What Are Restricted Securities?

Rule 144(a)(3) discusses what criteria makes certain securities “restricted.”  Restricted securities include stock and debt instruments

  1. acquired in unregistered, private sales from the Issuer; or
  2. from an Affiliate, or Insider, of the issuer.

Investors usually receive restricted stock by subscribing to a PPM in private placement offerings such as Regulation D or “Reg D” 504, 505, and 506 offerings, employee benefit plans, and as compensation for consulting or advisory services.  Restricted securities are also often provided as consideration for providing capital to the Issuer.

When Shareholders of an OTC Bulletin Board or OTC Markets Issuer restrictive securities, the Transfer Agent has usually stamped the certificate with a “restrictive” or “restricted” legend. The legend puts the Shareholder on notice that the securities may not be resold until they are registered with the SEC or are exempt from the registration requirements (such as under Rule 144).

What is the Holding Period Under SEC Rule 144?

Rule 144’s Holding Period Is Different for SEC Reporting Companies and Pink Sheets

Before a Shareholder can sell any restricted stock in the market, the Shares must be held  for a certain amount of time. The clock starts ticking on the holding period when the Shares were fully paid for, if the consideration was cash, or when the Shares were fully earned, if services were exchanged for restricted stock.

For SEC Reporting Companies the Holding Period is Six Months

If the Issuer is an SEC Reporting Company under the Securities Exchange Act of 1934, then the holding period is a minimum of six months.  These would include Issuers trading on the OTCMarkets OTCQX and OTCQB market tiers, as well as OTC Bulletin Board stocks.

For Pink Sheets the Holding Period is One Year

If the Issuer is a Pink Sheet, and thus not subject to the ’34 Act reporting requirements, then the holding period is a minimum of one year.