[Federal Register Volume 72, Number 241 (Monday, December 17, 2007)]
[Rules and Regulations]
[Pages 71546-71573]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-6013]



[[Page 71545]]

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

Part III





Securities and Exchange Commission





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



17 CFR Parts 230 and 239



 Revisions to Rules 144 and 145; Final Rule

  Federal Register / Vol. 72, No. 241 / Monday, December 17, 2007 / 
Rules and Regulations  

[[Page 71546]]


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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 239

[Release No. 33-8869; File No. S7-11-07]
RIN 3235-AH13


Revisions to Rules 144 and 145

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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

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 shortening the holding 
period requirement under Rule 144 for ``restricted securities'' of 
issuers that are subject to the reporting requirements of the 
Securities Exchange Act of 1934 to six months. Restricted securities of 
issuers that are not subject to the Exchange Act reporting requirements 
will continue to be subject to a one-year holding period prior to any 
public resale. The amendments also substantially reduce the 
restrictions applicable to the resale of securities by non-affiliates. 
In addition, the amendments simplify the Preliminary Note to Rule 144, 
amend the manner of sale requirements and eliminate them with respect 
to debt securities, amend the volume limitations for debt securities, 
increase the Form 144 filing thresholds, and codify several staff 
interpretive positions that relate to Rule 144. Finally, we are 
eliminating the presumptive underwriter provision in Securities Act 
Rule 145, except for transactions involving a shell company, and 
revising the resale requirements in Rule 145(d). We believe that the 
amendments will increase the liquidity of privately sold securities and 
decrease the cost of capital for all issuers without compromising 
investor protection.

DATES: Effective Date: February 15, 2008. The revised holding periods 
and other amendments that we are adopting are applicable to securities 
acquired before or after February 15, 2008. Comment Date: Comments 
regarding the collection of information requirements within the meaning 
of the Paperwork Reduction Act of 1995 should be received on or before 
January 16, 2008.

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/final.shtml);
     Send an e-mail to [email protected]. Please include 
File No. S7-11-07 on the subject line; or
     Use the Federal Rulemaking 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 
Internet Web site (http://www.sec.gov/rules/final.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 or Raymond A. Be, 
Special Counsels in the Office of Rulemaking, Division of Corporation 
Finance, at (202) 551-3430, 100 F Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to 
Rule 144,\1\ Rule 145,\2\ Rule 190,\3\ Rule 701,\4\ Rule 903,\5\ and 
Form 144 \6\ under the Securities Act of 1933.\7\
---------------------------------------------------------------------------

    \1\ 17 CFR 230.144.
    \2\ 17 CFR 230.145.
    \3\ 17 CFR 230.190.
    \4\ 17 CFR 230.701.
    \5\ 17 CFR 230.903.
    \6\ 17 CFR 239.144.
    \7\ 15 U.S.C. 77a et seq.
---------------------------------------------------------------------------

Table of Contents

I. Background
II. Discussion of Final Amendments
    A. Simplification of the Preliminary Note and Text of Rule 144
    B. Amendments to Holding Periods for Restricted Securities
    1. Six-Month Rule 144(d) Holding Period Requirement for Exchange 
Act Reporting Companies
    2. Significant Reduction of Conditions Applicable to Non-
Affiliates
    3. Tolling Provision
    C. Amendments to the Manner of Sale Requirements Applicable to 
Resales by Affiliates
    D. Changes to Rule 144 Conditions Related to Resales of Debt 
Securities by Affiliates
    1. Comments Received on Proposed Amendments Relating to Debt 
Securities
    2. No Manner of Sale Requirements Regarding Resales of Debt 
Securities
    3. Raising Volume Limitations for Debt Securities
    E. Increase of the Thresholds that Trigger the Form 144 Filing 
Requirement for Affiliates
    F. Codification of Several Staff Positions
    1. Securities Acquired 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 
Exchange Act Rule 10b5-1(c)
    G. Amendments to Rule 145
    H. Conforming and Other Amendments
    1. Regulation S Distribution Compliance Period for Category 
Three Issuers
    2. Underlying Securities in Asset-Backed Securities Transactions
    3. Securities Act Rule 701(g)(3)
III. Paperwork Reduction Act
    A. Background
    B. Summary of Amendments
    C. Revised Burden Estimates
    D. Solicitation of Comments
IV. Cost-Benefit Analysis
    A. Background
    B. Description of Amendments
    C. Benefits
    D. Costs
V. Promotion of Efficiency, Competition and Capital Formation
VI. Final Regulatory Flexibility Analysis
    A. Reasons for, and Objectives of, the Amendments
    B. Significant Issues Raised by Comments
    C. Small Entities Subject to the Rule
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Basis and Text of Amendments

I. Background

    The Securities Act of 1933 (``Securities Act'') requires 
registration of all offers and sales of securities in interstate 
commerce or by use of the U.S. mails, unless an exemption from the 
registration requirement is available.\8\ Section 4(1) of the 
Securities Act provides such an exemption for transactions by any 
person other than an issuer, underwriter or dealer.\9\
---------------------------------------------------------------------------

    \8\ See 15 U.S.C. 77e.
    \9\ 15 U.S.C. 77d(1).
---------------------------------------------------------------------------

    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

[[Page 71547]]

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.'' \10\ 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.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 77b(a)(11). Section 2(a)(11) states that the term 
``issuer'' shall include, in addition to an issuer, any person 
directly or indirectly controlling or controlled by the issuer, or 
any person under direct or indirect common control with the issuer. 
Therefore, any person who purchased securities from an affiliate of 
an issuer is an underwriter under Section 2(a)(11) if that person 
purchased with a view to the distribution of the securities.
    \11\ Release No. 33-5223 (Jan. 11, 1972) [37 FR 591].
---------------------------------------------------------------------------

    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).\12\ Although it is not a term defined in Rule 144, ``control 
securities'' is used commonly to refer to securities held by an 
affiliate of the issuer,\13\ regardless of how the affiliate acquired 
the securities.\14\ Therefore, if an affiliate acquires securities in a 
transaction that is listed in Rule 144(a)(3), those securities are both 
restricted securities and control securities. A person selling 
restricted securities, or a person selling restricted or other 
securities on behalf of the account of an affiliate, who satisfies all 
of Rule 144's applicable conditions in connection with the transaction, 
is deemed not to be an ``underwriter,'' as defined in Section 2(a)(11) 
of the Securities Act, and therefore may rely on the Section 4(1) 
exemption for the resale of the securities.
---------------------------------------------------------------------------

    \12\ 17 CFR 230.144(a)(3).
    \13\ An affiliate of the issuer is a person that directly, or 
indirectly through one or more intermediaries, controls, or is 
controlled by, or is under common control with, such issuer. See 17 
CFR 230.144(a)(1).
    \14\ See, e.g., Release No. 33-7391 (Feb. 20, 1997) [62 FR 
9246].
---------------------------------------------------------------------------

    Since its adoption, we have reviewed and revised Rule 144 several 
times. We last made major changes in 1997 (``1997 amendments'').\15\ At 
that time, we shortened the required holding periods for restricted 
securities.\16\ Before the 1997 amendments, security holders could 
resell restricted securities under Rule 144, subject to limitation, 
after two years, and persons who were not affiliates and had not been 
affiliates during the prior three months, could resell restricted 
securities without limitation after three years. The 1997 amendments 
changed these two-year and three-year periods to one-year and two-year 
periods, respectively.
---------------------------------------------------------------------------

    \15\ See Release No. 33-7390 (Feb. 20, 1997) [62 FR 9242] (``the 
1997 Adopting Release'').
    \16\ We shortened the holding period requirements in paragraphs 
(d) and (k) of Rule 144.
---------------------------------------------------------------------------

    On the same day that we adopted those changes, we also proposed and 
solicited comment on several possible additional changes to Rule 144, 
Rule 145 and Form 144, including reducing the holding period further 
(``1997 Proposing Release'' and ``1997 proposals'').\17\ We received 38 
comment letters on those proposed changes. While some commenters 
supported further shortening the holding periods, others suggested that 
we monitor the results of the 1997 amendments before making further 
changes. We did not take further action to adopt the 1997 proposals.
---------------------------------------------------------------------------

    \17\ See the 1997 Proposing Release. In the 1997 Proposing 
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.
---------------------------------------------------------------------------

    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 satisfies 
specified conditions. The conditions include the following:
     There must be adequate current public information 
available about the issuer;\18\
---------------------------------------------------------------------------

    \18\ 17 CFR 230.144(c).
---------------------------------------------------------------------------

     If the securities being sold are restricted securities, 
the security holder must have held the security for a specified holding 
period;\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 230.144(d).
---------------------------------------------------------------------------

     The resale must be within specified sales volume 
limitations;\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 230.144(e).
---------------------------------------------------------------------------

     The resale must comply with the manner of sale 
requirements;\21\ and
---------------------------------------------------------------------------

    \21\ 17 CFR 230.144(f) and (g).
---------------------------------------------------------------------------

     The selling security holder must file Form 144 if the 
amount of securities being sold exceeds specified thresholds.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 230.144(h).

Rule 144, as it existed before today's amendments, permitted a non-
affiliate to publicly resell restricted securities without being 
subject to the above limitations if the securities had been held for 
two years or more, provided that the security holder was not, and, for 
the three months prior to the sale, had not been, an affiliate of the 
issuer.\23\
---------------------------------------------------------------------------

    \23\ This provision was previously located in Rule 144(k).
---------------------------------------------------------------------------

    On July 5, 2007, we again proposed to amend several aspects of Rule 
144 and Rule 145, including by further shortening the holding periods 
(the ``2007 Proposing Release'').\24\ We proposed to shorten the 
holding period requirement in Rule 144(d) for restricted securities of 
issuers that are subject to the reporting requirements of Section 13 or 
15(d) of the Securities Exchange Act of 1934 (the ``Exchange Act'')\25\ 
to six months. Restricted securities of issuers that are not subject to 
Exchange Act reporting requirements would continue to be subject to a 
one-year holding period under Rule 144(d). We also proposed to relieve 
non-affiliates of reporting issuers from having to comply with all 
conditions in Rule 144, except the current public information 
requirement, after a six-month holding period. Non-affiliates of non-
reporting issuers would be allowed to resell their securities freely 
after a one-year holding period. In addition, we proposed to:
     Simplify the Preliminary Note to Rule 144 and text of Rule 
144;
---------------------------------------------------------------------------

    \24\ Release No. 33-8813 (June 22, 2007) [72 FR 36822] (Jul. 5, 
2007).
    \25\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

     Toll the holding period during the time that security 
holders engage in certain hedging transactions;
     Eliminate the ``manner of sale'' requirements with respect 
to the resale of debt securities;
     Increase the thresholds triggering the requirement to file 
Form 144; and
     Codify several staff positions relating to Rule 144.
    We also solicited comment on amending the Form 144 filing deadline 
to coincide with the deadline for filing a Form 4 \26\ under Section 16 
\27\ of the Exchange Act and permitting persons who are subject to 
Section 16 to meet their Form 144 filing requirement by

[[Page 71548]]

filing a Form 4.\28\ Finally, we proposed to eliminate the presumptive 
underwriter provision in Securities Act Rule 145, except for 
transactions involving a shell company, and to harmonize the resale 
provisions in Rule 145 with the Rule 144 provisions applicable to 
resales of securities of shell companies.
---------------------------------------------------------------------------

    \26\ 17 CFR 249.104.
    \27\ 15 U.S.C. 78p.
    \28\ 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 generally 
requires reporting persons to 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 
transaction that caused the change in beneficial ownership was 
executed.
---------------------------------------------------------------------------

    We received 32 comment letters from 30 commenters on the proposals 
in the 2007 Proposing Release.\29\ A majority of the commenters 
expressed support for the proposals in general.\30\ Several of these 
commenters expressed support for the proposed amendments to shorten the 
holding period requirement in Rule 144 for both affiliates and non-
affiliates of Exchange Act reporting issuers.\31\ Two commenters 
opposed shortening the holding period, as proposed.\32\
---------------------------------------------------------------------------

    \29\ The comment letters on the 2007 Proposing Release are 
available on the Commission's public Web site at http://www.sec.gov/comments/s7-11-07/s71107.shtml.
    \30\ See, e.g., comment letters on the 2007 Proposing Release 
from Jesse Brill (dated Aug. 1, 2007) (``Brill 1''); Cleary Gottlieb 
Steen & Hamilton LLP (``Cleary Gottlieb''); Feldman Weinstein and 
Smith LLP (``Feldman''); Fried, Frank, Harris, Shriver, and Jacobsen 
LLP (``Fried Frank''); Barry Gleicher (``Gleicher''); Krieger & 
Prager, LLP (``Krieger''); U.S. Securities Lawyers in London 
(``London Forum''); Parsons/Burnett LLP (``Parsons''); Pink Sheets, 
LLC (``Pink Sheets''); Richardson Patel LLP (``Richardson Patel''); 
Roth Capital Partners (``Roth''); Society of Corporate Secretaries & 
Governance Professionals (``SCSGP''); Sichenzia Ross Friedman 
Ference LLP (``Sichenzia''); Sullivan & Cromwell LLP (``Sullivan''); 
Peter J. Weisman (``Weisman''); and Williams Securities Law 
(``Williams''); and a joint letter from the Securities Industry and 
Financial Markets Association, International Swaps and Derivatives 
Association, Inc. and Management Funds Association (``Financial 
Associations'').
    \31\ See comment letters on the 2007 Proposing Release from the 
Committee on Federal Regulation of Securities of the American Bar 
Association (``ABA''); Feldman; Financial Associations; Fried Frank; 
London Forum; Richardson Patel; Roth; Sichenzia; SCSGP; Weisman; and 
Williams.
    \32\ See comment letters on the 2007 Proposing Release from the 
North American Securities Administrators Association, Inc. 
(``NASAA'') and Marc I. Steinberg (``Steinberg'').
---------------------------------------------------------------------------

    Some commenters expressed opposition to the proposed reintroduction 
of a provision that would toll, or suspend, for up to six months, the 
holding period during any period that a security holder engages in 
hedging activities with respect to any equity securities of the same 
class as the restricted securities or any securities convertible into 
that class (or, in the case of nonconvertible debt, with respect to any 
nonconvertible debt securities).\33\ The commenters thought that the 
tolling provision could have a negative effect on capital raising 
transactions. These commenters provided several recommendations on how 
we should modify the tolling provision, if we decide to adopt it. We 
received general support for the other aspects of the proposed 
amendments, including the proposals relating to Form 144, the 
elimination of the manner of sale requirements for debt securities and 
the codification of several staff interpretations.
---------------------------------------------------------------------------

    \33\ See comment letters on the 2007 Proposing Release from ABA; 
Cleary Gottlieb; Feldman; Financial Associations; Richardson Patel; 
Sichenzia; and Weisman.
---------------------------------------------------------------------------

II. Discussion of Final Amendments

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

    In the 2007 Proposing Release, we noted that the current 
Preliminary Note is complex and may be confusing to some security 
holders. We proposed amendments to simplify and clarify the Preliminary 
Note to Rule 144 and to incorporate plain English principles. The 
proposed amendments to the Preliminary Note were not intended to alter 
the substantive operation of the rule. In addition, we proposed changes 
throughout the rule to make the rule less complex and easier to read.
    We received a few comments on the proposed changes to simplify Rule 
144 and the Preliminary Note. One commenter believed that the 
Preliminary Note to Rule 144 is no longer necessary, because the 
purpose and meaning of the rule are well-understood.\34\ Some 
commenters recommended that we further explain how Rule 144 can be used 
for the resale of control securities.\35\
---------------------------------------------------------------------------

    \34\ See comment letter on the 2007 Proposing Release from ABA.
    \35\ See comment letters on the 2007 Proposing Release from ABA; 
Bulldog Investors; and Sutherland Asbill & Brennan LLP 
(``Sutherland'').
---------------------------------------------------------------------------

    We are adopting the amendments to the Preliminary Note with some 
modification from the proposed version. The revised Preliminary Note 
retains an explanation of the relationship among the exemption in 
Section 4(1) of the Securities Act, the Section 2(a)(11) definition of 
``underwriter'' and the Rule 144 safe harbor. Consistent with the 
proposal, the revised Preliminary Note also clarifies that any person 
who sells restricted securities, and any person who sells restricted 
securities or other securities on behalf of an affiliate, shall be 
deemed not to be engaged in a distribution of such securities and 
therefore shall be deemed not to be 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 revised Preliminary Note further 
states that, although Rule 144 provides a safe harbor for establishing 
the availability of the Section 4(1) exemption, it is not the exclusive 
means for reselling restricted and control securities. Therefore, Rule 
144 does not eliminate or otherwise affect the availability of any 
other exemption for resales.\36\ Consistent with a statement that was 
included in the original Rule 144 adopting release,\37\ we are adding a 
statement to the Preliminary Note that the Rule 144 safe harbor is not 
available with respect to any transaction or series of transactions 
that, although in technical compliance with the rule, is part of a plan 
or scheme to evade the registration requirements of the Securities 
Act.\38\ We also are adopting plain English changes throughout the rule 
text substantially as proposed.
---------------------------------------------------------------------------

