Definition
Form 144 is a document filed with the Securities and Exchange Commission (SEC) by an executive officer, director, or affiliate of a public company when they intend to sell restricted securities or shell company securities in the United States. It is intended to prevent illegal insider trading and market manipulation. The sale, which cannot occur until Form 144 is filed, is also subject to certain volume and timing restrictions.
Phonetic
The phonetics of the keyword “Form 144” is: /fɔɹm wʌn fɔɹ fɔɹ/
Key Takeaways
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- Form 144 is a document that the U.S. Securities and Exchange Commission (SEC) requires from anyone selling restricted or control securities, as a notice of the proposed sale to ensure compliance with the federal law for selling such securities.
- The submission of Form 144 is required if the sale amounts during any three-month period exceeds 5,000 shares or if the aggregate sales price is greater than $50,000.
- Though the filing of Form 144 does not guarantee the sale of the securities, it acts as an indication of an insider’s intent to sell and is often used by potential investors to forecast a company’s future. Conversely, the absence of Form 144 filings might be interpreted as a positive signal by the market.
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Importance
Form 144 is an important business/finance term because it is a document filed with the Securities and Exchange Commission (SEC) in the United States, handling the sale of restricted stock or insider stock. Restricted stock refers to shares of a company that cannot be sold without certain conditions, often held by corporate insiders such as directors or executives. Ensuring these conditions are met provides necessary transparency as well as fair and secure equity trading. It also enables regulatory authorities to maintain oversight on insider selling, fulfilling a critical role in preventing illegal activities such as insider trading and ensuring overall market integrity. As such, Form 144 plays a significant role in market transactions involving restricted or insider stock trades.
Explanation
Form 144, issued by the U.S. Securities and Exchange Commission (SEC), primarily serves as a notice of the proposed sale of restricted securities or securities held by an affiliate of the issuer in a transaction not involving a public offering. The purpose of this rule is to create transparency in the financial marketplace to help prevent illicit sales or manipulative practices concerning securities.When a large block of securities is to be sold, it could potentially impact the market. Form 144 filing requirements are triggered where the sale of securities involves over 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period. By raising a flag about such transactions, Form 144 ensures that potential investors are aware of significant security sales that may influence the investing landscape. It offers a level of protection to prospective buyers by providing details about the securities in question, which is significant for keeping the market fair and open.
Examples
Form 144 is required by the Securities and Exchange Commission in the United States when there’s a sale of securities. Here are three real-world examples related to this business/finance term:1. Corporate Executives Selling Shares: When a corporate executive or major shareholder in a publicly-traded company decides to sell some of their stock, they are required to file Form 144. An example could be the CEO of a tech company looking to sell a large portion of their shares. They would need to file this form to ensure they are compliant with securities regulations.2. Company Buyback Programs: A company may decide to buy back shares from their employees or investors. In this case, they would need to file Form 144 to report the transaction. For instance, if a large pharmaceutical corporation decides to implement a stock buyback program, they would file this form to legally carry out these transactions.3. Insider Trading Reporting: Form 144 is also used to monitor and control insider trading. If, for example, an insider at an automotive company learns that the company is about to report very impressive earnings and decides to sell a large number of shares, they’re required to file a Form 144. This allows the SEC to monitor and regulate transactions that are based on non-public, material information.
Frequently Asked Questions(FAQ)
What is Form 144?
Form 144 is a document issued by the Securities and Exchange Commission (SEC) that must be filed by any holder of restricted or control securities who intends to sell these shares within a certain time period.
When is Form 144 required?
Form 144 must be filed with the SEC by an individual investor or corporate insider (e.g. director, executive, or large shareholder) who intends to sell restricted securities or control securities more than 5,000 shares or has an amount greater than $50,000 within a three month period.
What information is required in Form 144?
Form 144 requires information like the seller’s information, the number of shares being sold, and the intended method of sale. It should also include the identity of the issuer of securities and the relationship of the person filing the form with the issuer.
Does filing Form 144 mean that the person will definitely sell the shares?
No, filing Form 144 only indicates an intent to sell the shares. It does not obligate the individual or corporation to sell.
What purpose does Form 144 serve?
Form 144 promotes transparency in financial markets. Since it is a publicly accessible document, it informs other investors that a large quantity of shares may be sold, which can impact the stock’s performance.
Where can I find Form 144?
Form 144 can be found on the SEC’s EDGAR database which is publicly accessible on the SEC website.
What’s the difference between restricted and control securities?
Restricted securities are shares acquired in transactions that are not public, often through private sales or as a form of compensation. Control securities are shares owned by individuals who control, or have control over, the issuing company, such as directors or large shareholders.
How long is Form 144 effective?
Form 144 is valid for 90 days after the date of filing. After this period, a new form must be filed if the person tends to continue with the sale.
Are there any exceptions to who needs to file a Form 144?
Yes, non-affiliates of the company that have not been affiliates for at least three months and have held the restricted securities for more than a year are not required to file Form 144.
Related Finance Terms
- Securities and Exchange Commission (SEC)
- Sale of Restricted Stock
- Insider Trading
- Equity Securities
- Rule 144
Sources for More Information
