The SEC regulations that govern the trading of restricted stock are outlined under SEC Rule 144, which describes the registration and public trading of restricted stock and the limits on holding periods and volume. 5 Conditions for Resale of Rule 144 Securities
Five conditions must be met for restricted, unregistered, and control securities to be sold or resold.1
The prescribed holding period must be met. For a public company, the holding period is six months, beginning on the date a holder purchased and paid for the securities. For a company that does not have to make filings with the SEC, the holding period is one year. The holding period requirements apply primarily to restricted securities, while the resale of control securities is subject to the other requirements under Rule 144.
There must be adequate current public information available to investors about a company, including historical financial statements, information about officers and directors, and a business description.
If a selling party is an affiliate of a company, he cannot resell more than 1% of the total outstanding shares during any three-month period. If a company's stock is listed on a stock exchange, only the greater of 1% of total outstanding shares, or the average of the previous four-week trading volume can be sold. For over-the-counter stocks, only the 1% rule applies.
All of the normal trading conditions that apply to any trade must be met. In particular, brokers cannot solicit buy orders, and they are not allowed to receive commissions in excess of their normal rates.
An affiliated seller must file a proposed sale notice if the sale value exceeds $50,000 during any three-month period, or if more than 5,000 shares are proposed for sale.
The holding period requirement under SEC Rule 144 depends on the type of issuer. Generally, the minimum holding period is one year. For reporting companies, the holding period can be as little as six months while for non-reporting companies, it can be up to two years.1