    \36\ We are moving the statements indicating that Rule 144 is a 
non-exclusive safe harbor from paragraph (j) of the rule, as it 
existed prior to the amendments, to the Preliminary Note.
    \37\ Release No. 33-5223. In the original release adopting 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.
    \38\ Similar language can also be found in other rules such as 
in the Preliminary Note to Securities Act Rule 144A [17 CFR 
230.144A].
---------------------------------------------------------------------------

B. Amendments to Holding Periods for Restricted Securities

1. Six-Month Rule 144(d) Holding Period Requirement for Exchange Act 
Reporting Companies
    As stated above, in 1997, we reduced the Rule 144 holding periods 
for restricted securities for both affiliates and non-affiliates.\39\ 
Before the 1997 amendments, security holders could sell limited amounts 
of restricted securities after holding those securities for two years 
if they satisfied all other conditions imposed by Rule 144.\40\ Under 
Rule 144(k), non-affiliates could sell restricted securities without 
being subject to any of the conditions in Rule 144 after holding their 
securities for three years. The 1997 amendments to

[[Page 71549]]

Rule 144 reduced the two-year Rule 144(d) holding period to one year 
and amended the three-year Rule 144(k) holding period to two years.
---------------------------------------------------------------------------

    \39\ See the 1997 Adopting Release.
    \40\ These other conditions included the availability of current 
public information, the volume of sale limitations, the manner of 
sale requirements, and the filing of Form 144. See 17 CFR 
230.144(c), (e), (f) and (h).
---------------------------------------------------------------------------

    In the 1997 Proposing Release, we solicited comment on whether the 
Rule 144(d) holding period should be further reduced for both 
affiliates and non-affiliates, and whether restrictions applicable to 
sales by non-affiliates also should be reduced. We received numerous 
comments on this issue. Twelve commenters recommended that we further 
reduce the holding period to six months.\41\ Two other commenters 
thought that we should maintain the holding periods that we had just 
recently adopted.\42\ Eight commenters recommended that we gain more 
experience with the new holding periods before proposing further 
amendments to those holding periods.\43\
---------------------------------------------------------------------------

    \41\ See comment letters on the 1997 Proposing Release 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 LLP; New York State Bar 
Association (``NY Bar''); Schwartz Investments, LLC (``Schwartz 
Investments''); Sullivan; Testa, Hurwitz & Thibeault, LLP (``Testa 
Hurwitz''); and Willkie, Farr & Gallagher LLP (``Willkie Farr''). 
The comment letters on the 1997 Proposing Release are available on 
the Commission's Web site at http://www.sec.gov/rules/proposed/s7797.shtml or in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549. Interested persons should refer 
to File No. S7-07-97.
    \42\ See comment letters on the 1997 Proposing Release from 
Argent Securities, Inc. (``Argent'') and The Corporate Counsel 
(``Corporate Counsel'').
    \43\ See comment letters on the 1997 Proposing Release from ABA; 
joint letter from Goldman Sachs & Co., JP Morgan Securities, Inc., 
Morgan Stanley & Co., Inc., and Salomon Brothers Inc. (``Four 
Brokers''); Lehman Brothers Inc. (``Lehman Brothers''); Merrill 
Lynch & Co., Inc. (``Merrill Lynch''); Morgan Stanley & Co., Inc. 
(``Morgan Stanley''); Regional Investment Bankers Association 
(``Regional Bankers''); Securities Industry Association (``SIA''); 
and Smith Barney Inc. (``Smith Barney'').
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we again proposed to shorten the 
Rule 144(d) holding period for restricted securities held by affiliates 
and non-affiliates.\44\ The proposal would have permitted both 
affiliates and non-affiliates to publicly sell restricted securities of 
Exchange Act reporting issuers \45\ after holding the securities for 
six months, subject to any other applicable condition of Rule 144, if 
they had not engaged in hedging transactions with respect to the 
securities. Because of our concern that the market does not have 
sufficient information and safeguards with respect to non-reporting 
issuers, we proposed to retain the one-year holding period for 
restricted securities of issuers that are not subject to Exchange Act 
Section 13(a) or Section 15(d) reporting obligations for both 
affiliates and non-affiliates.
---------------------------------------------------------------------------

    \44\ See the 2007 Proposing Release at Section II.B.2.a.
    \45\ Under the 2007 proposals, the six-month holding period 
would apply to securities of an 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.
---------------------------------------------------------------------------

    Several commenters supported the proposal to shorten the holding 
period to six months for securities of reporting issuers.\46\ These 
commenters noted that the shortened holding period would increase 
liquidity for issuers, make capital investment more attractive, and 
decrease costs of capital for smaller companies without sacrificing 
investor protection.\47\ In this regard, one commenter noted that 
today's markets now function at an accelerated pace, and technology, 
particularly the Internet, has caused the markets to become more 
efficient.\48\ Two commenters advocated an even shorter holding period 
requirement than the proposed six-month period, with one commenter 
advocating a four-month holding period and the other a three-month 
holding period.\49\ Two commenters opposed shortening the holding 
period requirement under Rule 144, as proposed.\50\
---------------------------------------------------------------------------

    \46\ See comment letters on the 2007 Proposing Release from ABA; 
Feldman; Financial Associations; Fried Frank; London Forum; 
Richardson Patel; Roth; Sichenzia; SCSGP; Weisman; and Williams.
    \47\ See comment letters on the 2007 Proposing Release from 
Financial Associations; Pink Sheets; Richardson Patel; and Roth.
    \48\ See comment letter on the 2007 Proposing Release from ABA. 
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 March 2007 ABA Letter''), available at http://www.sec.gov/comments/s7-11-07/s71107.shtml.
    \49\ See comment letters on the 2007 Proposing Release from 
Feldman and Weisman.
    \50\ See comment letters on the 2007 Proposing Release from 
NASAA and Steinberg.
---------------------------------------------------------------------------

    The purpose of Rule 144 is to provide objective criteria for 
determining that the person selling securities to the public has not 
acquired the securities from the issuer for distribution. A holding 
period is one criterion established to demonstrate that the selling 
security holder did not acquire the securities to be sold under Rule 
144 with distributive intent. We do not want the holding period to be 
longer than necessary or impose any unnecessary costs or restrictions 
on capital formation. After observing the operation of Rule 144 since 
the 1997 amendments, we believe that a six-month holding period for 
securities of reporting issuers provides a reasonable indication that 
an investor has assumed the economic risk of investment in the 
securities to be resold under Rule 144. Therefore, we are adopting a 
six-month holding period for reporting companies, as proposed.\51\ Most 
commenters agreed that shortening the holding period to six months for 
restricted securities of reporting issuers will increase the liquidity 
of privately sold securities and decrease the cost of capital for 
reporting issuers, while still being consistent with investor 
protection.\52\ By reducing the holding period for restricted 
securities, these amendments are intended to help companies to raise 
capital more easily and less expensively. For example, by making 
private offerings more attractive, the amendments may allow some 
companies to avoid certain types of costly financing structures 
involving the issuance of extremely dilutive convertible securities. 
Many commenters supported the proposal to maintain the existing one-
year holding period for restricted securities of non-reporting 
issuers.\53\
---------------------------------------------------------------------------

    \51\ See amendments to Rule 144(d). The amendments do not change 
the Rule 144(d) requirement that, if the acquiror takes the 
securities by purchase, the holding period will not commence until 
the full purchase price is paid.
    \52\ See Section VI. of this release.
    \53\ See comment letters on the 2007 Proposing Release from ABA; 
Brill 1; Financial Associations; Gleicher; Weisman; and Williams.
---------------------------------------------------------------------------

    Under the amendments that we are adopting, the six-month holding 
period requirement will apply to the securities of an issuer that has 
been subject to the reporting requirements of Section 13 or 15(d) of 
the Exchange Act for a period of at least 90 days before the Rule 144 
sale.\54\ Restricted securities of a ``non-reporting issuer'' will 
continue to be subject to a one-year holding period requirement.\55\ A 
non-reporting issuer is one that is not, or has not been for a period 
of at least 90 days before the Rule 144 sale, subject to the reporting 
requirements of Section 13 or 15(d) of the Exchange Act.\56\
---------------------------------------------------------------------------

    \54\ See new Rule 144(d)(1)(i). We also are making conforming 
amendments to paragraphs (e)(3)(ii), (e)(3)(iii) and (e)(3)(iv) of 
Rule 144.
    \55\ However, non-affiliates of non-reporting companies will no 
longer be subject to any other resale restrictions after meeting the 
one-year holding period. See Section II.B.3 below.
    \56\ See new Rule 144(d)(1)(ii).
---------------------------------------------------------------------------

    We believe that different holding periods for reporting and non-
reporting issuers are appropriate given that reporting issuers have an 
obligation to file periodic reports with updated financial information 
(including audited financial information in annual filings) that are 
publicly available on EDGAR, the Commission's electronic filing system. 
Although non-reporting issuers

[[Page 71550]]

must make some information publicly available before resales can be 
made under Rule 144, this information typically is much more limited in 
scope than information included in Exchange Act reports, is not 
required to include audited financial information, and is not publicly 
available via EDGAR.\57\ For these reasons, we believe that continuing 
to require security holders of non-reporting issuers to hold their 
securities for one year is not unduly burdensome and is consistent with 
investor protection.
---------------------------------------------------------------------------

    \57\ See 17 CFR 240.15c2-11.
---------------------------------------------------------------------------

2. Significant Reduction of Conditions Applicable to Non-Affiliates
    Before adoption of these amendments, both non-affiliates and 
affiliates were subject to all other applicable conditions of Rule 144, 
in addition to the Rule 144(d) holding period requirement, including 
the condition that current information about the issuer of the 
securities be publicly available, the limitations on the amount of 
securities that may be sold in any three-month period, the manner of 
sale requirements and the Form 144 notice requirement. However, 
pursuant to paragraph (k) of Rule 144 as it existed prior to the 
amendments that we are adopting, a non-affiliate of the issuer at the 
time of the Rule 144 sale who had not been an affiliate during the 
three months prior to the sale, could sell the securities after holding 
them for two years without complying with these other conditions.
    In the 2007 Proposing Release, we proposed to permit non-affiliates 
to resell their restricted securities freely after meeting the 
applicable holding period requirement (i.e., six months with respect to 
a reporting issuer and one year with respect to a non-reporting 
issuer), except that non-affiliates of reporting issuers still would be 
subject to the current public information requirement in Rule 144(c) 
for an additional six months after the end of the initial six-month 
holding period.
    In general, commenters supported the proposal to reduce 
substantially the requirements for the resale of restricted securities 
by non-affiliates under Rule 144.\58\ Noting the importance of the 
current public information condition, two commenters expressed support 
for the proposed retention of that requirement for the resales of 
restricted securities by non-affiliates occurring between six months 
and one year after acquisition of the securities.\59\ Some commenters 
expressed support for removal of the manner of sale requirements and 
the Form 144 notice requirement,\60\ while a few objected to removal of 
those requirements.\61\ The commenters objecting to the removal of 
those requirements expressed concern about the transparency of Rule 144 
transactions and the potential increase in violations of the holding 
period requirement if the manner of sale requirements and the Form 144 
notice requirement were eliminated.\62\ The two commenters that opposed 
shortening the Rule 144(d) holding period also opposed the proposals to 
permit non-affiliates to resell without being subject to any other 
condition (except the public information requirement, with respect to 
resales of securities of reporting companies) after they meet the 
holding period.\63\
---------------------------------------------------------------------------

    \58\ See, e.g., comment letters on the 2007 Proposing Release 
from Brill 1; Cleary Gottlieb; Pink Sheets; and Weisman.
    \59\ See comment letters on the 2007 Proposing Release from ABA 
and Weisman.
    \60\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA; BAIS; Cleary Gottlieb; Fried Frank; and SCSGP.
    \61\ See comment letters on the 2007 Proposing Release from 
Argus Vickers Stock Research Corp. (``Argus''); Brill 1; and The 
Washington Service on the Form 144 requirement (``WS 2'').
    \62\ See comment letters on the 2007 Proposing Release from 
Brill 1 and WS 2.
    \63\ See comment letters on the 2007 Proposing Release from 
NASAA and Steinberg.
---------------------------------------------------------------------------

    We are adopting the amendments for the sale of restricted 
securities by non-affiliates after the holding period, as proposed.\64\ 
Under the amendments, after the applicable holding period requirement 
is met, the resale of restricted securities by a non-affiliate under 
Rule 144 will no longer be subject to any other conditions of Rule 144 
except that, with regard to the resale of securities of a reporting 
issuer, the current public information requirement in Rule 144(c) will 
apply for an additional six months after the six-month holding period 
requirement is met.\65\ Therefore, a non-affiliate will no longer be 
subject to the Rule 144 conditions relating to volume limitations, 
manner of sale requirements, and filing Form 144.\66\
---------------------------------------------------------------------------

    \64\ Under the amendments, paragraph (k) of Rule 144 has been 
removed. The conditions that non-affiliates are required to meet for 
the sale of their securities under Rule 144 are now contained in 
paragraph (b)(1) of the rule.
    \65\ Some commenters requested us to state that the Commission 
would not object if the restricted securities legend were removed 
from securities held by a non-affiliate, after all the applicable 
Rule 144 conditions to resale have been met. See comment letters on 
the 2007 Proposing Release from Cleary Gottlieb; Financial 
Associations; and Weisman. In the past, the staff in the Division of 
Corporation Finance has expressed the view that ``it is not 
inappropriate for issuers to remove restrictive legends from 
securities that may be resold in reliance on Rule 144(k).'' See, 
e.g., Toth Aluminum Corporation (Oct. 31, 1988). Under the 
amendments that we are adopting, we do not object if issuers remove 
restrictive legends from securities held by non-affiliates after all 
of the applicable conditions in Rule 144 are satisfied. However, the 
removal of a legend is a matter solely in the discretion of the 
issuer of the securities. Disputes about the removal of legends are 
governed by state law or contractual agreements, rather than federal 
law.
    \66\ Although the Rule 144(e) volume limitations will no longer 
apply to resales of restricted securities by non-affiliates as a 
result of the amendments, an affiliate pledgor, donor, or trust 
settlor will be required to aggregate the amount of securities sold 
for the account of a pledgee, donee or trust, as applicable, even 
when there is no concerted action, in accordance with Rule 
144(e)(3)(ii), (iii), and (iv) in order to determine the amount of 
securities that is permitted to be sold under Rule 144.
---------------------------------------------------------------------------

    We believe that the complexity of resale restrictions may inhibit 
sales by, and imposes costs on, non-affiliates. Because Rule 144 is 
relied upon by many individuals to resell their restricted securities, 
we believe that it is particularly helpful to streamline and reduce the 
complexity of the rule as much as possible while retaining its 
integrity. We continue to believe that retaining the current public 
information requirement with regard to resales of restricted securities 
of reporting issuers for up to one year after the acquisition of the 
securities is important to help provide the market with adequate 
information regarding the issuer of the securities. In addition, we 
generally believe that most abuses in sales of unregistered securities 
involve affiliates of issuers \67\ and securities of shell companies. 
As discussed below, we are codifying the staff's current interpretive 
position that Rule 144 cannot be relied upon for the resale of the 
securities of reporting and non-reporting shell companies.\68\
---------------------------------------------------------------------------

    \67\ Pink Sheets also noted in its letter that most of the 
abuses in transactions involving unregistered securities involve 
sales and purchases by affiliates of the issuers.
    \68\ See Section II.E.6 of this release.
---------------------------------------------------------------------------

    The final conditions applicable to the resale under Rule 144 of 
restricted securities held by affiliates and non-affiliates of the 
issuer can be summarized as follows:

[[Page 71551]]



----------------------------------------------------------------------------------------------------------------
                                                                             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 Issuers.                 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--unlimited public
                                    144 requirements including:             resales under Rule 144 except that
                                    Current public information,     the current public information
                                    Volume limitations,             requirement still applies.
                                    Manner of sale requirements    After one-year holding period--
                                    for equity securities, and              unlimited public resales under Rule
                                    Filing of Form 144              144; need not comply with any other
                                                                            Rule 144 requirements.
Restricted Securities of Non-      During one-year holding period--no      During one-year holding period--no
 Reporting Issuers.                 resales under Rule 144 permitted        resales under Rule 144 permitted.
                                   After one-year holding period--may      After one-year holding period--
                                    resell in accordance with all Rule      unlimited public resales under Rule
                                    144 requirements including:             144; need not comply with any other
                                    Current public information,     Rule 144 requirements.
                                    Volume limitations,
                                    Manner of sale requirements
                                    for equity securities, and
                                    Filing of Form 144
----------------------------------------------------------------------------------------------------------------

3. Tolling Provision
    In 1990, we eliminated a Rule 144 provision that tolled, or 
suspended, 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.\69\ 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.\70\
---------------------------------------------------------------------------

