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, unless 
otherwise noted.
* * * * *
    2. Amend Sec.  230.144 by:
    a. Revising the preliminary note;
    b. Revising paragraphs (a)(3)(vi) and (a)(3)(vii), and adding 
paragraph (a)(3)(viii);
    c. Revising paragraphs (b), (c), (d)(1), (d)(3)(i), (d)(3)(ii), and 
(d)(3)(viii);
    d. Adding paragraphs (d)(3)(ix) through paragraphs (d)(3)(xii);
    e. Revising the heading and the introductory text to paragraphs (e) 
and (e)(1);
    f. Removing paragraph (e)(2);
    g. Redesignating existing paragraph (e)(3) as paragraph (e)(2);
    h. Revising newly redesignated paragraph (e)(2);
    i. Revising paragraphs (f), the notes to paragraph (g)(3), 
paragraph (h) and paragraph (i); and
    j. Removing paragraphs (j) and (k).
    The revisions and additions read as follows:


Sec.  230.144  Persons deemed not to be engaged in a distribution and 
therefore not underwriters.

    Preliminary Note: Rule 144 creates a safe harbor from the 
definition of the term ``underwriter'' found in Section 2(a)(11) of 
the Securities Act. If a sale of securities complies with all of the 
applicable provisions of Rule 144:
    1. Any person who sells restricted securities will be deemed not 
to be engaged in a distribution and therefore not an underwriter for 
that transaction;
    2. An affiliate or any person who sells restricted or other 
securities on behalf of an affiliate of the issuer will be deemed 
not to be engaged in a distribution and therefore not an underwriter 
for that transaction; and
    3. The purchaser will receive securities that are not restricted 
securities.
    This means that someone entitled to claim the safe harbor would 
be able to sell his or her securities under Section 4(1) of the Act.
    Rule 144 is not an exclusive safe harbor. This means that a 
person who does not meet all the requirements of Rule 144 still may 
claim any other available exemption for resales under the Act. 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.

    (a) * * *
    (3) * * *
    (vi) Securities acquired in a transaction made under Sec.  230.801 
to the same extent and proportion that the securities held by the 
security holder of the class with respect to which the rights offering 
was made were, as of the record date for the rights offering, 
``restricted securities'' within the meaning of this paragraph (a)(3);
    (vii) Securities acquired in a transaction made under Sec.  230.802 
to the same extent and proportion that the securities that were 
tendered or exchanged in the exchange offer or business combination 
were ``restricted securities'' within the meaning of this paragraph 
(a)(3); and
    (viii) Securities acquired from the issuer in a transaction subject 
to an exemption under section 4(6) (15 U.S.C. 77d(6)) of the Act.

[[Page 36844]]

    (b) Conditions to be met. Subject to paragraph (i) of this section, 
the following conditions must be met:
    (1) Non-Affiliates. (i) If the issuer of the securities 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, any 
person who is not an affiliate of the issuer, and has not been an 
affiliate during the preceding three months, who sells restricted 
securities of an issuer for his or her own account shall be deemed not 
to be an underwriter of those securities within the meaning of section 
2(a)(11) of the Act if all of the conditions of paragraphs (c)(1) and 
(d) of this section are met. The requirements of paragraph (c)(1) of 
this section shall not apply to restricted securities sold for the 
account of a person who is not an affiliate of the issuer at the time 
of the sale and has not been an affiliate during the preceding three 
months, provided a period of one year has elapsed since the later of 
the date the securities were acquired from the issuer or from an 
affiliate of the issuer.
    (ii) If the issuer of the securities 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, any person who 
is not an affiliate of the issuer, and has not been an affiliate during 
the preceding three months, who sells restricted securities of an 
issuer for his or her own account shall be deemed not to be an 
underwriter of those securities within the meaning of section 2(a)(11) 
of the Act if the condition of paragraph (d) of this section is met.
    (2) Affiliates. Any affiliate who sells restricted securities or 
any other securities of an issuer for his or her own account shall be 
deemed not to be an underwriter of those securities within the meaning 
of section 2(a)(11) of the Act if all of the conditions of this section 
are met.
    (3) Persons selling on behalf of affiliates. Any person who sells 
restricted or any other securities for the account of an affiliate of 
the issuer of such securities shall be deemed not to be an underwriter 
of those securities within the meaning of section 2(a)(11) of the Act 
if all of the conditions of this section are met.
    (c) Current public information. Adequate current public information 
with respect to the issuer of the securities must be available. Such 
information will be deemed to be available only if at least one of the 
following conditions is met:
    (1) Reporting Issuers. The issuer 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 and has filed all required 
reports under section 13 or 15(d) during the 12 months preceding such 
sale (or for such shorter period that the issuer was required to file 
such reports), other than Form 8-K reports (Sec.  249.308 of this 
chapter); or
    (2) Non-reporting Issuers. If the issuer is not subject to the 
reporting requirements of section 13 or 15(d) of the Exchange Act, 
there is publicly available the information concerning the issuer 
specified in paragraphs (a)(5)(i) to (xiv), inclusive, and paragraph 
(a)(5)(xvi) of Sec.  240.15c2-11 of this chapter, or, if the issuer is 
an insurance company, the information specified in section 
12(g)(2)(G)(i) of the Exchange Act (15 U.S.C. 78l(g)(2)(G)(i)).

