At an open meeting, Monday December 3rd, the SEC adopted the most significant amendments to Rule 144 in over a decade. Even though the concept was favorable, the SEC decided not to combine Form 4 and Form 144 for right. Ultimately, the rules will not include the proposal of a tolled holding period for up to six months while a security holder is engaged in hedging transactions. However, under the final rule amendments (effective 60 days after publication), the holding period for restricted securities of reporting companies will be shortened to six months. As well as, under the substantially simplified conditions of the amended rule, non-affiliates of reporting companies can freely resell restricted securities after satisfying a six-month holding period (subject only to the Rule 144(c) public information requirement until the securities have been held for one year); while non-affiliates of non-reporting companies will be able to freely resell restricted securities after satisfying a 12-month holding period.
For affiliates’ sales, the SEC amended the manner of sale requirements for equity securities, eliminating them for debt securities, relaxing the volume limitations and raising filing requirements to 5,000 shares or $50,000. A number of Staff interpretations will be codified as proposed, and the preliminary note to Rule 144 will be streamlined. In correlation, Rule 145 will also be changed to eliminate the presumptive underwriter provision – with the exception of transactions involving blank check or shell companies. The resale provisions of Rule 145(d) will also be revised. Revisions to Rules 144 and 145 will provide much needed relief in terms of liquidity for those purchasing restricted securities. The opening up of the rules may also potentially increase the possibility for non-compliance resulting in issuers, brokers and transfer agents significantly changing – and tightening – their procedures.
There are two other components adopted by the SEC in an effort to improve the small business regulatory regime- 1.) The proposals to drop Regulation S-B and 2.) To expand the universe of smaller reporting companies that may use a scaled reporting regime. These changes give an additional 1,500 smaller companies an ability to utilize, on an “a la carte” basis, the “scaled” disclosure requirements incorporated into Regulation S-K.
Amendments to Exchange Act Rule 12h-1 were also adopted to provide an exemption for private non-reporting issuers from the registration requirements under Exchange Act Section 12(g) for compensatory employee stock options issued under employee stock option plans, as well as an exemption for reporting issuers from Section 12(g) registration for compensatory employee stock options. These rules will be effective immediately upon publication, so that the exemptions can be in place by the end of 2007 for calendar year-end companies.
The SEC eliminated the requirement for a US GAAP reconciliation when foreign private issuers file financial statements prepared using International Financial Reporting Standards as issued by the International Accounting Standards Board. Christopher Cox, SEC Chairman, also announced that the SEC will hold two roundtables on December 13th and 17th to discuss the concept of permitting US issuers to use either IFRS or US GAAP.
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