    \69\ See Release No. 33-6862 (Apr. 23, 1990) [55 FR 17933].
    \70\ ``Tacking'' the holding period is the ability of the 
security holder to include, under certain circumstances, the period 
that securities were held by a previous owner as part of his or her 
own holding period for the purposes of meeting the holding period 
requirement in Rule 144(d). Further discussion about tacking appears 
in Section II.E.2 of this release.
---------------------------------------------------------------------------

    We previously have expressed concern regarding the effect of 
hedging activities designed to shift the economic risk of investment 
away from the security holder with respect to restricted 
securities.\71\ In the 1997 Proposing Release, we solicited comment on 
several alternatives designed to address these concerns.\72\ Seven 
commenters recommended that we adopt measures to eliminate or restrict 
hedging activities during the holding period.\73\ Six commenters 
recommended maintaining the status quo.\74\ Six other commenters 
suggested that we adopt a safe harbor for certain hedging activities 
that would be deemed permissible under Rule 144.\75\
---------------------------------------------------------------------------

    \71\ 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 (June 27, 1995) [60 FR 35645].
    \72\ See the 1997 Proposing Release. In that release, we 
proposed five different alternatives: (1) make the Rule 144 safe 
harbor unavailable to persons who hedge during the restricted 
period; (2) independently 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.
    \73\ See comment letters on the 1997 Proposing Release from ABA; 
AIMR; Argent; ASCS; Constantine Katsoris; Corporate Counsel; and 
Schwartz Investments.
    \74\ See comment letters on the 1997 Proposing Release from 
Bear, Stearns & Co., Inc.; BG&E Intel Corporation (``Intel''); 
PaineWebber Incorporated; Wilkie Farr; and XXI Securities.
    \75\ See comment letters on the 1997 Proposing Release from Four 
Brokers; NY Bar; SIA; Merrill Lynch; Citibank; and Lehman Brothers.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we acknowledged a concern about the 
effect of hedging activities in connection with the adoption of a six-
month holding period for securities of reporting issuers. We noted 
that, when we eliminated the tolling provision in 1990, the Rule 144 
holding periods were longer.\76\ We also expressed the view that the 
proposal to shorten the holding period to six months could make the 
entry into such hedging arrangements significantly easier and less 
costly because these arrangements would cover a much shorter 
period.\77\ We therefore proposed to reintroduce a Rule 144 tolling 
provision that would have suspended the holding period for restricted 
securities of Exchange Act reporting issuers while a security holder 
engaged in certain hedging transactions.\78\ However, we proposed that 
any suspension due to hedging would not have caused, under any 
circumstances, the holding period to extend beyond one year.
---------------------------------------------------------------------------

    \76\ At that time, 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.
    \77\ See the 2007 Proposing Release at Section II.B.2.b.
    \78\ We proposed 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) [17 CFR 240.16a-1(h)], 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).
---------------------------------------------------------------------------

    Because the proposed tolling provision also would have worked in 
conjunction with the Rule 144 provisions that permit tacking of holding 
periods, a selling security holder would have been required to 
determine whether a previous owner of the securities had engaged in 
hedging activities with respect to the securities, if the selling 
security holder wished to tack the previous owner's holding period to 
the holding period of the selling security holder. The proposed 
provision would have tolled the holding period during any period in 
which the previous owner held a short position or put equivalent 
position with respect to the securities, however, there would have been 
no tolling of the previous owner's holding period if the security 
holder for whose account the securities were to be sold reasonably 
believed that no such short or put equivalent position was held by the 
previous owner.
    In connection with the proposed tolling provision, we also proposed 
other related changes to Rule 144. First, we proposed 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. The second proposal related to the manner of 
sale requirements in paragraphs (f) and (g) of Rule 144.\79\
---------------------------------------------------------------------------

    \79\ We proposed to amend Note (ii) to Rule 144(g)(3) [17 CFR 
230.144(g)(3)] to supplement the reasonable inquiry requirement by 
requiring a broker to inquire 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, if the securities have been held for less than one year, 
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.

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

[[Page 71552]]

    Several commenters objected to the proposed reintroduction of the 
tolling provision and suggested modifications to the proposed 
provision, if the Commission chose to adopt it.\80\ Commenters 
objecting to the proposed tolling provision provided the following 
reasons, among others, why the Commission should not adopt the proposed 
tolling provision:
---------------------------------------------------------------------------

    \80\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA; Cleary Gottlieb; Feldman; Financial Associations; 
Richardson Patel; Sichenzia; and Weisman.
---------------------------------------------------------------------------

     Hedging transactions involve costs and risks for the 
security holder and do not entirely transfer risk of the economic 
investment of the securities;\81\
---------------------------------------------------------------------------

    \81\ See, e.g., comment letters on the 2007 Proposing Release 
from Feldman; Financial Associations; and Richardson Patel.
---------------------------------------------------------------------------

     Any concern that the Commission has about hedging 
activities immediately after the acquisition is outweighed by the 
belief that hedging activities can enhance private placements as a 
means of capital formation and should be allowed to continue because 
they do not raise substantial concerns about unregistered 
distributions;\82\
---------------------------------------------------------------------------

    \82\ See comment letter on the 2007 Proposing Release from ABA.
---------------------------------------------------------------------------

     In the current environment, a security holder may hold 
long and short positions across multiple trading desks and complex 
financial institutions and positions may change daily or even intra-
day. The task of tracing and processing such positions would 
necessitate the development of costly custom software and hardware 
systems. Consequently, security holders might ultimately choose to hold 
the securities for the default one-year period rather than implement 
these costly systems, thereby frustrating the intent of the Commission 
in adopting the six-month holding period;\83\
---------------------------------------------------------------------------

    \83\ See, e.g., comment letter on the 2007 Proposing Release 
from Financial Associations.
---------------------------------------------------------------------------

     There is a natural ceiling on the amount of hedging 
activity in restricted securities because the supply of unrestricted 
securities is limited;\84\
---------------------------------------------------------------------------

    \84\ See comment letter on the 2007 Proposing Release from ABA.
---------------------------------------------------------------------------

     The Commission has adequate enforcement tools to address 
abuses in hedging with respect to restricted securities;\85\ and
---------------------------------------------------------------------------

    \85\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA and Financial Associations.
---------------------------------------------------------------------------

     The Commission's reasoning for eliminating the tolling 
provision in 1990 was that a single holding period running from the 
date of purchase from the issuer, or an affiliate of the issuer, is 
sufficient to prevent unregistered distributions to the public.\86\ 
This reasoning still applies, even if the holding period is reduced to 
six months for securities of reporting issuers.\87\
---------------------------------------------------------------------------

    \86\ See Release No. 33-6862.
    \87\ See comment letter on the 2007 Proposing Release from 
Financial Associations.

Some commenters reasoned that if the Commission detects an increase in 
abuse after implementation of the revised holding period, as proposed, 
the Commission could modify its treatment of hedging activities.\88\ 
This would be consistent with the approaches taken by the Commission 
when it first adopted Rule 144, and in 1997 when commenters recommended 
that the Commission gain more experience with the shortened holding 
periods before making additional revisions.\89\
---------------------------------------------------------------------------

    \88\ See, e.g., comment letters on the 2007 Proposing Release 
from Cleary Gottlieb; Financial Associations; and Sichenzia.
    \89\ See Release No. 33-5223 and Section I of this release.
---------------------------------------------------------------------------

    After considering the comments, we are not adopting the proposed 
tolling provision and related amendments. We note, in particular, the 
comments asserting that, in the current environment, the tolling 
provision would unduly complicate Rule 144 and could require security 
holders or brokers to incur significant costs to monitor hedging 
positions for purposes of determining whether they have met the holding 
period requirement. This would frustrate our primary objectives to 
streamline Rule 144 and reduce the costs of capital for issuers. We 
will revisit the issue if we observe abuse relating to the hedging 
activities of holders of restricted securities.\90\
---------------------------------------------------------------------------

    \90\ The Commission's staff has previously stated that, with 
respect to short sales in reliance on the safe harbor of Rule 144 
where the borrower closes out using the restricted securities, all 
the conditions of Rule 144 must be met at the time of the short 
sale. See Questions 80 through 82 of Release No. 33-6099 (Aug. 2, 
1979) [44 FR 46752, 46765]. In the Commission's view, the term 
``sale'' under the Securities Act includes contract of sale. See 
Release No. 33-8591 (July 19, 2005) [70 FR 44722, 44765] and Release 
No. 34-56206 (August 6, 2007) [72 FR 45094]. The Commission has 
previously indicated that, in a short sale, the sale of securities 
occurs at the time the short position is established, rather than 
when shares are delivered to close out that short position, for 
purposes of Section 5 of the Securities Act. See, e.g., Questions 3 
and 5 of Release No. 33-8107 (June 21, 2002) [67 FR 43234] and 
Release No. 34-56206 n. 46 (Aug. 6, 2007) [72 FR 45094, 45096].
---------------------------------------------------------------------------

C. Amendments to the Manner of Sale Requirements Applicable to Resales 
by Affiliates

    Before today's amendments, the manner of sale requirements in Rule 
144(f) required securities to be sold in ``brokers' transactions'' \91\ 
or in transactions directly with a ``market maker,'' as that term is 
defined in Section 3(a)(38) of the Exchange Act.\92\ Additionally, the 
rule prohibits a selling security holder 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.
---------------------------------------------------------------------------

    \91\ Rule 144(g) defines the term for purposes of Rule 144.
    \92\ 15 U.S.C. 78c(a)(38).
---------------------------------------------------------------------------

    In the 1997 Proposing Release, we proposed to eliminate the manner 
of sale requirements for the sale of both equity and debt securities 
alike, reasoning that the manner of sale requirements are not necessary 
to satisfy the purposes of Rule 144 and limit the liquidity of the 
security.\93\ Some commenters opposed this proposal, asserting that 
brokers help ensure that selling security holders are complying with 
the applicable Rule 144 conditions to resale.\94\ As discussed below, 
although we proposed to eliminate the manner of sale requirements only 
for debt securities and not equity securities in the 2007 Proposing 
Release, we requested comment on whether it would be appropriate to 
eliminate the manner of sale requirements for the sale of equity 
securities as well.
---------------------------------------------------------------------------

    \93\ See Section III.C of the 1997 Proposing Release.
    \94\ See comment letters on the 1997 Proposing Release from 
Corporate Counsel; Matthew Crain; Katsoris; Merrill Lynch; Regional 
Bankers; SIA; and Smith Barney.
---------------------------------------------------------------------------

    The comments were mixed on this point. One commenter strongly 
discouraged the elimination of the manner of sale requirements for 
equity securities,\95\ while another supported such a change.\96\ One 
commenter did not object to retaining the manner of sale requirements 
for resales of equity securities of affiliates, on the grounds that 
affiliates generally find the assistance of a broker useful in 
navigating compliance with Rule 144 and thus brokers serve a useful 
function

[[Page 71553]]

that is not unduly burdensome.\97\ Instead of completely eliminating 
the manner of sale requirements, some commenters requested that we 
consider expanding the methods to sell the securities permitted by the 
manner of sale requirements.\98\ For example, two commenters discussed 
amending the requirement to permit sales through alternative trading 
systems such as electronic venues where the broker's identity is 
anonymous prior to trade execution.\99\
---------------------------------------------------------------------------

    \95\ See comment letter on the 2007 Proposing Release from 
Barron.
    \96\ See comment letter on the 2007 Proposing Release from 
Sullivan.
    \97\ See comment letter on the 2007 Proposing Release from ABA.
    \98\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA; Cleary Gottlieb; and Sullivan.
    \99\ See comment letters on the 2007 Proposing Release from ABA 
and Sullivan.
---------------------------------------------------------------------------

    In response to comments, we are adopting amendments to the manner 
of sale requirements that apply to resales of equity securities of 
affiliates.\100\ We last made substantive amendments to the manner of 
sale requirements in 1978.\101\ Since then, the growth of technological 
and other developments directed at meeting the investment needs of the 
public and reducing the cost of capital for companies have led us to 
refine the rules governing the trading of securities.\102\ We believe 
that it is appropriate now to adopt two amendments to the manner of 
sale requirements so that the restrictions better reflect current 
trading practices and venues.
---------------------------------------------------------------------------

    \100\ Only affiliates are required to comply with the manner of 
sale requirements under the amendments that we are adopting.
    \101\ See Release No. 33-5979 (Sept. 19, 1978) [43 FR 43709] 
(Sept. 27, 1978) (the Commission amended Rule 144(f) to permit sales 
under the rule to be made directly to a market maker in lieu of 
selling through a broker).
    \102\ For example, in the second quarter of 2007, alternative 
trading systems handled approximately $1.3 trillion in volume of 
matched orders. (These amounts do not include orders that flow 
through a system, but are ultimately executed elsewhere). We 
obtained this data from information provided in Form ATS-R Quarterly 
Reports.
---------------------------------------------------------------------------

    First, we are adopting a change to Rule 144(f) to permit the resale 
of securities through riskless principal transactions in which trades 
are executed at the same price, exclusive of any explicitly disclosed 
markup or markdown, commission equivalent, or other fee, and the rules 
of a self-regulatory organization permit the transaction to be reported 
as riskless.\103\ We believe that these riskless principal transactions 
are equivalent to agency trades.\104\ As with agency trades, in order 
to qualify as a permissible manner of sale under the revised rule, the 
broker or dealer conducting the riskless principal transaction must 
meet all the requirements of a brokers' transaction, as defined by Rule 
144(g), except the requirement that the broker does no more than 
execute the order or orders to sell the securities as agent for the 
person for whose account the securities are sold. The broker or dealer 
must neither solicit nor arrange for the solicitation of customers' 
orders to buy the securities in anticipation of or, in connection with, 
the transaction, must receive no more than the usual and customary 
markup or markdown, commission equivalent, or other fee, and must 
conduct a reasonable inquiry regarding the underwriter status of the 
person for whose account the securities are to be sold.
---------------------------------------------------------------------------

    \103\ See new Rule 144(f)(1)(iii). A ``riskless principal 
transaction'' is defined as a principal transaction where, after 
having received from a customer an order to buy, a broker or dealer 
purchases the security as principal in the market to satisfy the 
order to buy or, after having received from a customer an order to 
sell, sells the security as principal to the market to satisfy the 
order to sell. See new Note to Rule 144(f)(1).
    \104\ See also, e.g., SEC Interpretation: Commission Guidance on 
the Scope of Section 28(e) of the Exchange Act, Interpretive Release 
No. 34-45194 (Dec. 27, 2001) [67 FR 6]. This treatment is also 
consistent with NASD Rules 4632(d)(3)(B), 4642(d)(3)(B), and 
6420(d)(3)(B).
---------------------------------------------------------------------------

    Second, we are amending Rule 144(g) which defines ``brokers' 
transactions' for purposes of the manner of sale requirements. Under 
the definition of brokers' transactions, a broker must neither solicit 
nor arrange for the solicitation of customers' orders to buy the 
securities in anticipation of, or in connection with, the transaction. 
However, certain activities specified in three subparagraphs of Rule 
144(g)(2) are deemed not to be a solicitation.\105\ We are adding 
another subparagraph covering the posting of bid and ask quotations in 
alternative trading systems that will also be deemed not to be a 
solicitation. This new provision permits a broker to insert bid and ask 
quotations for the security in an alternative trading system, as 
defined in Rule 300 of Regulation ATS,\106\ provided that the broker 
has published bona fide bid and ask quotations for the security in the 
alternative trading system on each of the last 12 business days.\107\
---------------------------------------------------------------------------

    \105\ See Release No. 34-5452 (Feb. 1, 1974; amended Feb. 21, 
1974). These subparagraphs, as amended, are contained in paragraphs 
(g)(3)(i), (g)(3)(ii), and (g)(3)(iii) of Rule 144. Under the 
amendments, the previous paragraph (g)(2) has been redesignated as 
paragraph (g)(3), and the previous paragraph (g)(3) has been 
redesignated as paragraph (g)(4).
    \106\ 17 CFR 242.300.
    \107\ See new Rule 144(g)(3)(iv).
---------------------------------------------------------------------------

D. Changes to Rule 144 Conditions Related to Resales of Debt Securities 
by Affiliates

1. Comments Received on Proposed Amendments Relating to Debt Securities
    In the 2007 Proposing Release, we proposed to eliminate the manner 
of sale requirements in Rule 144 with regard to sales of debt 
securities by affiliates.\108\ We also requested comment on whether 
there were any other conditions in Rule 144, such as the volume 
limitations, to which debt securities should not be subject. In the 
2007 Proposing Release, we included preferred stock and asset-backed 
securities in the ``debt securities'' category for purposes of the 
proposed elimination of the manner of sale requirements.
---------------------------------------------------------------------------

    \108\ As noted in Section II.B.3 above, under the amendments 
that we are adopting in this release, the manner of sale 
requirements do not apply to the resale of securities of a non-
affiliate under Rule 144. 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 that the estate or beneficiary is not an affiliate of the 
issuer.
---------------------------------------------------------------------------