    Note to Sec.  230.144(c). With respect to paragraph (c)(1), the 
person can rely upon:
    1. A statement in whichever is the most recent report, quarterly 
or annual, required to be filed and filed by the issuer that such 
issuer has filed all reports required under section 13 or 15(d) of 
the Exchange Act during the preceding 12 months (or for such shorter 
period that the issuer was required to file such reports), other 
than Form 8-K reports (Sec.  249.308 of this chapter), and has been 
subject to such filing requirements for the past 90 days; or
    2. A written statement from the issuer that it has complied with 
such reporting requirements.
    3. Neither type of statement may be relied upon, however, if the 
person knows or has reason to believe that the issuer has not 
complied with such requirements.

    (d) * * *
    (1) General rule. (i) If the issuer of the securities 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 
minimum of six months must elapse between the later of the date of the 
acquisition of the securities from the issuer, or from an affiliate of 
the issuer, and any resale of such securities in reliance on this 
section for the account of either the acquiror or any subsequent holder 
of those securities.
    (ii) If the issuer of the securities 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, a minimum of 
one year must elapse between the later of the date of the acquisition 
of the securities from the issuer, or from an affiliate of the issuer, 
and any resale of such securities in reliance on this section for the 
account of either the acquiror or any subsequent holder of those 
securities.
    (iii) If the acquiror takes the securities by purchase, the holding 
period shall not begin until the full purchase price or other 
consideration is paid or given by the person acquiring the securities 
from the issuer or from an affiliate of the issuer.
* * * * *
    (3) * * *
    (i) Stock dividends, splits and recapitalizations. Securities 
acquired from the issuer as a dividend or pursuant to a stock split, 
reverse split or recapitalization shall be deemed to have been acquired 
at the same time as the securities on which the dividend or, if more 
than one, the initial dividend was paid, the securities involved in the 
split or reverse split, or the securities surrendered in connection 
with the recapitalization.
    (ii) Conversions and exchanges. If the securities sold were 
acquired from the issuer solely in exchange for other securities of the 
same issuer, the newly acquired securities shall be deemed to have been 
acquired at the same time as the securities surrendered for conversion 
or exchange, even if the securities surrendered were not convertible or 
exchangeable by their terms.

    Note to Sec.  230.144(d)(3)(ii). If the surrendered securities 
originally did not provide for cashless conversion or exchange by 
their terms and the holder provided consideration, other than solely 
securities of the same issuer, in connection with the amendment of 
the surrendered securities to permit cashless conversion or 
exchange, then the newly acquired securities shall be deemed to have 
been acquired at the same time as such amendment to the surrendered 
securities, so long as the conversion or exchange itself meets the 
conditions of this section.

* * * * *
    (viii) Rule 145(a) transactions. The holding period for securities 
acquired in a transaction specified in Sec.  230.145(a) shall be deemed 
to commence on the date the securities were acquired by the purchaser 
in such transaction, except as otherwise provided in paragraphs 
(d)(3)(ii) and (ix) of this section.
    (ix) Holding company formations. Securities acquired from the 
issuer in a transaction effected solely for the purpose of forming a 
holding company shall be deemed to have been acquired at the same time 
as the securities of the predecessor issuer exchanged in the holding 
company formation where:
    (A) The newly formed holding company's securities were 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;

[[Page 36845]]

    (B) Holders received securities of the same class evidencing the 
same proportional interest in the holding company as they held in the 
predecessor, 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
    (C) Immediately following the transaction, the holding company has 
no significant assets other than securities of the predecessor company 
and its existing subsidiaries and has substantially the same assets and 
liabilities on a consolidated basis as the predecessor had before the 
transaction.
    (x) Cashless exercise of options and warrants. If the securities 
sold were acquired from the issuer solely upon cashless exercise of 
options or warrants issued by the issuer, the newly acquired securities 
shall be deemed to have been acquired at the same time as the exercised 
options or warrants, even if the options or warrants exercised 
originally did not provide for cashless exercise by their terms.

