6.2.4.2. Additional Requirement for Insiders
Rule 144 imposes other requirements on company insiders and other affiliates:
• They must report any sales or purchases of control securities to the SEC on a beneficial ownership form (Form 4) within two business days of the sale/purchase.
• They may not short securities of the company where they are insiders.
• Profits made from selling control securities held less than six months must be returned to the company. The profits will also be taxed as short-term capital gains. These kinds of profits are called short-swing profits.
• They are prohibited from participating in speculative option transactions involving control securities.
Note: When using a different exemption to sell restricted securities, such as Rule 144A or the FAST Act, the seller does not have to abide by Rule 144’s minimum holding period. But the rest of Rule 144 still applies, such as volume limits for insiders selling control shares.
Sample Question
How much stock can an insider of ABC Company sell over the next 90 days, with the company having 1,000,000 total shares of stock outstanding and weekly trade volume over the last 5 weeks of 10,500 shares on January 7, 11,000 shares on January 14, 10,900 shares on January 21, 9,000 shares on January 28, and 11,200 shares on February 4?
A. 10,000
B. 10,520
C. 10,525
D. 11,200
Answer: C. An insider of ABC Company must announce his intention to sell his stock within the next 90 days by filing Form 144 with the SEC. As an insider, there is a limit to the amount of stock that can be sold at one time. The maximum amount is the higher of 1% of the total shares of stock outstanding or the average trading volume over the last 4 weeks. For ABC Company, 1% of 1,000,000 shares outstanding is equal to 10,000 shares. The volume for the last 4 weeks was 11,200 shares on February 4, 9,000 shares on January 28, 10,900 shares January 21, and 11,000 shares on January 14, for a week