    Four commenters expressly supported the proposal to eliminate the 
manner of sale requirements for resales of debt securities,\109\ and we 
did not receive any comments objecting to the proposal. We also did not 
receive any comments objecting to the proposed inclusion of preferred 
stock and asset-backed securities in the definition of debt securities. 
We received a few comments that we should expand the definition of debt 
securities for the purposes of proposed changes to the manner of sale 
requirements.\110\
---------------------------------------------------------------------------

    \109\ See comment letters on the 2007 Proposing Release from 
ABA; Cleary Gottlieb; Financial Associations; and Sullivan.
    \110\ See comment letter on the 2007 Proposing Release from ABA 
stating that the definition of debt should exclude any requirement 
that the preferred stock have a liquidation preference in excess of 
par.
---------------------------------------------------------------------------

2. No Manner of Sale Requirements Regarding Resales of Debt Securities
    We are adopting the amendments to eliminate the manner of sale 
requirements for resales of debt securities held by affiliates, as 
proposed.\111\ We agree that, as financial intermediaries, brokers 
serve an important function as gatekeepers for promoting compliance 
with Rule 144,\112\ and we are concerned that eliminating the manner of 
sale requirements for

[[Page 71554]]

equity securities would lead to abuse. However, we do not believe that 
the fixed income securities market raises the same concerns about 
abuse,\113\ and are persuaded that the manner of sale requirements may 
place an unnecessary burden on the resale of fixed income 
securities.\114\ Combined with the changes that we are making to the 
Rule 144(e) volume limitations, these amendments will permit holders of 
debt securities to rely on the Rule 144 to resell their debt securities 
in a way and amount that was not possible previously.
---------------------------------------------------------------------------

    \111\ See 17 CFR 230.144(f). As discussed above, we also are 
eliminating the manner of sale requirements for resales of equity 
and debt securities by non-affiliates.
    \112\ 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.
    \113\ We distinguish between debt and equity in the same way we 
distinguished debt and equity markets when we last amended 
Regulation S. There, we did not believe that the procedures and 
restrictions applicable to offerings of equity securities under 
Regulation S should be applicable to offerings of nonconvertible 
debt securities, reasoning that the nature of the trading markets 
for debt securities appears not to have facilitated similar abusive 
practices as the markets for equity securities. See Offshore Offers 
and Sales, Release No. 33-7505 (Feb. 17, 1998) [63 FR 9631].
    \114\ The March 2007 ABA Letter noted that debt 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).
---------------------------------------------------------------------------

    As proposed, our definition of debt securities in Rule 144 includes 
non-participatory preferred stock (which has debt-like characteristics) 
\115\ and asset-backed securities (where the predominant purchasers are 
institutional investors including financial institutions, pension 
funds, insurance companies, mutual funds and money managers) \116\ in 
addition to other types of nonconvertible debt securities. This 
definition of debt securities is consistent with the treatment of such 
securities under Regulation S.\117\
---------------------------------------------------------------------------

    \115\ The definition of debt securities appears in amended Rule 
144(a). ``Non-participatory preferred stock'' 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.
    \116\ See Release No. 33-8518 (Dec. 22, 2004) [70 FR 1506].
    \117\ See 17 CFR 230.901 through 230.905 and Release No. 33-
7505.
---------------------------------------------------------------------------

3. Raising Volume Limitations for Debt Securities
    We also are adopting amendments to raise the Rule 144(e) volume 
limitations for debt securities. Before the amendments that we are 
adopting, under Rule 144(e), the amount of securities sold in a three-
month period could not exceed the greater of: (1) One percent of the 
shares or other units of the class outstanding as shown by the most 
recent report or statement published by the issuer, or (2) the average 
weekly volume of trading in such securities, as calculated pursuant to 
provisions in the rule.\118\ In response to our request for comment 
regarding whether we should eliminate or revise any other conditions in 
Rule 144 with regard to debt securities, three commenters noted that 
the Rule 144(e) volume limitations effectively precluded resales of 
debt securities by affiliates.\119\
---------------------------------------------------------------------------

    \118\ See 17 CFR 230.144(e)(1)(i), (ii), and (iii).
    \119\ See comment letters on the 2007 Proposing Release from 
ABA; Cleary Gottlieb; and Sullivan.
---------------------------------------------------------------------------

    Debt securities generally are issued in tranches.\120\ We agree 
that, prior to our amendments, the volume limitations in Rule 144 
constrained the ability of debt holders to rely on Rule 144 for the 
resales of their securities. For the same reasons that we are 
eliminating the manner of sale requirements for debt securities, we 
believe that it is appropriate to adopt an alternative volume 
limitation that is specifically applicable to the resale of debt 
securities. We are amending Rule 144(e) to permit the resale of debt 
securities in an amount that does not exceed ten percent of a tranche 
(or class when the securities are non-participatory preferred stock), 
together with all sales of securities of the same tranche sold for the 
account of the selling security holder within a three-month 
period.\121\ We believe that this new ten percent limitation provision 
will permit a more reasonable amount of trading in debt securities than 
the one percent limitation has permitted.\122\ These revised volume 
limitations also apply to resales of non-participatory preferred stock 
or asset-backed securities, which are defined as debt securities for 
purposes of Rule 144.
---------------------------------------------------------------------------

    \120\ The term ``tranche'' is also used in the definition of 
``distribution compliance period'' in Rule 902(f) of Regulation S. 
17 CFR 230.902(f).
    \121\ See newly revised Rule 144(e)(2).
    \122\ Generally, because of the absence of an active trading 
market in debt securities, debt holders do not rely on the average 
daily trading volume test to sell their securities under Rule 144.
---------------------------------------------------------------------------

E. Increase of the Thresholds That Trigger the Form 144 Filing 
Requirement for Affiliates

    Before today's amendments, Rule 144(h) required a selling security 
holder to file a notice on Form 144 if the security holder's intended 
sale exceeded either 500 shares or $10,000 within a three-month 
period.\123\ These filing thresholds had not been modified since 
1972.\124\ 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 the 
idea.\125\ Some commenters suggested that we eliminate Form 144 
altogether.\126\ One commenter suggested raising the threshold to 
$100,000.\127\ Another commenter suggested raising it to $250,000.\128\
---------------------------------------------------------------------------

    \123\ 17 CFR 230.144(h).
    \124\ We note, however, that in 1978, the Commission shortened 
the relevant time period in Rule 144(e) for calculating the amount 
of securities to be sold under Rule 144 from six months to three 
months and made conforming changes to the Form 144 filing 
requirement. Release No. 33-5995 (Nov. 8, 1978) [43 FR 54229].
    \125\ See comment letters on the 1997 Proposing Release from 
ABA; ASCS; AT&T Corp. (``AT&T''); BG&E Corporate Counsel; Merrill 
Lynch; Morgan Stanley; NY Bar; NY City Bar; Regional Bankers; SIA; 
Smith Barney; and Sullivan.
    \126\ See comment letters on the 1997 Proposing Release from 
ABA; Benesch, Friedlander, Coplan & Aronoff, LLP; NY Bar; NY City 
Bar; and Sullivan.
    \127\ See comment letter on the 1997 Proposing Release from ABA.
    \128\ See comment letter on the 1997 Proposing Release from NY 
Bar.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we proposed to increase the Form 144 
filing thresholds to cover sales of 1,000 shares or $50,000 within a 
three-month period.\129\ Some commenters specifically expressed support 
for raising the Form 144 filing thresholds.\130\ One of these 
commenters recommended filing thresholds of 10,000 shares or $100,000, 
if the Commission chose to retain a Form 144 filing requirement for 
affiliates.\131\
---------------------------------------------------------------------------

    \129\ Only affiliates of the issuer are required to file a 
notice of proposed sale on Form 144 when relying on Rule 144 under 
the amendments that we are adopting.
    \130\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA; Financial Associations; and SCSGP.
    \131\ See comment letter on the 2007 Proposing Release from ABA. 
ABA supported elimination of Form 144 but recommended these filing 
thresholds, if the Commission chose to retain it.
---------------------------------------------------------------------------

    We are adopting the increased Form 144 filing thresholds with some 
modification. As proposed, we are raising the dollar threshold to 
$50,000 to adjust for inflation since 1972.\132\ After considering the 
comments, we are raising the share threshold to 5,000 shares, rather 
than the proposed 1,000 shares. We believe that the 5,000 share 
threshold is an appropriate alternate threshold for trades in amounts 
that may not reach the $50,000 dollar threshold, but that merit notice 
to the market.
---------------------------------------------------------------------------

    \132\ 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 proposed to raise the filing 
threshold to $50,000.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we also solicited comment on whether 
we should coordinate the Form 144 filing requirements with Form 4 
filing

[[Page 71555]]

requirements. Many commenters supported a combination of the two 
forms.\133\ Although we are not adopting those changes today, we expect 
to issue a separate release in the future to provide affiliates that 
are subject to both the Form 4 and Form 144 filing requirements with 
greater flexibility in satisfying their requirements.
---------------------------------------------------------------------------

    \133\ See, e.g., comment letters on the 2007 Proposing Release 
from ABA; BAIS; Brill 1; Fried Frank; Pink Sheets; Sichenzia; SCSGP; 
and Sullivan. The comment letters from ABA, BAIS, SCSGP and Sullivan 
advocated that the Commission should eliminate the Form 144 filing 
requirement; however, to the extent that we determine to retain any 
items required by Form 144, they provided suggestions regarding the 
proposal to combine Form 144 with Form 4.
---------------------------------------------------------------------------

F. Codification of Several Staff Positions

    In the 2007 Proposing Release, we proposed to codify several 
interpretive positions issued by the staff of the Division of 
Corporation Finance. We proposed to codify the first three staff 
positions listed below in both the 1997 Proposing Release and the 2007 
Proposing Release, but we proposed to codify the last four staff 
positions listed below only in the 2007 Proposing Release.
    Some commenters expressed general support for the proposed 
codifications of staff interpretations relating to Rule 144.\134\ One 
commenter specifically expressed the view that the action should help 
to resolve any lingering confusion regarding the calculation of holding 
periods in the circumstances addressed by the interpretations.\135\ We 
are adopting all of the codifications substantially as proposed. The 
codifications should make these interpretations more transparent and 
readily available to the public.
---------------------------------------------------------------------------

    \134\ See comment letters on the 2007 Proposing Release from 
ABA; Cleary Gottlieb; Financial Associations; Fried Frank; and 
Richardson Patel.
    \135\ See comment letter on the 2007 Proposing Release from 
Financial Associations.
---------------------------------------------------------------------------

1. Securities Acquired Under Section 4(6) of the Securities Act Are 
Considered ``Restricted Securities''
    In 1997, we first 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 \136\ are considered ``restricted securities'' under 
Rule 144(a)(3).\137\ We did not receive any comments on this proposal 
at the time. In the 2007 Proposing Release, we again proposed to codify 
this position. We did not receive any comments.
---------------------------------------------------------------------------

    \136\ 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)].
    \137\ 17 CFR 230.144(a)(3). See the Division of Corporation 
Finance's Compliance and Disclosure Interpretations on Rule 144 
(Updated April 2, 2007), at Section 104 (Rule 144(a)(3)), Question 
No. 104.03.
---------------------------------------------------------------------------

    Section 4(6) provides for an exemption from registration for an 
offering that does not exceed $5,000,000 that is made only to 
accredited investors, that does not involve any advertising or public 
solicitation by the issuer or anyone acting on the issuer's behalf and 
for which a Form D has been filed.\138\ 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 are of the view 
that securities acquired under Section 4(6) should be defined as 
restricted securities for purposes of Rule 144. Therefore, we are 
adopting an amendment to add securities acquired under Section 4(6) of 
the Securities Act to the definition of restricted securities, as 
proposed.\139\
---------------------------------------------------------------------------

    \138\ See 15 U.S.C. 77d(6).
    \139\ See amendments to Rule 144(a)(3).
---------------------------------------------------------------------------

2. Tacking of Holding Periods When a Company Reorganizes Into a Holding 
Company Structure
    In 1997, we also proposed to codify 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.\140\ When ``tacking,'' holders may count the period 
during which they held the restricted securities of the predecessor 
company before the predecessor company reorganized into a holding 
company structure when calculating the holding period of the restricted 
securities of the holding company received in the reorganization. We 
did not receive any comments on this proposal.
---------------------------------------------------------------------------

    \140\ See the Division of Corporation Finance's letter to 
Morgan, Olmstead, Kennedy & Gardner Capital Corporation (Jan. 8, 
1988).
---------------------------------------------------------------------------

    We again proposed to codify this interpretive position in the 2007 
Proposing Release. Two commenters recommended codification of the staff 
interpretive position covering tacking, in certain circumstances, in 
connection with the reincorporation of the issuer in a different 
state.\141\ We did not receive any comments opposing this proposal.
---------------------------------------------------------------------------

    \141\ See comment letters on the 2007 Proposing Release from 
Sichenzia and Sullivan.
---------------------------------------------------------------------------

    We are adopting this amendment to Rule 144(d), as proposed.\142\ 
This provision will permit tacking of the holding period if the 
following three conditions are satisfied:
---------------------------------------------------------------------------

    \142\ See new Rule 144(d)(3)(ix).
---------------------------------------------------------------------------

     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;
     Security holders received 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 
had no significant assets other than securities of the predecessor and 
its existing subsidiaries and had substantially the same assets and 
liabilities on a consolidated basis as the predecessor had before the 
transaction.

In such transactions, tacking is 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. The amendment that we are adopting does not 
change the staff interpretive position that permits tacking in 
connection with the reincorporation of the issuer in a different state 
in certain situations.
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 to be 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.\143\ 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.
---------------------------------------------------------------------------

    \143\ See the Division of Corporation Finance's letter to 
Planning Research Corp. (Dec. 8, 1980).
---------------------------------------------------------------------------

    We again proposed this amendment to Rule 144(d)(3)(ii) in the 2007 
Proposing Release. In addition, we proposed a note to this provision 
that clarifies the Division's position that if:

[[Page 71556]]

     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 the newly acquired securities will be deemed to have been acquired 
on the date that the original securities were so amended.\144\
---------------------------------------------------------------------------

    \144\ See the Division of Corporation Finance's letter to Morgan 
Stanley & Co., Inc. (June 30, 1993).
---------------------------------------------------------------------------

    One commenter expressed support for this proposed amendment.\145\ 
Another commenter provided a suggestion for a technical change to the 
proposed note, that the phrase ``so long as the conversion or exchange 
itself meets the conditions of this section,'' be deleted.\146\ We are 
adopting the changes to Rule 144(d), substantially as proposed.\147\ In 
response to comment, we are further clarifying the note to Rule 
144(d)(3)(ii) to clarify that the newly acquired securities shall be 
deemed to have been acquired at the same time as the amendment to the 
surrendered securities, so long as, in the conversion or exchange, the 
securities to be sold were acquired from the issuer solely in exchange 
for other securities of the same issuer.
---------------------------------------------------------------------------

    \145\ See comment letter on the 2007 Proposing Release from 
Feldman.
    \146\ See comment letter on the 2007 Proposing Release from 
Sullivan.
    \147\ See amendments to Rule 144(d)(3)(ii).
---------------------------------------------------------------------------

4. Cashless Exercise of Options and Warrants
    Several commenters responding to the 1997 Proposing 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.\148\
---------------------------------------------------------------------------

    \148\ 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.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we proposed to revise Rule 144 to 
codify that position. We also proposed to add two notes to this new 
paragraph. As proposed, 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 amended options or warrants would be deemed to have been 
acquired on the date that the original options or warrants were so 
amended.\149\ This treatment is analogous to our treatment of 
conversions and exchanges.
---------------------------------------------------------------------------

    \149\ See the Division of Corporation Finance's letter to 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 an investment risk in a manner that would 
justify tacking the holding period for the options or warrants to the 
holding period for the securities received upon exercise of the options 
or warrants.\150\ This is the case for options granted under an 
employee benefit plan. 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.
---------------------------------------------------------------------------

    \150\ See the Division of Corporation Finance's letters to 
Morgan Stanley & Co., Inc. (June 30, 1993) and Malden Trust 
Corporation (Feb. 21, 1989).
---------------------------------------------------------------------------

    Three commenters supported the codification of the staff 
interpretation relating to the cashless exercise of options and 
warrants.\151\ Some commenters believed that the proposed rule should 
be expanded,\152\ such as to include warrants and options that have 
only a de minimis exercise price.\153\ One commenter suggested that we 
delete the phrase ``so long as the conditions of Rule 144(d)(1) and 
Rule 144(d)(2) are met at the time of exercise,'' in the second 
proposed note.\154\
---------------------------------------------------------------------------

    \151\ See comment letters on the 2007 Proposing Release from 
Cleary Gottlieb; Feldman; and Richardson Patel.
    \152\ See comment letters on the 2007 Proposing Release from 
Cleary Gottlieb; Financial Associations; Richardson Patel; and 
Weisman.
    \153\ See comment letters on the 2007 Proposing Release from 
Cleary Gottlieb and Financial Associations.
    \154\ See comment letter on the 2007 Proposing Release from 
Sullivan.
---------------------------------------------------------------------------

    We are adopting the amendments, substantially as proposed.\155\ In 
response to comment, we have further clarified the second note to Rule 
144 to make it clear that the newly acquired securities shall be deemed 
to have been acquired at the same time as the amendment to the options 
or warrants so long as the exercise itself was cashless.\156\
---------------------------------------------------------------------------

    \155\ See new Rule 144(d)(3)(x) and related notes.
    \156\ See Note 2 to Rule 144(d)(3)(x).
---------------------------------------------------------------------------

5. Aggregation of Pledged Securities
    In response to suggestions from commenters on the 1997 proposals, 
we proposed in the 2007 Proposing Release to add a note that would 
address how a pledgee of securities should calculate the Rule 144(e) 
volume limitation condition.\157\ The note 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.\158\ 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:
---------------------------------------------------------------------------

    \157\ Under the amendments that we are adopting, the volume 
limitations in Rule 144(e) would apply only to affiliates.
    \158\ 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 
the Division of Corporation Finance's letter to 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.
    We received no comments on this proposal, and we are adopting the 
amendment to Rule 144(e), as proposed.\159\
---------------------------------------------------------------------------

    \159\ See amendments to Rule 144(e)(3)(ii).
---------------------------------------------------------------------------

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.\160\
---------------------------------------------------------------------------

    \160\ 17 CFR 230.419. The term ``penny stock'' is defined in 
Exchange Act Rule 3a51-1 [17 CFR 240.3a51-1].