    Note 1 to Sec.  230.144(d)(3)(x): If the options or warrants 
originally did not provide for cashless exercise by their terms and 
the holder provided consideration, other than solely securities of 
the same issuer, in connection with the amendment of the options or 
warrants to permit cashless exercise, then the newly acquired 
securities shall be deemed to have been acquired at the same time as 
such amendment to the options or warrants.


    Note 2 to Sec.  230.144(d)(3)(x): If the options or warrants are 
not purchased for cash or property and do not create any investment 
risk to the holder, as in the case of employee stock options, the 
newly acquired securities shall be deemed to have been acquired at 
the time the options or warrants are exercised, so long as the 
conditions of Rule 144(d)(1) and Rule 144(d)(2) are met at the time 
of exercise.

    (xi) Short sales and hedging transactions. In computing the six-
month holding period the following periods shall be excluded:
    (A) If the securities sold are equity securities, as defined in 
Sec.  230.405, there shall be excluded any period during which the 
person for whose account they are sold had a short position, or had 
entered into a ``put equivalent position'' (as defined in Sec.  
240.16a-1(h) of this chapter), with respect to any equity securities of 
the same class or any securities convertible into securities of such 
class; and
    (B) If the securities sold are nonconvertible debt securities, 
there shall be excluded any period during which the person for whose 
account they are sold had a short position, or had entered into a ``put 
equivalent position'' (as defined in Sec.  240.16a-1(h) of this 
chapter), with respect to any nonconvertible debt securities of the 
same issuer.
    (C) If the holding period is based on a period that a previous 
owner has held the securities, there shall be excluded any period 
during which the previous owner had a short position or had entered 
into a ``put equivalent position'' (as defined in Sec.  240.16a-1(h) of 
this chapter), with respect to any equity securities of the same class 
or any securities convertible into securities of such class, if the 
securities sold are equity securities, or with respect to any 
nonconvertible debt securities of the same issuer, if the securities 
sold are nonconvertible debt securities, unless the person for whose 
account the securities are sold reasonably believes that no such 
position was held by a previous owner.

    Note to Sec.  230.144(d)(3)(xi): This paragraph shall not apply 
if the holding period computed under paragraph (d) of this rule 
(excluding this paragraph) has been twelve months or more.

    (xii) Securities sold under paragraph (i)(2). For the purposes of 
computing the holding period of securities sold under paragraph (i)(2) 
of this rule, securities of an issuer that has ceased to be an issuer 
described in paragraph (i)(1)(i) shall be deemed to have been acquired 
at the time the securities were acquired from the issuer, at the time 
they were acquired from an affiliate of the issuer, or at the time the 
``Form 10 information'' regarding the issuer is filed with the 
Commission, whichever is the latest date.
    (e) Limitation on amount of securities sold by or for affiliates. 
Except as hereinafter provided, the amount of securities which may be 
sold by or for affiliates in reliance upon this rule shall be 
determined as follows:
    (1) If any securities are sold for the account of an affiliate of 
the issuer, regardless of whether those securities are restricted, the 
amount of securities sold, together with all sales of securities of the 
same class sold for the account of such person within the preceding 
three months, shall not exceed the greatest of:
* * * * *
    (2) Determination of amount. For the purpose of determining the 
amount of securities specified in paragraph (e)(1) of this section, the 
following provisions shall apply:
    (i) Where both convertible securities and securities of the class 
into which they are convertible are sold, the amount of convertible 
securities sold shall be deemed to be the amount of securities of the 
class into which they are convertible for the purpose of determining 
the aggregate amount of securities of both classes sold;
    (ii) The amount of securities sold for the account of a pledgee of 
those securities, or for the account of a purchaser of the pledged 
securities, during any period of three months within six months after a 
default in the obligation secured by the pledge, and the amount of 
securities sold during the same three-month period for the account of 
the pledgor shall not exceed, in the aggregate, the amount specified in 
paragraph (e)(1) of this section;

    Note to Sec.  230.144(e)(2)(ii): Sales by a pledgee of 
securities pledged by a borrower will not be aggregated under 
paragraph (e)(2)(ii) with sales of the securities of the same issuer 
by other pledgees of such borrower in the absence of concerted 
action by such pledgees.

