Actionable Ideas for Companies and Sponsors
Rule 144 Execution as an Alternative to Registered Secondary Share Blocks
Block trades have become the primary execution strategy for financial sponsors and other affiliated shareholders to monetize positions. As selling shareholders look for simplified execution alternatives, we are seeing an increase in Rule 144 transactions. Generally, block transactions are executed on a registered basis, requiring advance work for documentation and diligence. Rule 144 of the Securities Act of 1933, however, allows restricted and control stock shareholders an exemption to registration restrictions under certain conditions. As a result, Rule 144 trades require limited advance work and can be executed with no upfront documentation. The most relevant condition for affiliates is a limitation on the size of the block, which is the greater of 1% of the shares outstanding or the average weekly trading volume for the four weeks preceding the sale, and the volume test resets 90 days following a sale. Notwithstanding these parameters, Rule 144 transactions have been completed in the range of $100 million to $2 billion.