[[Page 71557]]


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

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.\161\ Rule 419 
under the Securities Act \162\ was adopted in 1992 to control the 
extent to which such companies are able to access funds from a public 
offering.
---------------------------------------------------------------------------

    \161\ See Release No. 33-6932 (Apr. 28, 1992) [57 FR 18037].
    \162\ 17 CFR 230.419.
---------------------------------------------------------------------------

    In 2005, we amended Securities Act Rule 405 \163\ to define a 
``shell company'' to mean a registrant, other than an asset-backed 
issuer, that has:
---------------------------------------------------------------------------

    \163\ 17 CFR 230.405.
---------------------------------------------------------------------------

    (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.\164\
---------------------------------------------------------------------------

    \164\ See 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 initially issued by companies that are, or 
previously were, blank check companies.\165\ In an effort to curtail 
misuse of Rule 144 by security holders through transactions in the 
securities of blank check companies, we proposed to codify this 
position with some modifications. First, we proposed to modify the 
staff interpretation to address securities of all companies, other than 
asset-backed issuers, that meet the definition of a shell company, 
including blank check companies. The category of companies to whom the 
staff interpretation was proposed to apply is broader than the Rule 405 
definition of a ``shell company,'' however, as it would apply to any 
``issuer'' meeting that standard, whereas the Rule 405 definition 
refers only to ``registrants.'' For 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 of a company that is, or was, a reporting or a non-
reporting shell company, other than a business combination related 
shell company,\166\ would not be able to rely on Rule 144 to sell the 
securities.
---------------------------------------------------------------------------

    \165\ See the Division of Corporation Finance's letter to 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.''
    \166\ A ``business combination related shell company'' is 
defined in Securities Act Rule 405 as a shell company that is (1) 
formed by an entity that is not a shell company solely for the 
purpose of changing the corporate domicile of that entity solely 
within the United States; or (2) formed by an entity that is not a 
shell company solely for the purpose of completing a business 
combination transaction (as defined in Sec.  230.165(f)) among one 
or more entities other than the shell company, none of which is a 
shell company.
---------------------------------------------------------------------------

    Several commenters provided comments on the proposal to codify this 
staff interpretation with some modification. Some commenters expressed 
support for the proposed codification,\167\ with one commenter noting 
that most micro-cap frauds result from the purchase and sale of 
securities issued by shell companies.\168\ Two commenters expressed 
concern that expanding the staff interpretation to shell companies 
would prohibit reliance on Rule 144 by security holders of businesses 
attempting to implement real business plans that technically meet the 
definition of a shell company, but are not blank check companies.\169\ 
One commenter recommended that the Commission only preclude reliance on 
Rule 144 for the resale of securities if they were issued at the time 
the issuer was a shell company.\170\
---------------------------------------------------------------------------

    \167\ See, e.g., comment letters on the 2007 Proposing Release 
from Feldman; Financial Associations; Parsons; Pink Sheets; and 
Williams.
    \168\ See comment letter on the 2007 Proposing Release from Pink 
Sheets.
    \169\ See comment letters on the 2007 Proposing Release from 
Sichenzia and Williams.
    \170\ See comment letter on the 2007 Proposing Release from 
Sichenzia.
---------------------------------------------------------------------------

    We are adopting, as proposed, the amendment to prohibit reliance on 
Rule 144 for the resale of securities of a company that is a reporting 
or a non-reporting shell company.\171\ Under the amended rules, Rule 
144 will not be available for the resale of securities initially issued 
by either a reporting or non-reporting shell company (other than a 
business combination related shell company) or an issuer that has been 
at any time previously a reporting or non-reporting shell company, 
unless the issuer is a former shell company that meets all of the 
conditions discussed below.\172\
---------------------------------------------------------------------------

    \171\ See new Rule 144(i).
    \172\ Rule 144(i) does not prohibit the resale of securities 
under Rule 144 that were not initially issued by a reporting or non-
reporting shell company or an issuer that has been at any time 
previously such a company, even when the issuer is a reporting or 
non-reporting shell company at the time of sale. Contrary to 
commenters' concerns, Rule 144(i)(1)(i) is not intended to capture a 
``startup company,'' or, in other words, a company with a limited 
operating history, in the definition of a reporting or non-reporting 
shell company, as we believe that such a company does not meet the 
condition of having ``no or nominal operations.''
---------------------------------------------------------------------------

    In another part of our proposal regarding the resale of securities 
of reporting and non-reporting shell companies, we proposed to modify 
the staff interpretation to make Rule 144 available for resales of 
securities of companies that were formerly shell companies under 
provisions that are similar to other provisions that permit the use of 
a Securities Act Form S-8\173\ registration statement by reporting 
companies that were former shell companies.\174\ Under the proposal, 
despite the general prohibition against reliance on Rule 144 with 
respect to securities acquired by shell companies or former shell 
companies, a security holder would have been able to resell securities 
subject to Rule 144 conditions if the issuer:
---------------------------------------------------------------------------

    \173\ 17 CFR 239.16b.
    \174\ 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.
---------------------------------------------------------------------------

     Had ceased to be a shell company;
     Is subject to Exchange Act reporting obligations;
     Has filed all required Exchange Act reports during the 
preceding twelve months; and
     At least 90 days have elapsed from the time the issuer 
files ``Form 10 information'' reflecting the fact that it had ceased to 
be a shell company before any securities were sold under Rule 144.

``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 or Form 20-F under the Exchange Act.\175\ This information 
is ordinarily included in a Form 8-K if the former shell company has 
been filing Exchange Act reports.\176\ As proposed, the Rule 144(d) 
holding period for restricted securities sold under this provision 
would have

[[Page 71558]]

commenced at the time that the Form 10 information was filed.
---------------------------------------------------------------------------

    \175\ 17 CFR 249.210 and 17 CFR 249.220f. In another Commission 
release, we are rescinding Form 10-SB [17 CFR 249.210b]. See SEC 
Press Release No. 2007-233 (Nov. 15, 2007), available at http://www.sec.gov/news/press/2007/2007-233.htm.
    \176\ 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.
---------------------------------------------------------------------------

    We are adopting this part of the amendments, with some 
modification.\177\ We have modified the proposal to require at least 
one year to elapse after Form 10 information is filed with Commission 
before a security holder can resell any securities of an issuer that 
was formerly a shell company subject to Rule 144 conditions. We believe 
that the one-year period is necessary for investor protection given the 
comments relating to the abuse and micro-cap fraud occurring in 
connection with the securities of shell companies. Both restricted 
securities and unrestricted securities will be subject to the same one-
year waiting period. Thus, under the amendments that we are adopting, 
Rule 144 is available for the resale of restricted or unrestricted 
securities that were initially issued by a reporting or non-reporting 
shell company or an issuer that has been at any time previously a 
reporting or non-reporting shell company, only if the following 
conditions are met:
---------------------------------------------------------------------------

    \177\ See new Rule 144(i)(2).
---------------------------------------------------------------------------

     The issuer of the securities that was formerly 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 under Section 13 or 15(d) of the Exchange 
Act, as applicable, during the preceding 12 months (or for such shorter 
period that the issuer was required to file such reports and 
materials), other than Form 8-K reports (Sec.  249.308 of this 
chapter); and
     At least one year has elapsed from the time that the 
issuer filed current Form 10 type information with the Commission 
reflecting its status as an entity that is not a shell company.

One commenter requested clarification on when a Form 10 is deemed 
filed, if the staff is undertaking a review of the filing, and 
recommended that the Form 10 should be deemed filed when the 
information is filed initially with the Commission.\178\ To promote 
consistency and to provide a date that security holders can rely upon, 
the Form 10 information will be deemed filed when the initial filing is 
made with the Commission, rather than when the staff of the Division of 
Corporation Finance has completed its review of the filing or an 
amendment is made in response to staff comments, for purposes of the 
amendments.\179\
---------------------------------------------------------------------------

    \178\ See comment letter on the 2007 Proposing Release from 
Sichenzia.
    \179\ See new Rule 144(i)(3).
---------------------------------------------------------------------------

    Some commenters recommended that we permit security holders of non-
reporting companies that have merged with a private operating company 
and therefore have ceased to be shell companies to be able to rely on 
Rule 144.\180\ We are not adopting a provision to permit this, because 
we believe that Form 10 type information and Exchange Act reporting 
requirements are important in protecting against potential abuse.
---------------------------------------------------------------------------

    \180\ See, e.g., comment letters on the 2007 Proposing Release 
from Charles Nelson; Tom Russell; and Williams.
---------------------------------------------------------------------------

7. Representations Required From Security Holders Relying on Exchange 
Act Rule 10b5-1(c)
    Rule 10b5-1\181\ 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)\182\ and Rule 10b-5.\183\ 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:
---------------------------------------------------------------------------

    \181\ 17 CFR 240.10b5-1.
    \182\ 15 U.S.C. 78j(b).
    \183\ 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.
    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. In this case, the security holder must specify 
that date and indicate that the representation speaks as of that 
date.\184\
---------------------------------------------------------------------------

    \184\ See the Division of Corporation Finance's 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 proposed 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 satisfied Rule 10b5-1(c). We did not 
receive any comments specifically on this proposal. We are adopting 
this amendment, as proposed.\185\
---------------------------------------------------------------------------

    \185\ See amendments to Form 144.
---------------------------------------------------------------------------

G. Amendments to Rule 145

    Securities Act Rule 145 \186\ 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. Unless an exemption from the 
registration requirement is available, Rule 145(a) requires the 
registration of these sales. 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) permits the resale, subject to 
specified conditions, of securities received in such transactions by 
persons deemed underwriters. In the 1997 Proposing Release, we proposed 
to eliminate the presumed underwriter and resale provisions in Rule 
145(c) and (d). Many commenters supported the 1997 proposal.\187\
---------------------------------------------------------------------------

    \186\ 17 CFR 230.145.
    \187\ See comment letters on the 1997 Proposing Release from 
ABA; ASCS; AT&T BG&E Brobeck, Phleger & Harrison, LLP 
(``Brobeck''); Corporate Counsel; Intel; NY Bar; NY City Bar; SIA; 
Smith Barney; Sullivan; and Testa Hurwitz.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we proposed amendments to Rule 
145(c) and (d) that would:

[[Page 71559]]

     Eliminate the presumed underwriter provision in Rule 
145(c), except with regard to Rule 145(a) transactions that involve a 
shell company (other than a business combination related shell 
company); \188\ and
---------------------------------------------------------------------------

    \188\ The terms ``shell company'' and ``business combination 
related shell company'' are defined in Securities Act Rule 405. See 
also Release No. 33-8587 (Jul. 15, 2005) [70 FR 42233].
---------------------------------------------------------------------------

     Harmonize the requirements in Rule 145(d) with the 
proposed provisions in Rule 144 that would apply to securities of shell 
companies.

Under the proposed rule, where a party to a Rule 145(a) transaction, 
other than the issuer, is a shell company (other than a business 
combination related shell company), the party and its affiliates could 
resell securities acquired in connection with the transaction only in 
accordance with Rule 145(d).
    Five commenters expressly supported the proposed changes to Rule 
145.\189\ Two commenters requested that we reassess the impact of the 
proposed Rule 145 amendments on the staff's position that stock 
received in a reorganization that is exempt from registration pursuant 
to Section 3(a)(10) of the Securities Act \190\ could be publicly 
resold pursuant to Rule 145(d)(2).\191\
---------------------------------------------------------------------------

    \189\ See comment letters on the 2007 Proposing Release from 
ABA; Cleary Gottlieb; Fried Frank; Financial Associations; and 
SCSGP.
    \190\ 15 U.S.C. 77c(a)(10).
    \191\ See comment letters on the 2007 Proposing Release from 
Barron and Fried Frank.
---------------------------------------------------------------------------

    After considering the comments, we believe that it is appropriate 
to adopt the amendments to Rule 145, as proposed. The presumptive 
underwriter provision in Rule 145 is no longer necessary in most 
circumstances. However, based on our experience with transactions 
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 reporting and non-reporting shell 
companies and their affiliates and promoters. We are amending Rule 145 
to eliminate the presumptive underwriter provision except when a party 
to the Rule 145(a) transaction is a shell company.\192\
---------------------------------------------------------------------------

    \192\ With respect to a transaction that is exempt from 
registration pursuant to Section 3(a)(10) of the Securities Act that 
falls within Rule 145(a), if any party to the transaction is a shell 
company, then any party to the transaction, other than the issuer, 
and its affiliates will be permitted to resell their securities in 
accordance with the restrictions of Rule 145(d). Also, the staff 
intends to issue a revised Staff Legal Bulletin No. 3 concurrently 
with the effective date of the amendments that we are adopting that 
will address the treatment of parties to a transaction and their 
affiliates that have acquired securities in a transaction exempt 
from registration pursuant to Section 3(a)(10) of the Securities 
Act.
---------------------------------------------------------------------------

    Rule 145(c) now provides that any party, other than the issuer, to 
a Rule 145(a) transaction involving a shell company (but not a business 
combination related shell company), including any affiliate of such 
party, who publicly offers or sells securities of the issuer acquired 
in connection with the transaction, will continue to be deemed an 
underwriter.\193\
---------------------------------------------------------------------------

    \193\ We are also adding the definition of ``affiliate'' to 
paragraph (e) and transferring the definition of ``party'' from 
paragraph (c) to paragraph (e).
---------------------------------------------------------------------------

    Under the amendments to Rule 145 that we are adopting, if the 
issuer has met the requirements of new paragraph (i)(2) of Rule 
144,\194\ the persons and parties deemed underwriters will be able to 
resell their securities subject to paragraphs (c), (e), (f), and (g) of 
Rule 144 after at least 90 days have elapsed since the securities were 
acquired in the transaction. After six months have elapsed since the 
securities were acquired in the Rule 145(a) transaction, the persons 
and parties will be permitted to resell their securities, subject only 
to the Rule 144(c) current public information condition, 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. After 
one year has elapsed since the securities were acquired in the 
transaction, the persons and parties will be permitted to resell their 
securities without any limitations under Rule 145(d), provided that 
they are non-affiliates at the time of sale and have not been 
affiliates during the three months before the sale.
---------------------------------------------------------------------------

    \194\ The requirement in the newly added Rule 144(i)(2) that 
Form 10 information be filed reflecting a company's status as no 
longer a shell company is fulfilled with respect to a Rule 145(a) 
transaction through the filing of the registration statement.
---------------------------------------------------------------------------

    In addition, we are adopting, as proposed, a note to paragraphs (c) 
and (d) of Rule 145 that paragraph (d) 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 Securities Act. \195\ We have included 
a similar statement in the Preliminary Note to Rule 144. We also are 
adopting, as proposed, the clarification to the language in Rule 145(d) 
regarding the securities that were acquired in a transaction specified 
in Rule 145(a). \196\
---------------------------------------------------------------------------

    \195\ See new Note to Rule 145(c) and (d).
    \196\ See amendments to Rule 145(d) relating to ``securities 
acquired in a transaction specified in paragraph (a) that was 
registered under the Act.''
---------------------------------------------------------------------------

H. Conforming and Other Amendments

1. Regulation S Distribution Compliance Period for Category Three 
Issuers
    The purpose of the distribution compliance period in Regulation S 
\197\ is to ensure that during the offering period and in the 
subsequent aftermarket trading that takes place offshore, the persons 
complying with the Rule 903 \198\ safe harbor (issuers, distributors 
and their affiliates) are not engaged in an unregistered, non-exempt 
distribution of securities into the United States capital markets. 
\199\ In the 2007 Proposing Release, we requested comment on whether to 
amend Regulation S to conform the one-year distribution compliance 
period in Rule 903(b)(3)(iii) for Category 3 issuers (U.S. reporting 
issuers) to the proposed six-month Rule 144(d) holding period, or to 
retain the one-year distribution compliance period.
---------------------------------------------------------------------------

    \197\ 17 CFR 230.901 through 230.905 and Preliminary Notes.
    \198\ See 17 CFR 230.903.
    \199\ See Release No. 33-7505.
---------------------------------------------------------------------------

    Several commenters recommended revising the Regulation S 
distribution compliance period in Rule 903(b)(3)(iii) to coincide with 
the six-month holding period under a revised Rule 144. \200\ Commenters 
reasoned, among other things, that such a revision is logical and would 
promote consistency among the rules. \201\ We did not receive any 
comment letters objecting to such an amendment to Regulation S.
---------------------------------------------------------------------------

    \200\ See comment letters on the 2007 Proposing Release from 
ABA; Cleary Gottlieb; Financial Associations; Fried Frank; Herbert 
Smith CIS LLP (``Herbert Smith''); London Forum; Parsons; and 
Sullivan.
    \201\ See, e.g., comment letters on the 2007 Proposing Release 
from Cleary Gottlieb; Financial Associations; and London Forum.
---------------------------------------------------------------------------

    When Regulation S was amended in 1998, the distribution compliance 
period was revised to coincide with the Rule 144(d) holding 
period.\202\ In making this revision, we noted that a distribution 
compliance period that is longer than the Rule 144 holding period is 
unnecessary and could be confusing to apply. For the same reason, we 
are amending Regulation S to conform the distribution compliance period 
in Rule 903(b)(3)(iii) for Category 3 reporting issuers to the 
amendments to the Rule 144 holding period.\203\ As a result, U.S. 
reporting issuers will be subject to a distribution compliance period 
of six months under Regulation S.
---------------------------------------------------------------------------

    \202\ See Release No. 33-7505.
    \203\ See amendments to Rule 903(b)(3) of the Securities Act.