    (iii) The amount of securities sold for the account of a donee of 
those securities during any three-month period within six months after 
the donation, and the amount of securities sold during the same three-
month period for the account of the donor, shall not exceed, in the 
aggregate, the amount specified in paragraph (e)(1) of this section;
    (iv) Where securities were acquired by a trust from the settlor of 
the trust, the amount of such securities sold for the account of the 
trust during any three-month period within six months after the 
acquisition of the securities by the trust, and the amount of 
securities sold during the same three-month period for the account of 
the settlor, shall not exceed, in the aggregate, the amount specified 
in paragraph (e)(1) of this section;
    (v) The amount of securities sold for the account of the estate of 
a deceased person, or for the account of a beneficiary of such estate, 
during any three-month period and the amount of securities sold during 
the same three-month period for the account of the deceased person 
prior to his death shall not exceed, in the aggregate, the amount 
specified in paragraph (e)(1) of this section; provided, that no 
limitation on amount shall apply if the estate or beneficiary of the 
estate is not an affiliate of the issuer;
    (vi) When two or more affiliates or other persons agree to act in 
concert for the purpose of selling securities of an issuer, all 
securities of the same class sold for the account of all such persons 
during any period of three months shall be aggregated for the purpose 
of determining the limitation on the amount of securities sold;
    (vii) The following sales of securities need not be included in 
determining the

[[Page 36846]]

amount of securities sold in reliance upon this rule:
    (A) Securities sold pursuant to an effective registration statement 
under the Act;
    (B) Securities sold pursuant to an exemption provided by Regulation 
A (Sec.  230.251 through Sec.  230.263) under the Act;
    (C) Securities sold in a transaction exempt pursuant to section 4 
of the Act (15 U.S.C. 77d) and not involving any public offering; and
    (D) Securities sold offshore pursuant to Regulation S (Sec.  
230.901 through Sec.  230.905, and Preliminary Notes) under the Act.
    (f) Manner of sale. (1) The securities shall be sold in brokers' 
transactions within the meaning of section 4(4) of the Act or in 
transactions directly with a market maker, as that term is defined in 
section 3(a)(38) of the Exchange Act, and the person selling the 
securities shall not:
    (i) Solicit or arrange for the solicitation of orders to buy the 
securities in anticipation of or in connection with such transaction, 
or
    (ii) Make 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.
    (2) Paragraph (f)(1) shall not apply to:
    (i) 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 estate beneficiary is not an affiliate of the issuer; or
    (ii) Debt securities.

    Note to Sec.  230.144(f)(2): For the purposes of paragraph 
(f)(2), ``debt securities'' is defined to mean:
    1. Any security other than an equity security as defined in 
Sec.  230.405;
    2. Non-participatory preferred stock, which is defined as non-
convertible capital stock, the holders of which are entitled to a 
preference in payment of dividends and in distribution of assets on 
liquidation, dissolution, or winding up of the issuer, but are not 
entitled to participate in residual earnings or assets of the 
issuer; and
    3. Asset-backed securities, as defined in Sec.  229.1101 of this 
section.

    (g) * * *
    (3) * * *

    Note 1 to paragraph (g)(3): The broker, for his own protection, 
should obtain and retain in his files a copy of the notice required 
by paragraph (h) of this section.


    Note 2 to paragraph (g)(3): The reasonable inquiry required by 
paragraph (g)(3) of this section should include, but not necessarily 
be limited to, inquiry as to the following matters:
    1. The length of time the securities have been held by the 
person for whose account they are to be sold. If practicable, the 
inquiry should include physical inspection of the securities;
    2. 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 they are to be sold and whether such person has made 
inquiries about the existence and character of any short position or 
put equivalent position with regard to the securities held by the 
previous owner of the securities and the results of such person's 
inquiries;
    3. The nature of the transaction in which the securities were 
acquired by such person;
    4. The amount of securities of the same class sold during the 
past 3 months by all persons whose sales are required to be taken 
into consideration pursuant to paragraph (e) of this section;
    5. Whether such person intends to sell additional securities of 
the same class through any other means;
    6. Whether such person has solicited or made any arrangement for 
the solicitation of buy orders in connection with the proposed sale 
of securities;
    7. Whether such person has made any payment to any other person 
in connection with the proposed sale of the securities; and
    8. The number of shares or other units of the class outstanding, 
or the relevant trading volume.

