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Finance: What is a holding period/144a? 8 Views

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What is a holding period/144a? The road to becoming a successful public company often entails selling equity or debt in private placements to “accredited” investors or institutional investors that are on more favorable terms separate from the common stock currently listed. The company may also issue stock to executives as part of their incentive bonus compensation. The SEC allows such transactions, provided that the stock remains unregistered for a specified holding period before becoming registered, so that the general public has the time to make itself aware that additional dilutive stock will be entering the free trading market. The 144A period is usually at least 6 months for a reporting company and a year for non-reporting companies.

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Transcript

00:00
Finance a la Shmoop. What is a holding period or a 144 a filing. Should sound
00:09
way less sexy. Well after you will make love, there should be
00:14
a holding period. Right? So we're talking about investing here, so it's all
00:20
different. All right here's the gist. Back in the day, the dark days, you know before
00:25
there was honest regulation of the securities industry, a whole lot of [man in bed with BRK share]

00:29
cheatin was going on. Fake schemes would offer shares to an
00:33
uneducated, unsophisticated public. With the sellers hoping to get rich
00:39
quick. The public would buy shares of a supposedly hot IPO. Only to have the
00:45
founders and funders of that fake or crappy company dump their
00:50
shares five minutes after the company was public. Leaving the outside investors,
00:54
holding the bag in the form of IPO shares that they paid eighteen bucks[people surrounding money chart]
00:59
each for. Well which we're now trading under a dollar. So today insiders, like
01:04
founders and the early investors, are presumed to have a lot more knowledge of
01:09
the company's operations, projections, performance and prospects, than the
01:14
general public. So the SEC Institute, of what is called the 144 a rule, which sets
01:20
out guidelines under which insiders can sell their shares. Meaning they can't [head banker]
01:25
just dump all of them on the same day, you know five minutes after the IPO. Very
01:31
roughly, insiders must hold their shares at least six months and change after the
01:36
first day of official trading during an IPO. And they must limit the volume that,
01:42
well they're dumping. That is if insiders, own say, seventy percent of the
01:47
shares of a newly, publicly traded company. Well they can't just dump 80% of [garbage truck dumping garbage]
01:52
that seventy percent, you know that first week after the six months is over. Got it?
01:57
Well in most cases insiders seeking to get liquid, ie turn their shares into
02:02
cash, so they can buy that home they've been longing for.
02:05
Well they hire an investment bank to gather together all the insider selling
02:09
group of shares. The bank then quietly markets them to investors
02:13
who had shown interest during the company Roadshow. You know during the
02:17
IPO and then in an orderly fashion, the bank sells those shares, to you know,[conference money meeting]
02:22
interested parties. The goal here is to, not crash the stock price in the process.
02:29
You can imagine what would happen if a stock averaging 300,000 shares a day of
02:34
trading, suddenly had a supply of 50 million shares come for sale. Yeah way
02:40
more supply, modest demand not a good situation. But you know holding periods,
02:45
got to hold them six months. Fortunately there's always cuddling, we[man in bed with DPRP share]
02:50
like the cuddling.
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