Rule 144A is a safe harbor exemption from the Act of ’33. It provides that certain buyers – Qualified Institutional Buyers (“QIBs”) – may purchase unregistered securities (the buyer, not the seller, has to be a QIB). The 144A market, therefore, allows issuers to raise capital by selling securities to large institutional investors and avoid the cost and delay associated with registered offerings. Rule 144A is often used for institutional purchases of debt securities and asset-backed securities. Criteria and characteristics of Rule 144A transactions are set forth below.
Rule 144A Question | Rule 144A Answer |
Who is a Qualified Institutional Buyer (“QIB”) | QIBs are defined as institutional investors that own or invest on a at least $100 million on discretionary basis. Examples include:
Can a wealthy individual (>$100 million of net worth) be a QIB? |
What types of transaction are effected through Rule 144A? | Both debt and equity securities can be sold in Rule 144A transactions. Typical offerings under Rule 144A include:
What securities CANNOT be sold through a Rule 144A transaction?
|
Who determines whether the purchaser is an eligible QIB? | Rule 144A requires that:
What grounds might seller reasonably rely upon to determine if the purchaser is a QIB?
|
Is there a holding period between Rule 144A sales. | There is no required holding period between Rule 144A sales. |
Are there volume or capital limitations in connection with Rule 144A transactions? | There are no volume or capital limitations in connection with Rule 144A transactions. |
Can securities acquired in a Rule 144A transaction be resold? | Securities acquired in a Rule 144A transaction are restricted securities and can only be sold through other exempt transaction, or be registered and then sold to the general public. |
Who reports Rule 144A transactions ? | Equity securities sold pursuant to Rule 144A report to the ORF.Debt securities sold pursuant to Rule 144A report to TRACE. |
How can investors learn about last sale price and other trade data for 144A transactions? | FINRA disseminates data (such as sale price) on Rule 144A transactions in real-time as transactions are entered into TRACE. |
Knopman Notes
Rule 144A offers issuers of securities the ability to raise capital and avoid the expense and time of completing the registration process. This is an effective way for issuers to reach large buyers, but candidates should remember that individual investors – including retail investors, regardless of their assets or net worth – cannot participate in 144A deals.
Relevant Exams
Series 7, Series 24, Series 65, Series 66, Series 79