    (h) Notice of proposed sale. (1) If the amount of securities to be 
sold in reliance upon this rule during any period of three months 
exceeds 1,000 shares or other units or has an aggregate sale price in 
excess of $50,000, three copies of a notice on Form 144 (Sec.  239.144 
of this chapter) shall be filed with the Commission at its principal 
office in Washington, DC. If such securities trade on any national 
securities exchange, one copy of such notice also shall be transmitted 
to the principal exchange on which such securities are traded.
    (2) The Form 144 shall be signed by the person for whose account 
the securities are to be sold and shall be transmitted for filing 
concurrently with either the placing with a broker of an order to 
execute a sale of securities in reliance upon this rule or the 
execution directly with a market maker of such a sale. Neither the 
filing of such notice nor the failure of the Commission to comment on 
such filing shall be deemed to preclude the Commission from taking any 
action that it deems necessary or appropriate with respect to the sale 
of the securities referred to in such notice. The person filing the 
notice required by this paragraph shall have a bona fide intention to 
sell the securities referred to therein within a reasonable time after 
the filing of such notice.
    (i) Inapplicability to issuers with no or nominal operations and no 
or nominal non-cash assets. (1) A selling security holder may not rely 
on this section to resell securities if the issuer of the securities 
is:
    (i) An issuer, other than a business combination related shell 
company, as defined in Sec.  230.405, or an asset-backed issuer, as 
defined in Item 1101(b) of Regulation AB (Sec.  229.1101(b) of this 
chapter), that has:
    (A) No or nominal operations; and
    (B) Either:
    (1) No or nominal assets;
    (2) Assets consisting solely of cash and cash equivalents; or
    (3) Assets consisting of any amount of cash and cash equivalents 
and nominal other assets; or
    (ii) An issuer that has been at any time previously an issuer 
described in paragraph (i)(1)(i).
    (2) Notwithstanding paragraph (i)(1), if the issuer of the 
securities previously had been an issuer described in paragraph 
(i)(1)(i) but has ceased to be an issuer described in paragraph 
(i)(1)(i); is subject to the reporting requirements of Section 13 or 
15(d) of the Exchange Act; has filed all reports and other materials 
required to be filed by such requirements during the preceding 12 
months (or for such shorter period that the registrant was required to 
file such reports and materials); and has filed current ``Form 10 
information'' with the Commission reflecting its status as an entity 
that is no longer an issuer described in paragraph (i)(1)(i), then a 
security holder may resell those securities subject to the requirements 
of this rule 90 days after the ``Form 10 information'' is filed.
    (3) The term ``Form 10 information'' means the information that is 
required by Form 10, Form 10-SB, or Form 20-F (Sec.  249.210, Sec.  
249.210b, or Sec.  249.220f of this chapter), as applicable to the 
issuer of the securities, to register under the Securities Exchange Act 
of 1934 each class of securities being sold under this rule. The issuer 
may provide the Form 10 information in any issuer filing with the 
Commission.
    3. Amend Sec.  230.145 by revising paragraphs (c), (d) and (e) and 
removing the authority citation at the end of the section to read as 
follows:


Sec.  230.145  Reclassification of securities, mergers, consolidations 
and acquisitions of assets.

* * * * *
    (c) Persons and parties deemed to be underwriters. For purposes of 
this section, if any party to a transaction specified in paragraph (a) 
of this section is a shell company, other than a business combination 
related shell company, as those terms are defined in Sec.  230.405, any 
party to that transaction,

[[Page 36847]]

