On Oct. 19, 2016, the SEC Division of Corporation Finance issued a revised CDI addressing the holding period for Rule 144(d). The CDI revised the staff’s position to state that the holding period for restricted securities issued pursuant to individually negotiated employment agreements commences when investment risk for the securities passes to the employee (i.e. the date that the employee is deemed to have paid for the security), rather than, as provided by the prior CDI, the date the securities vested.

The revised CDI clarifies that an individual will be deemed to have paid for the security as follows:

  • For awards where vesting is conditioned solely on (1) continued employment and/or satisfaction of performance conditions that are not tied to the employee’s individual performance and (2) do not require the employee to pay any additional consideration, the holding period would commence on the date of the agreement; and
  • For awards that require additional payment upon exercise, conversion, or settlement – the holding period would commence on the date on which such payment is made.

The revised CDI brings the staff’s position in line with Question 23 of Securities Act Release No. 6099 (Aug. 2, 1979) regarding Resales of Restricted and Other Securities and is consistent with the holding period determination provisions of Rule 144 itself.

https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm