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In March 2023, in the wake of the US Supreme Court decision in Slack Technologies v. Pirani, the Working Group on Investor Protection in Public Offerings, which includes academics, former SEC officials, and legal scholars, submitted a rulemaking petition urging the SEC to amend Rule 144 given the difficulties plaintiffs face in trying to trace their purchases to a registration statement. The petition notes that direct listings aren’t uniquely creating this issue, citing data showing the increasing frequency of lock-up waivers since 2010 — sometimes, even a few days post-IPO — causing tracing issues in the traditional IPO context as well. Here’s an excerpt regarding the proposed amendments:

Specifically, the Commission should amend Rule 144 such that, upon the effectiveness of a registration statement, holding periods are reset to the later of: (1) 90 days or (2) the next 10-Q or 10-K. Our proposed holding period is approximately half the length of the stated lockup period for most traditional IPOs—but gives ample time in which only registered shares trade, addressing the tracing problems modern offering practices have produced and retaining the deterrence that Congress designed Section 11 to achieve. At the same time, under our proposal issuers have the flexibility to effectively shorten the holding period by releasing post-offering financials.

Late last week, CII submitted a letter to the SEC supporting this rulemaking petition, and, while it doesn’t recommend a specific period, states the petition’s suggestion is a “useful starting point” for discussion. The working group argues that the proposed 90-day period balances the liquidity interests of early investors with the interests of public shareholders to maintain Section 11 protections.

– Meredith Ervine