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

[[Page 71560]]

2. Underlying Securities in Asset-Backed Securities Transactions
    In 2004, we adopted Securities Act Rule 190 to clarify when 
registration of the sale of underlying securities in asset-backed 
securities transactions is required. \204\ One of the basic premises 
underlying asset-backed securities 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 asset-backed securities 
offering.
---------------------------------------------------------------------------

    \204\ 17 CFR 230.190 and Release No. 33-8518.
---------------------------------------------------------------------------

    One of the requirements of Rule 190 is that the depositor must be 
free to publicly resell the securities without registration under the 
Securities Act. \205\ Before the amendments that we are adopting, this 
provision noted as an example that if the underlying securities are 
Rule 144 restricted securities, under the conditions of the previous 
Rule 144(k), at least two years must have elapsed from the date the 
underlying securities were acquired from the issuer, or an affiliate of 
the issuer, and the date they are pooled and resecuritized pursuant to 
Rule 190.
---------------------------------------------------------------------------

    \205\ 17 CFR 230.190(a)(3).
---------------------------------------------------------------------------

    The changes to Rule 144 with no concurrent revision to Rule 190 
would have allowed privately placed debt or other asset-backed 
securities to be publicly resecuritized in as little as six months 
after their original issuance without registration of the underlying 
securities. \206\ Given that Rule 190 addresses the public distribution 
of privately placed securities via resecuritization transactions, we 
proposed to revise Rule 190 to retain the current two-year period for 
resecuritizations that do not require registration of the underlying 
securities. \207\
---------------------------------------------------------------------------

    \206\ Although the asset-backed securities we are discussing may 
be privately placed, the issuing trust will have also registered the 
sale of other asset-backed securities and may have a reporting 
obligation under Section 15(d) of the Exchange Act for some time.
    \207\ This change would not in any way impact the disclosure 
requirements for resecuritizations.
---------------------------------------------------------------------------

    A particular issuance of asset-backed securities often involves one 
or more publicly offered classes (e.g., classes rated investment grade) 
as well as one or more privately placed classes (e.g., non-investment 
grade subordinated classes). In most instances, the subordinated 
classes act as structural credit enhancement for the publicly offered 
senior classes by receiving payments after, and therefore absorbing 
losses before, the senior classes. These unregistered asset-backed 
securities are typically rated below investment grade, or are unrated, 
and as such could not be offered on Form S-3. They typically are not 
fungible with registered securities from the same offering and are held 
by very few investors. Further, the trust or issuing entity usually 
ceases reporting under the Exchange Act with respect to the publicly 
offered classes after its initial Form 10-K is filed. We understand 
that the privately placed subordinated securities in these transactions 
are often the types of securities that are pooled and resecuritized 
into new asset-backed securities. \208\
---------------------------------------------------------------------------

    \208\ 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'').
---------------------------------------------------------------------------

    One commenter provided comments on the proposal to retain the two-
year period for resecuritizations that do not require registration of 
the underlying securities. \209\ The commenter submitted that the 
proposed two-year holding period for resecuritizations should be 
shortened to no more than six months (or twelve months, if tolling were 
to be reinstituted). With respect to non-asset-backed securities (e.g., 
corporate debt), the commenter stated that we should permit 
securitization without registration during the revised period, as these 
securities face fewer complications and are not the focus of our 
concerns.
---------------------------------------------------------------------------

    \209\ See comment letter on the 2007 Proposing Release from 
Financial Associations.
---------------------------------------------------------------------------

    Due to the particular circumstances of asset-backed securities and 
our experience with a two-year period under both Regulation AB and the 
prior staff positions that were codified by those rules, we are not 
making any changes to shorten the current two-year holding period for 
restricted securities that are to be resecuritized in publicly 
registered offerings. In light of the changes that we are making to 
Rule 144, we are amending Rule 190 to provide that if the underlying 
securities are restricted securities, Rule 144 is available for the 
sale of the securities in the resecuritization, 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. \210\ Of course, the 
underlying securities could still be resecuritized if they do not meet 
this requirement; their sale would 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 amended, will lengthen the six-
month holding period of the underlying securities under Rule 144 for 
resales other than in connection with publicly registered 
resecuritizations.
---------------------------------------------------------------------------

    \210\ See amendments to Rule 190(a) of the Securities Act.
---------------------------------------------------------------------------

3. Securities Act Rule 701(g)(3)
    Securities Act Rule 701(g)(3) \211\ 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 amendments that we are adopting no longer apply to 
resales by non-affiliates. We received one comment on the conforming 
change, and the commenter concurred with the proposed amendment to 
Securities Act Rule 701(g)(3). \212\ Accordingly, we believe that it is 
appropriate to conform the resale restrictions of securities acquired 
pursuant to employee benefit plans under Rule 701 of the Securities 
Act. We are adopting the amendment to remove references to Rule 144(e) 
and (h) from Rule 701.\213\
---------------------------------------------------------------------------

    \211\ 17 CFR 230.701(g)(3).
    \212\ See comment letter on the 2007 Proposing Release from ABA.
    \213\ See amendments to Rule 701(g)(3) of the Securities Act.
---------------------------------------------------------------------------

III. Paperwork Reduction Act

A. Background

    Our amendments contain ``collection of information'' requirements 
within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\214\ We submitted the amendments to Form 144 to the Office 
of Management and Budget (OMB) for review in accordance with the 
PRA.\215\ OMB has approved the revision. 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.
---------------------------------------------------------------------------

    \214\ 44 U.S.C. 3501 et seq.
    \215\ See 44 U.S.C. 3507 and 5 CFR 1320.11.
---------------------------------------------------------------------------

    The primary purpose of this collection of information is the 
disclosure of a proposed sale of

[[Page 71561]]

securities by security holders deemed not to be engaged in the 
distribution of the securities and therefore not underwriters. Form 144 
may be filed in paper or electronically using the EDGAR filing system. 
Form 144 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.

B. Summary of Amendments

    In the 2007 Proposing Release, we proposed an amendment to the Form 
144 filing requirement to eliminate the need for non-affiliates of the 
issuer to file Form 144 in order to sell their securities under Rule 
144. In addition, the proposal would have raised 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 or $10,000. The proposed amendments also included two other 
minor changes to Form 144.\216\
---------------------------------------------------------------------------

    \216\ We proposed 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. We are adopting the amendment to Form 144 
regarding the representation that the security holder does not know 
of material adverse information about the company as of the date 
that he or she adopts a plan under Exchange Act Rule 10b5-1.
---------------------------------------------------------------------------

    The 2007 Proposing Release included a PRA analysis. We received one 
comment letter addressing this analysis. The commenter noted that our 
estimate of burden hours necessary to complete a notice on Form 4 is 
0.5 hours, while we estimate that it takes 2.0 burden hours to complete 
Form 144.\217\ This commenter believed our estimates for the two forms 
should be comparable. Because this commenter estimated that it takes 
only three minutes on average to key and proof Form 144 data items, the 
commenter believed that 0.5 hours is probably a more accurate estimate 
of the burden hours needed to complete the Form 144.
---------------------------------------------------------------------------

    \217\ See comment letter on the 2007 Proposing Release from 
Washington Service on PRA estimates (``WS 1'').
---------------------------------------------------------------------------

    In addition, in response to comment, we are raising the thresholds 
that trigger a Form 144 filing requirement to 5,000 shares or $50,000 
of securities within a three-month period, from the proposed thresholds 
of 1,000 shares or $50,000. Therefore, we are adjusting our paperwork 
burden estimates for Form 144.

C. Revised Burden Estimates

    Due to comment and the changes that we are adopting, we are 
publishing revised burden estimates for Form 144. Currently, we 
estimate that 60,500 notices on Form 144 are filed annually for a total 
burden of 121,000 hours.\218\ As noted in the proposing release, the 
amendments that eliminate the need for non-affiliates to file Form 144 
notices will decrease the annual Form 144 filings by approximately 45%. 
As a result, we estimate that the number of annual Form 144 filings 
will be reduced from 60,500 filings to 33,373 filings.\219\
---------------------------------------------------------------------------

    \218\ This reflects current OMB estimates.
    \219\ 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.
---------------------------------------------------------------------------

    In addition, we estimate that increasing the Form 144 filing 
thresholds from 500 shares or $10,000 to 5,000 shares or $50,000 will 
further reduce the number of Form 144 filings that we receive annually 
by approximately 30% (10,012 fewer filings).\220\ After considering the 
comment letter that we received on the current PRA estimate for Form 
144, we estimate that each notice on Form 144 imposes a burden for PRA 
purposes of one hour. Therefore, under these revised estimates, the 
amendments that we are adopting will reduce the burden on selling 
security holders who sell the securities under Rule 144 by a total of 
approximately 37,139 burden hours.
---------------------------------------------------------------------------

    \220\ This estimate is based on information contained in notices 
on Form 144 filed in 2005.
---------------------------------------------------------------------------

D. Solicitation of Comments

    Pursuant to 44 U.S.C. 3506(c)(2)(A), 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, Public Reference 
Room, 100 F Street, NE., Washington, DC 20549-0609. 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.

IV. 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 security holder is deemed 
not to be 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. 
Securities Act Rule 145 requires Securities Act registration of certain 
types of business combination transactions, unless an exemption from 
the registration requirement is available. 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 specified thresholds. 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.

B. Description of Amendments

    We are adopting, substantially as proposed, amendments to Rule 144, 
Rule 145, and Form 144 that will accomplish the following:
     Simplify the Preliminary Note to Rule 144 and the text of 
Rule 144, using plain English principles;
     Shorten the Rule 144(d) holding period for restricted 
securities of Exchange Act reporting issuers to six months for both 
affiliates and non-affiliates;

[[Page 71562]]

     Significantly reduce requirements applicable to non-
affiliates of reporting and non-reporting issuers so that:
     Non-affiliates of reporting issuers will be subject only 
to the current public information requirement after meeting the six-
month holding period for restricted securities of these issuers and up 
until one year since the date they acquired the restricted securities 
from the issuer or affiliate of the issuer; and
     Non-affiliates of non-reporting issuers will be able to 
resell restricted securities of these issuers after satisfying a one-
year holding period without having to comply with any other condition 
of Rule 144;
     For affiliate sales:
     Revise the ``manner of sale'' limitations,
     Eliminate the ``manner of sale'' limitations with respect 
to debt securities,
     Raise the volume limitations for debt securities, and
     Increase the thresholds that trigger a Form 144 filing 
requirement;
     Codify staff interpretive positions, as they relate to 
Rule 144, concerning the following issues:
     Inclusion of securities acquired in a transaction under 
Section 4(6) of the Securities Act in the definition of ``restricted 
securities,''
     The effect that creation of a holding company structure 
has on a security holder's holding period,
     Holding periods for conversions and exchanges of 
securities,
     Holding periods for cashless exercise of options and 
warrants,
     Aggregation of a pledgee's resales with resales by other 
pledgees of the same security for the purpose of determining the amount 
of securities to be sold,
     The extent to which securities issued by reporting and 
non-reporting shell companies are eligible for resale under Rule 144, 
and
     Representations required from security holders relying on 
Exchange Act Rule 10b5-1(c); and
     Eliminate the presumptive underwriter provision in 
Securities Act Rule 145, except for transactions involving a shell 
company, and revise the resale provisions for presumed underwriters in 
that rule.

C. Benefits

    We believe that the amendments will reduce the cost of complying 
with Rules 144 and 145. We examined the Forms 144 that were filed with 
the Commission since 1997.\221\ 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, every year have had at least 
one transaction reported on Form 144. Reducing the burden associated 
with these transactions can reduce the cost of capital to these 
companies.
---------------------------------------------------------------------------

    \221\ 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 issuer 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 issuer. 
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 thereby may reduce the 
cost of services and employment.
    For the most part, transactions that have been reported 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 issuer. Thus, reducing the costs associated 
with filing Form 144 and raising the thresholds that trigger a Form 144 
filing requirement are likely to affect a large number of investors.
    We expect that the increase in the value of these securities will 
come from several sources under the amendments we are adopting. 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 with respect to the 
securities) for this risk.\222\ We also should expect that the longer 
the non-trading period, the higher the premium that investors will 
charge for their lack of liquidity.\223\ 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 issuer 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.
---------------------------------------------------------------------------

    \222\ 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, e.g., 
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%. Among the 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, and the financial situation of the 
firm.
    \223\ We are not aware of any empirical work that examines the 
effect of shortening the holding period in Rule 144 on the discount. 
Longstaff 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 each associated with a 30% drop in the discount. Longstaff, 
F.A., How Much Can Marketability Affect Security Values?, Journal of 
Finance, 50, 1767-1774 (1995).
---------------------------------------------------------------------------

    Commenters expressed support for the belief that the proposals 
would increase liquidity for issuers and make capital investment more 
attractive without sacrificing investor protection.\224\ Some 
commenters also stated that the proposals would decrease the cost of 
capital for smaller companies.\225\ One commenter noted that if the 
proposals are adopted, companies will have greater financing options, 
which will save them time and resources.\226\ One commenter noted that 
the reduction of the holding period requirement will reduce costs 
involved in any private investment in public equity financings, since 
investors will be incurring less risk in holding restricted 
securities.\227\
---------------------------------------------------------------------------

    \224\ See, e.g., comment letters on the 2007 Proposing Release 
from Financial Associations; Richardson Patel; and Roth.
    \225\ See, e.g., comment letters on the 2007 Proposing Release 
from Pink Sheets and Sichenzia.
    \226\ See comment letter on the 2007 Proposing Release from 
Parsons.
    \227\ See comment letter on the 2007 Proposing Release from 
Weisman.
---------------------------------------------------------------------------

    Also, resale transactional costs for non-affiliate selling security 
holders should decrease as a result of the

[[Page 71563]]

removal of all conditions other than the holding period condition and 
the current public information condition applicable to non-affiliates 
of reporting issuers. Reducing restrictions on resales by non-
affiliates should streamline the rule and reduce the complexity of the 
rule. This and other simplifications of Rule 144 and its Preliminary 
Note 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. The differences in holding period conditions between 
resales of securities of reporting issuers and resales of securities of 
non-reporting issuers, however, adds some complexity to the rule that 
may diminish the effect of simplifying other aspects of the rule.
    Under the amendments, non-affiliates no longer are required to file 
Form 144 or comply with the manner of sale requirements and volume 
limitations, after the Rule 144(d) holding period requirement is met. 
Therefore, they will save the cost of preparing and filing Form 144, as 
well as the transactional costs related to complying with the manner of 
sale requirements and volume of sale limitations. As noted above, we 
estimate that the amendments reducing the restrictions applicable to 
non-affiliates will decrease the annual Form 144 filings by 
approximately 45%.
    In addition, the increase in the Form 144 filing thresholds should 
further reduce the number of transactions for which Form 144 needs to 
be filed for proposed sales of securities held by affiliates of the 
issuer. This will eliminate the cost of preparing and filing the form 
for transactions that fall below the new thresholds.
    The elimination of the manner of sale requirements, combined with 
the relaxation of volume limitations, applicable to resales of debt 
securities will reduce costs for debt security holders. It is difficult 
to estimate the amount of reduction. Among the Forms 144 filed with the 
Commission 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.\228\ 
The elimination of the manner of sale requirements for resales of debt 
securities may also reduce brokers' fees and, therefore, result in a 
reduction of revenue for brokers.
---------------------------------------------------------------------------

    \228\ We base the estimate on number of filings that indicated 
that the securities were debt securities in the section of Form 144 
that requests information on the nature of the acquisition 
transaction.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we requested comment on whether to 
eliminate the manner of sale requirements also for resales of equity 
securities. After considering the comments, we are retaining and 
amending the manner of sale requirements for resales of equity 
securities by affiliates. We believe that the amendments we are 
adopting will benefit investors and companies by modernizing Rule 144 
so that it better reflects current trading practices and venues for 
sales of securities.\229\
---------------------------------------------------------------------------

    \229\ For example, under the amendments, the posting of bid and 
ask prices in alternative trading systems will not be considered a 
solicitation proscribed by Rule 144(g), provided that the broker has 
published bona fide bid and ask quotations for the security in the 
alternative trading system on each of the last twelve days. As noted 
above, trading in alternative trading systems has become 
increasingly common such that, in the second quarter of 2007, 
alternative trading systems handled approximately $1.3 trillion in 
volume of matched orders. We obtained this data from information 
provided in Form ATS-R Quarterly Reports.
---------------------------------------------------------------------------

    The codification of existing staff interpretive positions should 
not create added cost to companies or investors because, substantively, 
there is no expected change in practice as a result of the 
codification.\230\ 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. We 
received one comment letter in support of this reasoning, noting that 
codification of the staff's interpretive positions should help to 
resolve any lingering confusion and assist in making Rule 144 more 
readily understandable to market participants.\231\ Another commenter 
noted that the codification of staff interpretations should reduce 
legal research costs for those who are considering the question for the 
first time.\232\
---------------------------------------------------------------------------

    \230\ We are, however, modifying the staff interpretation 
relating to the treatment of reporting and non-reporting shell 
companies to allow resales of securities of former shell companies 
one year after Form 10 information is filed reflecting the issuer of 
the securities has ceased to be a shell company.
    \231\ See comment letter on the 2007 Proposing Release from 
Financial Associations.
    \232\ See comment letter on the 2007 Proposing Release from ABA.
---------------------------------------------------------------------------

    The amendments to Rule 145 remove what we 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 amendments to Rule 145 will 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 preserve for investors protection against 
manipulative practices or abusive sales by parties to the transaction 
and their affiliates after the completion of the Rule 145 transaction.

