One of the last vestiges of the paper filing world is (mostly) disappearing. On Friday, the SEC adopted several amendments to the rules governing electronic filing and the use of structured data that were proposed in December 2020 and November 2021. Among those changes is a requirement that Form 144 be filed electronically, eliminating the paper filing option, except in the case of non-reporting issuers.
Form 144 must be filed with the SEC by an affiliate of the issuer as a notice of the proposed sale of securities in reliance on Rule 144, when the amount to be sold under Rule 144 by the affiliate during any three-month period exceeds 5,000 shares or units or has an aggregate sales price in excess of $50,000. A person filing a Form 144 must have a bona fide intention to sell the securities referred to in the form within a reasonable time after the filing of the Form 144.
In practice, Form 144s are often filed by brokerage firms on behalf of their clients who are affiliates of a public company that are selling securities under Rule 144, so the shift to mandatory electronic filing will likely require some adjustments to their processes. As noted in Chair Gensler’s statement about the rule changes, there will be a relatively long lead time in implementing the changes:
Specifically, the requirement to file Form 144 electronically on EDGAR will commence six months from the date of publication in the Federal Register of the Commission release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144. We currently expect that the Commission would consider adoption of the relevant version of the EDGAR Filer Manual addressing updates to Form 144 in September 2022, and publication in the Federal Register would occur thereafter. We believe this extended transition period will provide sufficient time for broker-dealers to transition clients for whom they prepare and submit Form 144 filings, including time for those clients who do not currently have access to EDGAR to apply for EDGAR access.
Based on past Form 144 filings, the SEC estimates that approximately 12,250 filers would be required to switch to electronic filings on EDGAR, so there are still those out there who opt to submit paper filings.
The SEC noted in the adopting release that it was not taking any action concerning the remaining proposals in the Rule 144 proposing release from December 2020, including the proposal to eliminate the Form 144 filing requirement for the sale of securities of non-reporting issuers and thus necessitating the paper filing carve-out for those situation where the non-reporting issuer does not have an EDGAR page. While the adopting release for the Form 144 amendments notes that the SEC will provide an online fillable form to facilitate filings, there is no discussion of whether this online fillable form will be integrated with the Form 4 online fillable form, as was discussed in the December 2020 proposing release and as we covered in detail in the March-April 2021 issue of The Corporate Counsel.
One interpretive issue that the mandated electronic filing of Form 144 raises is that the Staff has essentially applied a “mailbox rule” to Form 144 in determining whether the Form 144 has been filed “concurrently” with either the placing of a sale order with a broker or the execution of the sale directly with a market maker (see Securities Act Rules Compliance & Disclosure Interpretation Question 136.09). It is unclear how this concept would be applied in an EDGAR world, where most filings transmitted after 5:30 pm eastern time are deemed by the system to be “filed” on the next business day.
– Dave Lynn