other than the issuer, or any person who is an affiliate of such party 
at the time such transaction is submitted for vote or consent, who 
publicly offers or sells securities of the issuer acquired in 
connection with any such transaction, shall be deemed to be engaged in 
a distribution and therefore to be an underwriter thereof within the 
meaning of Section 2(a)(11) of the Act.
    (d) Resale provisions for persons and parties deemed underwriters. 
Notwithstanding the provisions of paragraph (c) of this section, a 
person or party specified in that paragraph shall not be deemed to be 
engaged in a distribution and therefore not to be an underwriter of 
securities acquired in a transaction specified in paragraph (a) of this 
section that was registered under the Act if:
    (1) Any shell company specified in paragraph (c) of this section is 
no longer a shell company; and
    (2) One of the following three conditions is met:
    (i) Such securities are sold by such person or party in accordance 
with the provisions of paragraphs (c), (e), (f), and (g) of Sec.  
230.144 and at least 90 days have elapsed since the date the securities 
were acquired from the issuer in such transaction; or
    (ii) Such person or party is not, and has not been for at least 
three months, an affiliate of the issuer, and a period of at least six 
months, as determined in accordance with paragraph (d) of Sec.  
230.144, have elapsed since the date the securities were acquired from 
the issuer in such transaction, and the issuer meets the requirements 
of paragraph (c) of Sec.  230.144; or
    (iii) Such person or party is not, and has not been for at least 
three months, an affiliate of the issuer, and a period of at least one 
year, as determined in accordance with paragraph (d) of Sec.  230.144, 
has elapsed since the date the securities were acquired from the issuer 
in such transaction.

    Note to paragraphs (c) and (d): Paragraphs (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.

    (e) Definitions. (1) The term affiliate as used in paragraphs (c) 
and (d) of this section shall have the same meaning as the definition 
of that term in Sec.  230.405.
    (2) The term party as used in paragraphs (c) and (d) of this 
section shall mean the corporations, business entities, or other 
person, other than the issuer, whose assets or capital structure are 
affected by the transactions specified in paragraph (a).
    (3) The term person as used in paragraphs (c) and (d) of this 
section, when used in reference to a person for whose account 
securities are to be sold, shall have the same meaning as the 
definition of that term in paragraph (a)(2) of Sec.  230.144.
    4. Amend Sec.  230.190 by:
    a. Revising paragraphs (a)(2) and (a)(3); and
    b. Adding paragraph (a)(4).
    The revisions and addition read as follows:


Sec.  230.190  Registration of underlying securities in asset-backed 
securities transactions.

    (a) * * *
    (1) * * *
    (2) Neither the issuer of the underlying securities nor any of its 
affiliates is an affiliate of the sponsor, depositor, issuing entity or 
underwriter of the asset-backed securities transaction;
    (3) If the underlying securities are restricted securities, as 
defined in Sec.  230.144(a)(3), Sec.  230.144 must be available for the 
sale of the securities, provided however, that notwithstanding any 
other provision of Sec.  230.144, Sec.  230.144 shall only be so 
available if at least two years 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; and
    (4) The depositor would be free to publicly resell the underlying 
securities without registration under the Act. For example, the 
offering of the asset-backed security does not constitute part of a 
distribution of the underlying securities. An offering of asset-backed 
securities with an asset pool containing underlying securities that at 
the time of the purchase for the asset pool are part of a subscription 
or unsold allotment would be a distribution of the underlying 
securities. For purposes of this section, in an offering of asset-
backed securities involving a sponsor, depositor or underwriter that 
was an underwriter or an affiliate of an underwriter in a registered 
offering of the underlying securities, the distribution of the asset-
backed securities will not constitute part of a distribution of the 
underlying securities if the underlying securities were purchased at 
arm's length in the secondary market at least three months after the 
last sale of any unsold allotment or subscription by the affiliated 
underwriter that participated in the registered offering of the 
underlying securities.
* * * * *


Sec.  230.701  [Amended]

    5. Amend Sec.  230.701, paragraph (g)(3), to revise the phrase 
``without compliance with paragraphs (c), (d), (e), and (h) of Sec.  
230.144'' to read ``without compliance with paragraphs (c) and (d) of 
Sec.  230.144''.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    6. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c, 
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-24, 80a-29, 80a-30 and 80a-37, 
unless otherwise noted.
* * * * *
    7. Amend Sec.  239.144 by revising paragraph (b) to read as 
follows:


Sec.  239.144  Form 144, for notice of proposed sale of securities 
pursuant to Sec.  230.144 of this chapter.

* * * * *
    (b) This form need not be filed if the amount of securities to be 
sold during any period of three months does not exceed 1,000 shares or 
other units and the aggregate sale price does not exceed $50,000.
* * * * *
    8. Form 144 (referenced in Sec.  239.144) is revised as set forth 
in the Appendix.

    Dated: June 22, 2007.

    By the Commission.
Nancy M. Morris,
Secretary.

    Note: This Appendix to the Preamble will not appear in the Code 
of Federal Regulations.

Appendix

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