D. Costs

    Relative to other options, the choice to register equity securities 
is attractive to issuers, because issuers can assure investors that 
there will be a liquid aftermarket for their equity securities. 
However, in the 2007 Proposing Release, we noted that 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. Also, reducing the 
requirements under Rule 144 could also lead to the movement of certain 
investors from public transactions to private transactions.
    We also acknowledge that there is the risk that the market will not 
be informed about the nature of these transactions, given that these 
transactions are not required to be registered and given the changes to 
the 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 satisfying 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 current information on the issuer ever being 
publicly available. 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. The effect of the 
amendments on these movements and their effect on investor wealth or on 
issuers' cost of capital are thus subject to many factors.
    Under the amendments we are adopting, with respect to securities of 
reporting issuers, after the six-month holding period is satisfied, 
non-affiliates of the issuer will be subject, for an additional six 
months, only to the condition requiring the availability of adequate 
current information on the issuer. After one year, non-affiliates of 
both reporting and non-reporting issuers will be permitted to sell 
their restricted securities freely without being subject to any other 
Rule 144 condition. We

[[Page 71564]]

received comments in support of the proposed amendments regarding non-
affiliates, as well as a few comments objecting to some of the changes. 
Some commenters objected to the aspect of the proposed amendments that 
would allow non-affiliates to resell their restricted securities after 
the holding period without being required to comply with the manner of 
sale requirements,\233\ or the Form 144 filing requirement,\234\ for an 
additional year. Another commenter was concerned that, for sales of 
securities of a non-reporting company, relieving non-affiliates from 
compliance with Rule 144's existing conditions, including the current 
public information condition, would lead to abuse.\235\ We did not 
receive comments quantifying the effect of the proposed amendments on 
investor wealth or on cost of capital.
---------------------------------------------------------------------------

    \233\ See comment letter on the 2007 Proposing Release from 
Brill 1.
    \234\ See comment letters on the 2007 Proposing Release from 
Brill 1 and WS 2.
    \235\ See comment letter on the 2007 Proposing Release from 
Brill 1.
---------------------------------------------------------------------------

    While we acknowledge that these are potential costs of the 
amendments that we are adopting, we continue to believe that they are 
justified by the potential benefits of the amendments and may not be 
significant in the aggregate. As stated in the 2007 Proposing Release, 
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 informational 
advantage to these security holders at the time of selling.\236\ 
Second, the rule, as amended, continues to impose several conditions to 
selling restricted securities by affiliated investors to alleviate 
these concerns.
---------------------------------------------------------------------------

    \236\ 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).
---------------------------------------------------------------------------

    One commenter expressed concern about the extent of the reduction 
of the restrictions for non-affiliates and contended that the changes 
will shift the market value of a company's securities away from the 
security holders who have held the securities for a longer time period 
and ``into the pockets of the security holders'' who are able to sell 
their securities without limitation after holding them for six 
months.\237\ However, we believe that the possible impact that such a 
change could have is likely temporary and not significant. Also, 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.
---------------------------------------------------------------------------

    \237\ See comment letters on the 2007 Proposing Release from 
NASAA.
---------------------------------------------------------------------------

V. Promotion of Efficiency, Competition and Capital Formation

    Securities Act Section 2(b) \238\ 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.
---------------------------------------------------------------------------

    \238\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    The amendments are intended to reduce regulatory requirements for 
the resale of securities and simplify the process of reselling such 
securities. Before today's amendments, a security holder who wished to 
rely on the Rule 144 safe harbor for the resale of restricted 
securities had to wait until at least one year after the securities 
were last sold by the issuer or an affiliate before any securities 
could be sold under Rule 144. The amendments to Rule 144 will reduce 
this holding period requirement to six months for the resale of 
restricted securities of Exchange Act reporting companies. Restricted 
securities of non-reporting companies will continue to be subject to a 
one-year holding period requirement.
    After considering the comments on the 2007 Proposing Release, we 
continue to believe that the shorter holding period requirement for 
restricted securities of reporting companies will increase the 
liquidity of securities sold in private transactions.\239\ This could 
result in increased efficiency in securities offerings to the extent 
that companies are 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 will promote 
capital formation, particularly for smaller companies, because the 
amendments will 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.
---------------------------------------------------------------------------

    \239\ See section IV.C of this section.
---------------------------------------------------------------------------

    The other amendments to Rule 144 generally also should increase 
efficiency and assist in capital formation. We believe that the 
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 elimination of the manner of sale 
requirements for debt securities and the amendments to the volume 
limitations will provide debt security holders with greater flexibility 
in the resale of their securities, thereby increasing efficiency.
    As noted above, several commenters supported the proposed 
amendments because they promote capital formation, noting that they 
enhance the ability to raise capital for issuers, and, in particular, 
smaller issuers.\240\ One commenter, however, noted that the 
codification of the staff interpretation relating to reporting and non-
reporting shell companies will adversely affect small business capital 
formation.\241\ We are, however, modifying the staff interpretation to 
permit resales of securities of former reporting and non-reporting 
shell companies under certain circumstances. Also, we believe that the 
impact on small business capital formation due to the amendments will 
be limited, given that we believe there will not be a substantial 
change in existing practices, and the interest of investor protection 
is paramount where we believe there may be significant potential for 
abuse.
---------------------------------------------------------------------------

    \240\ See, e.g., comment letters on the 2007 Proposing Release 
from Financial Associations; Pink Sheets; Richardson Patel; Roth; 
and Sichenzia.
    \241\ See comment letter on the 2007 Proposing Release from 
Williams.
---------------------------------------------------------------------------

    Several commenters noted in their letters that the Form 144 filing 
requirement imposes a burden on selling security holders.\242\ Raising 
the Form 144 filing thresholds should also improve efficiency by 
reducing security holders' paperwork burden.
---------------------------------------------------------------------------

    \242\ See, e.g., comment letters on the 2007 Proposing Release 
from Fried Frank and SCSGP. Some commenters even supported 
eliminating the Form 144 filing requirement for both affiliates and 
non-affiliates. See comment letters from ABA; BAIS; SCSGP; and 
Sullivan.
---------------------------------------------------------------------------

    Under the amendments to Rule 145, individuals and smaller entities 
owning securities in companies that engage in transactions specified in 
Rule 145(a) will no longer be subject to the presumptive underwriter 
provision, except in the case of transactions involving a shell 
company. These amendments should improve the competitiveness of many 
smaller entities in permitting them to resell securities without the 
restrictions that were imposed by the rule before the amendments that 
we are adopting.

VI. Final Regulatory Flexibility Analysis

    We have prepared this Final Regulatory Flexibility Analysis in

[[Page 71565]]

accordance with Section 603 of the Regulatory Flexibility Act.\243\ 
This analysis relates to the amendments to Rules 144 and 145 and Form 
144 under the Securities Act. An Initial Regulatory Flexibility 
Analysis (IRFA) was prepared in accordance with the Regulatory 
Flexibility Act in conjunction with the 2007 Proposing Release. The 
2007 Proposing Release included, and solicited comment on, the IRFA.
---------------------------------------------------------------------------

    \243\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Amendments

    On July 5, 2007, we proposed amendments to Rules 144 and 145 of the 
Securities Act.\244\ Rule 144 provides 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 the Rule 144 
conditions, that selling security holder may resell his or her 
securities publicly without registration and without being deemed an 
underwriter.
---------------------------------------------------------------------------

    \244\ See Release No. 33-8813.
---------------------------------------------------------------------------

    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.
    Under the amendments we are adopting, Form 144 is required to be 
filed by affiliates of the issuer intending to sell securities in 
reliance on Rule 144 if the amount of securities to be sold in any 
three-month period exceeds 5,000 shares or other units or the aggregate 
sales price exceeds $50,000. The primary purpose of the form is to 
publicly disclose the proposed sale of securities by persons who, under 
Rule 144, are deemed not to be engaged in the distribution of the 
securities.
    We are amending Rule 144 to make it easier to understand and apply. 
We are streamlining both the Preliminary Note to Rule 144 and the Rule 
144 text. In addition to codifying several staff interpretive 
positions, the amendments will reduce the Rule 144 holding period 
requirement and substantially reduce other Rule 144 conditions for the 
resales of securities by non-affiliates.
    The reduction of the Rule 144 holding period requirement 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. Although the codification of several staff interpretive 
positions is not intended to substantively change the rules, this 
should simplify analysis under Rule 144 by compiling these 
interpretations in one readily accessible location. The objectives of 
the amendments are to simplify Rule 144, to reduce its burdens on 
investors where consistent with investor protection, and to facilitate 
capital formation.
    The amendments that increase the share and dollar thresholds that 
trigger a Form 144 filing take into account the effects of inflation 
since 1972. The amendments to the Form 144 filing requirements will 
eliminate much of the paperwork burden for selling security holders.

B. Significant Issues Raised by Comments

    Some commenters stated that the proposals would facilitate capital 
raising for smaller companies without compromising investor 
protection.\245\ One commenter noted that the elimination of the 
restrictions applicable to non-affiliates would save countless dollars 
and wasted resources.\246\ On the other hand, one commenter that 
opposed the shortened holding periods stated that under the amendments, 
companies, especially small companies, will avoid registration on the 
federal and state level.\247\ We acknowledge that, while this may be a 
potential cost of shortening the holding period, a six-month holding 
period is a reasonable indication that the security holder has assumed 
sufficient economic risk in the securities. Further, the potential cost 
caused by the amendments is justified by the potential benefits 
relating to capital formation that we believe will result from the 
amendments.
---------------------------------------------------------------------------

    \245\ See, e.g., comment letters on the 2007 Proposing Release 
from Pink Sheets; Roth; and Sichenzia.
    \246\ See comment letter on the 2007 Proposing Release from 
Brill 1.
    \247\ See comment letter on the 2007 Proposing Release from 
NASAA.
---------------------------------------------------------------------------

    Some commenters had concerns about the codification of the staff 
interpretation that prohibits security holders of shell companies or 
former shell companies from relying on Rule 144 for the resale of their 
securities. Three commenters expressed concern that under the proposed 
amendments, security holders of non-reporting shell companies would not 
be able to rely on Rule 144.\248\ Two commenters were concerned that 
this could reduce funding for and penalize smaller companies.\249\ We 
believe that the amendments relating to the use of Rule 144 for the 
resale of securities of shell companies are necessary to protect 
against abuses relating to the distribution of securities of shell 
companies.
---------------------------------------------------------------------------

    \248\ See comment letters on the 2007 Proposing Release from 
Nelson; Russell; and Williams. The comment letter on the 2007 
Proposing Release from Pink Sheets submitted various recommendations 
regarding how to improve the adequacy of information on non-
reporting companies.
    \249\ See comment letters on the 2007 Proposing Release from 
Nelson and Russell.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rule

    The rules will 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.\250\
---------------------------------------------------------------------------

    \250\ 17 CFR 230.157.
---------------------------------------------------------------------------

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) \251\ 
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 \252\ 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.
---------------------------------------------------------------------------

    \251\ 15 U.S.C. 77c(b).
    \252\ 17 CFR 240.0-10.
---------------------------------------------------------------------------

    We are aware of approximately 1,100 Exchange Act reporting 
companies that currently satisfy the definition of ``small business'' 
and may be affected by the amendments as issuers of the securities sold 
under Rule 144.\253\ The 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.\254\ We do not collect 
information in Form 144 about the size of an issuer, but we believe 
that some non-reporting issuers may be ``small.''
---------------------------------------------------------------------------

    \253\ The estimated number of reporting small entities is based 
on 2007 data including the SEC EDGAR database and Thomson 
Financial's Worldscope database. This represents an update from the 
number of reporting small entities estimated in prior rulemakings.
    \254\ This reflects current OMB estimates.
---------------------------------------------------------------------------

    The amendments that relate to the Rule 144 manner of sale 
requirements may also affect brokers that qualify as

[[Page 71566]]

small entities. We estimate that 910 broker-dealers registered with the 
Commission are small entities for the purposes of the Regulatory 
Flexibility Act.\255\
---------------------------------------------------------------------------

    \255\ For purposes of the Regulatory Flexibility Act, a broker 
or dealer is a 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.
---------------------------------------------------------------------------

    In the 2007 Proposing Release, we solicited comment on the estimate 
of the number of small entities that may be affected by the proposed 
amendments. We did not receive any comments providing an estimate of 
the number of small entities that will be affected by the amendments.

D. Reporting, Recordkeeping and Other Compliance Requirements

    We expect several of the amendments to reduce the number of Forms 
144 filed with us by selling security holders. We are adopting 
amendments that will eliminate the need for non-affiliates relying on 
the Rule 144 safe harbor to comply with most of the conditions of Rule 
144, after the holding period is met. We are also increasing the share 
number and dollar amount thresholds that trigger a Form 144 filing 
requirement.
    As a result of the amendments, non-affiliates no longer will be 
required to file a Form 144, after the requisite holding period is met, 
in order to sell their securities under Rule 144, regardless of the 
amount of securities to be sold. As noted earlier, we estimate that 45% 
of Forms 144 that we currently receive relate to restricted securities 
held by non-affiliates. Therefore, this particular amendment should 
result in a corresponding reduction in the number of Forms 144 filed 
annually.
    The increase in the filing thresholds for Form 144 should decrease 
the number of Forms 144 filed by affiliates. Based on studies conducted 
by our Office of Economic Analysis, we expect the number of Form 144 
filings to decrease further by approximately 30%, as a result of the 
increase in the filing thresholds to 5,000 shares or $50,000 in sales 
price in a three-month period.
    Clerical skills are necessary to complete Form 144.
    Also, because the amendments significantly reduce the conditions in 
Rule 144 to which non-affiliates are subject in the resale of their 
securities, non-affiliates will no longer be required to keep track of 
compliance with those conditions to which non-affiliates will no longer 
be subject. Non-affiliates selling securities of either reporting 
issuers or non-reporting issuers under Rule 144 will no longer be 
required to comply with the manner of sale requirements and volume 
limitations. Non-affiliates selling securities of non-reporting issuers 
under Rule 144 will no longer be required to comply with the current 
public information requirement.
    The amendments eliminating the manner of sale requirements for debt 
securities also will obviate the need for security holders to determine 
whether such condition has been met in the resale of their debt 
securities. As a result of both the amendments relating to the manner 
of sale requirements and the volume limitations with regard to debt 
securities, however, more security holders will be able to sell their 
securities under the Rule 144 safe harbor.
    The amendments to Rule 145 will eliminate the need for parties to a 
Rule 145(a) transaction or their affiliates to determine whether they 
have complied with the Rule 145 resale provisions for presumed 
underwriters, except when the transaction involves a shell company.

E. Agency Action To Minimize Effect on Small Entities

    We considered different compliance standards for the small entities 
that will be affected by the 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.
    Because the amendments will benefit all companies and holders of 
restricted securities, differing compliance timetables or standards for 
small entities are not appropriate. In addition, the shortened holding 
period will likely have a favorable 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 that clarify and streamline Rule 144 should 
benefit all companies, including small entities. The amendments 
relating to the manner of sale requirements and volume limitations for 
debt securities should benefit issuers of debt securities, preferred 
stock, and asset-backed securities. 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 
is contrary to our stated purpose. The prohibition against security 
holders of reporting and non-reporting shell companies from relying on 
Rule 144 protects against abuses relating to the resale of privately 
issued securities.
    The amendments to Rule 145 will eliminate the 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.

VII. Statutory Basis and Text of Amendments

    We are adopting the amendments pursuant to Sections 2(a)(11), 4(1), 
4(3), 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.

0
For the reasons set out above, Title 17, Chapter II of the Code of 
Federal Regulations is amended as follows:

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

0
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, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *

0
2. Amend Sec.  230.144 by:
0
a. Revising the preliminary note;
0
b. Revising paragraphs (a)(3)(vi) and (a)(3)(vii), and adding 
paragraphs (a)(3)(viii) and (a)(4);
0
c. Revising paragraphs (b), (c), (d)(1), (d)(3)(i), (d)(3)(ii), 
(d)(3)(vii) and (d)(3)(viii);
0
d. Adding paragraphs (d)(3)(ix) through paragraphs (d)(3)(x);
0
e. Revising the introductory text to paragraphs (e) and (e)(1);
0
f. Revising paragraphs (e)(2) and (e)(3);
0
g. Revising paragraph (f);
0
h. Revising paragraph (g)(1);

[[Page 71567]]

0
i. Redesignating existing paragraph (g)(2) as paragraph (g)(3) and 
revising newly redesignated paragraph (g)(3);
0
j. Redesignating existing paragraph (g)(3) and related notes as 
paragraph (g)(4) and related notes;
0
k. Adding new paragraph (g)(2);
0
l. Revising paragraphs (h) and (i); and
0
m. 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: Certain basic principles are essential to an 
understanding of the registration requirements in the Securities Act 
of 1933 (the Act or the Securities Act) and the purposes underlying 
Rule 144:
    1. If any person sells a non-exempt security to any other 
person, the sale must be registered unless an exemption can be found 
for the transaction.
    2. Section 4(1) of the Securities Act provides one such 
exemption for a transaction ``by a person other than an issuer, 
underwriter, or dealer.'' Therefore, an understanding of the term 
``underwriter'' is important in determining whether or not the 
Section 4(1) exemption from registration is available for the sale 
of the securities.
    The term ``underwriter'' is broadly defined in Section 2(a)(11) 
of the Securities Act to mean any person who has purchased from an 
issuer with a view to, or offers or sells for an issuer in 
connection with, the distribution of any security, or participates, 
or has a direct or indirect participation in any such undertaking, 
or participates or has a participation in the direct or indirect 
underwriting of any such undertaking. The interpretation of this 
definition traditionally has focused on the words ``with a view to'' 
in the phrase ``purchased from an issuer with a view to * * * 
distribution.'' An investment banking firm which arranges with an 
issuer for the public sale of its securities is clearly an 
``underwriter'' under that section. However, individual investors 
who are not professionals in the securities business also may be 
``underwriters'' if they act as links in a chain of transactions 
through which securities move from an issuer to the public.
    Since it is difficult to ascertain the mental state of the 
purchaser at the time of an acquisition of securities, prior to and 
since the adoption of Rule 144, subsequent acts and circumstances 
have been considered to determine whether the purchaser took the 
securities ``with a view to distribution'' at the time of the 
acquisition. Emphasis has been placed on factors such as the length 
of time the person held the securities and whether there has been an 
unforeseeable change in circumstances of the holder. Experience has 
shown, however, that reliance upon such factors alone has led to 
uncertainty in the application of the registration provisions of the 
Act.
    The Commission adopted Rule 144 to establish specific criteria 
for determining whether a person is not engaged in a distribution. 
Rule 144 creates a safe harbor from the Section 2(a)(11) definition 
of ``underwriter.'' A person satisfying the applicable conditions of 
the Rule 144 safe harbor is deemed not to be engaged in a 
distribution of the securities and therefore not an underwriter of 
the securities for purposes of Section 2(a)(11). Therefore, such a 
person is deemed not to be an underwriter when determining whether a 
sale is eligible for the Section 4(1) exemption for ``transactions 
by any person other than an issuer, underwriter, or dealer.'' If a 
sale of securities complies with all of the applicable conditions of 
Rule 144:
    1. Any affiliate or other person who sells restricted securities 
will be deemed not to be engaged in a distribution and therefore not 
an underwriter for that transaction;
    2. 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 in such transaction will receive securities 
that are not restricted securities.
    Rule 144 is not an exclusive safe harbor. A person who does not 
meet all of the applicable conditions of Rule 144 still may claim 
any other available exemption under the Act for the sale of the 
securities. The Rule 144 safe harbor is not available to any person 
with respect to any transaction or series of transactions that, 
although in technical compliance with Rule 144, 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.
    (4) The term debt securities means:
    (i) Any security other than an equity security as defined in Sec.  
230.405;
    (ii) 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
    (iii) Asset-backed securities, as defined in Sec.  229.1101 of this 
chapter.
    (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 a period of at least 90 days immediately before the sale, 
subject to the reporting requirements of section 13 or 15(d) of the 
Securities Exchange Act of 1934 (the Exchange Act), any 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, who sells 
restricted securities of the 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 a 
period of at least 90 days immediately before the sale, subject to the 
reporting requirements of section 13 or 15(d) of the Exchange Act, any 
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, who 
sells restricted securities of the 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 or persons selling on behalf of affiliates. Any 
affiliate of the issuer, or any person who was an affiliate at any time 
during the 90 days immediately before the sale, who sells restricted 
securities, or any person who sells restricted or any other securities 
for the account of an affiliate of the issuer of such securities, or 
any person who sells restricted or any other securities for the account 
of a person who was an affiliate at any time during the 90 days 
immediately before the sale, 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

[[Page 71568]]

securities must be available. Such information will be deemed to be 
available only if the applicable condition set forth in this paragraph 
is met:
    (1) Reporting Issuers. The issuer is, and has been for a period of 
at least 90 days immediately before the sale, subject to the reporting 
requirements of section 13 or 15(d) of the Exchange Act and has filed 
all required reports under section 13 or 15(d) of the Exchange Act, as 
applicable, 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, as applicable, 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 a period of at least 90 days immediately before the sale, 
subject to the reporting requirements of section 13 or 15(d) of the 
Exchange Act, 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 a 
period of at least 90 days immediately before the sale, subject to the 
reporting requirements of section 13 or 15(d) of the Exchange Act, 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, in the conversion or exchange, the 
securities sold were acquired from the issuer solely in exchange for 
other securities of the same issuer.
* * * * *
    (vii) Estates. Where a deceased person was an affiliate of the 
issuer, securities held by the estate of such person or acquired from 
such estate by the estate beneficiaries shall be deemed to have been 
acquired when they were acquired by the deceased person, except that no 
holding period is required if the estate is not an affiliate of the 
issuer or if the securities are sold by a beneficiary of the estate who 
is not such an affiliate.

    Note to Sec.  230.144(d)(3)(vii). While there is no holding 
period or amount limitation for estates and estate beneficiaries 
which are not affiliates of the issuer, paragraphs (c) and (h) of 
this section apply to securities sold by such persons in reliance 
upon 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;
    (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 company 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 so long as the exercise 
itself was cashless.
    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

[[Page 71569]]

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 full 
purchase price or other consideration for the newly acquired 
securities has been paid or given by the person acquiring the 
securities from the issuer or from an affiliate of the issuer at the 
time of exercise.

    (e) Limitation on amount of securities sold. Except as hereinafter 
provided, the amount of securities sold for the account of an affiliate 
of the issuer in reliance upon this section 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) If the securities sold are debt securities, then the amount of 
debt securities sold for the account of an affiliate of the issuer, 
regardless of whether those securities are restricted, shall not exceed 
the greater of the limitation set forth in paragraph (e)(1) of this 
section or, together with all sales of securities of the same tranche 
(or class when the securities are non-participatory preferred stock) 
sold for the account of such person within the preceding three months, 
ten percent of the principal amount of the tranche (or class when the 
securities are non-participatory preferred stock) attributable to the 
securities sold.
    (3) Determination of amount. For the purpose of determining the 
amount of securities specified in paragraph (e)(1) of this section and, 
as applicable, paragraph (e)(2) 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 (or 
within one year if the issuer of the securities is not, or has not been 
for a period of at least 90 days immediately before the sale, subject 
to the reporting requirements of section 13 or 15(d) of the Exchange 
Act) 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) or (2) of this section, whichever is 
applicable;

    Note to Sec.  230.144(e)(3)(ii). Sales by a pledgee of 
securities pledged by a borrower will not be aggregated under 
paragraph (e)(3)(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 (or 
within one year if the issuer of the securities is not, or has not been 
for a period of at least 90 days immediately before the sale, subject 
to the reporting requirements of section 13 or 15(d) of the Exchange 
Act) 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) or (2) of 
this section, whichever is applicable;
    (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 (or within one 
year if the issuer of the securities is not, or has not been for a 
period of at least 90 days immediately before the sale, subject to the 
reporting requirements of section 13 or 15(d) of the Exchange Act) 
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) or (2) of this section, whichever is applicable;
    (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) or (2) of this section, whichever is 
applicable: 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 three-month period 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 amount of securities to be sold in reliance upon this 
section:
    (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 one of the 
following manners:
    (i) Brokers' transactions within the meaning of section 4(4) of the 
Act;
    (ii) Transactions directly with a market maker, as that term is 
defined in section 3(a)(38) of the Exchange Act; or
    (iii) Riskless principal transactions where:
    (A) The offsetting trades must be executed at the same price 
(exclusive of an explicitly disclosed markup or markdown, commission 
equivalent, or other fee);
    (B) The transaction is permitted to be reported as riskless under 
the rules of a self-regulatory organization; and
    (C) The requirements of paragraphs (g)(2)(applicable to any markup 
or markdown, commission equivalent, or other fee), (g)(3), and (g)(4) 
of this section are met.

    Note to Sec.  230.144(f)(1): For purposes of this paragraph, a 
riskless principal transaction means a principal transaction where, 
after having received from a customer an order to buy, a broker or 
dealer purchases the security as principal in the market to satisfy 
the order to buy or, after having received from a customer an order 
to sell, sells the security as principal to the market to satisfy 
the order to sell.

    (2) 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 or dealer who executes 
the order to sell the securities.
    (3) Paragraph (f) of this section shall not apply to:
    (i) Securities sold for the account of the estate of a deceased 
person or for the

[[Page 71570]]

account of a beneficiary of such estate provided the estate or estate 
beneficiary is not an affiliate of the issuer; or
    (ii) Debt securities.
    (g) * * *
    (1) Does no more than execute the order or orders to sell the 
securities as agent for the person for whose account the securities are 
sold;
    (2) Receives no more than the usual and customary broker's 
commission;
    (3) Neither solicits nor arranges for the solicitation of 
customers' orders to buy the securities in anticipation of or in 
connection with the transaction; Provided, that the foregoing shall not 
preclude:
    (i) Inquiries by the broker of other brokers or dealers who have 
indicated an interest in the securities within the preceding 60 days;
    (ii) Inquiries by the broker of his customers who have indicated an 
unsolicited bona fide interest in the securities within the preceding 
10 business days;
    (iii) The publication by the broker of bid and ask quotations for 
the security in an inter-dealer quotation system provided that such 
quotations are incident to the maintenance of a bona fide inter-dealer 
market for the security for the broker's own account and that the 
broker has published bona fide bid and ask quotations for the security 
in an inter-dealer quotation system on each of at least twelve days 
within the preceding thirty calendar days with no more than four 
business days in succession without such two-way quotations; or
    (iv) The publication by the broker of bid and ask quotations for 
the security in an alternative trading system, as defined in Sec.  
242.300 of this chapter, provided that the broker has published bona 
fide bid and ask quotations for the security in the alternative trading 
system on each of the last twelve business days; and

    Note to Sec.  230.144(g)(3)(ii). The broker should obtain and 
retain in his files written evidence of indications of bona fide 
unsolicited interest by his customers in the securities at the time 
such indications are received.

* * * * *
    (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 5,000 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. If such securities 
are admitted to trading on any national securities exchange, one copy 
of such notice also shall be transmitted to the principal exchange on 
which such securities are admitted.
    (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 notice shall be deemed to preclude the Commission from taking any 
action that it deems necessary or appropriate with respect to the sale 
of the securities referred to in such notice. The person filing the 
notice required by this paragraph shall have a bona fide intention to 
sell the securities referred to in the notice within a reasonable time 
after the filing of such notice.
    (i) Unavailability to securities of issuers with no or nominal 
operations and no or nominal non-cash assets. (1) This section is not 
available for the resale of securities initially issued by an issuer 
defined below:
    (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 section 13 or 15(d) of the Exchange Act, as 
applicable, during the preceding 12 months (or for such shorter period 
that the issuer was required to file such reports and materials), other 
than Form 8-K reports (Sec.  249.308 of this chapter); 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 those securities may be sold subject to the 
requirements of this section after one year has elapsed from the date 
that the issuer filed ``Form 10 information'' with the Commission.
    (3) The term ``Form 10 information'' means the information that is 
required by Form 10 or Form 20-F (Sec.  249.210 or Sec.  249.220f of 
this chapter), as applicable to the issuer of the securities, to 
register under the Exchange Act each class of securities being sold 
under this rule. The issuer may provide the Form 10 information in any 
filing of the issuer with the Commission. The Form 10 information is 
deemed filed when the initial filing is made with the Commission.

0
3. Amend Sec.  230.145 by revising paragraphs (c), (d) and (e) and 
removing the authority citation following Sec.  230.145 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, 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), 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) that was 
registered under the Act if:
    (1) The issuer has met the requirements applicable to an issuer of 
securities in paragraph (i)(2) of Sec.  230.144; 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 at least six months, as 
determined in accordance

[[Page 71571]]

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 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 Sec.  230.145(c) and (d): Paragraph (d) 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.

    (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.  230.144.
    (2) The term party as used in paragraphs (c) and (d) of this 
section shall mean the corporations, business entities, or other 
persons, other than the issuer, whose assets or capital structure are 
affected by the transactions specified in paragraph (a) of this 
section.
    (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.


0
4. Amend Sec.  230.190 by:
0
a. Revising paragraphs (a)(2) and (a)(3); and
0
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]

0
5. Amend 230.701, paragraph (g)(3), by revising 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''.
0
6. Amend Sec.  230.903 by revising paragraph (b)(3)(iii)(A), the 
introductory text of paragraph (b)(3)(iii)(B) and paragraph (b)(3)(iv) 
to read as follows:


Sec.  230.903  Offers or sales of securities by the issuer, a 
distributor, any of their respective affiliates, or any person acting 
on behalf of any of the foregoing; conditions relating to specific 
securities.

* * * * *
    (b) * * *
    (3) * * *
    (iii) * * *
    (A) The offer or sale, if made prior to the expiration of a one-
year distribution compliance period (or six-month distribution 
compliance period if the issuer is a reporting issuer), is not made to 
a U.S. person or for the account or benefit of a U.S. person (other 
than a distributor); and
    (B) The offer or sale, if made prior to the expiration of a one-
year distribution compliance period (or six-month distribution 
compliance period if the issuer is a reporting issuer), is made 
pursuant to the following conditions:
* * * * *
    (iv) Each distributor selling securities to a distributor, a dealer 
(as defined in section 2(a)(12) of the Act (15 U.S.C. 77b(a)(12)), or a 
person receiving a selling concession, fee or other remuneration, prior 
to the expiration of a 40-day distribution compliance period in the 
case of debt securities, or a one-year distribution compliance period 
(or six-month distribution compliance period if the issuer is a 
reporting issuer) in the case of equity securities, sends a 
confirmation or other notice to the purchaser stating that the 
purchaser is subject to the same restrictions on offers and sales that 
apply to a distributor.

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

0
7. 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, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll, 78mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *

0
8. 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 5,000 shares or 
other units and the aggregate sale price does not exceed $50,000.
* * * * *
0
9. Form 144 (referenced in Sec.  239.144) is revised as set forth in 
the Appendix.

    By the Commission.

    Dated: December 6, 2007.
Nancy M. Morris,
Secretary.

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

Appendix

BILLING CODE 8011-01-P

[[Page 71572]]

[GRAPHIC] [TIFF OMITTED] TR17DE07.010


[[Page 71573]]


[GRAPHIC] [TIFF OMITTED] TR17DE07.011

[FR Doc. 07-6013 Filed 12-14-07; 8:45 am]
BILLING CODE 8011-01-C