SEC May Halve Private Stock Holding Period

The Securities and Exchange Commission, in an assist to start-up companies and their investors, is expected to reduce the period for which an investor must hold privately placed stock before reselling it in the public market, SEC officials said Wednesday.

Commission approval of the Rule 144 amendment, which was proposed for public comment in 1995, could come as early as next week, said Brian Lane, SEC corporation finance director. Both SEC Chairman Arthur Levitt and Steven M.H. Wallman, two of the four commissioners, said they support the measure.

“There appears to be a shared sentiment that the stock holding period is unnecessarily lengthy,” Wallman told Bloomberg News.

Companies typically make private placements to their own executives and sophisticated institutional investors without incurring the disclosure requirements that accompany public stock offerings. These placements played a key role in the development of the high-technology industry in the Silicon Valley.

The current rule, which requires most investors to hold the stock for two years before reselling it, acts as a disincentive to many companies using private placements.

The holding period would be reduced to one year under the proposal to be considered by the SEC.

At the same time that it considers changes to the private placement rule, the SEC is expected to issue a proposal to curb “Reg S” abuses, Lane said. Regulation S is a rule that seeks to ease U.S. companies’ sale of securities abroad by waiving their registration requirements.

The SEC has not yet scheduled a formal meeting to consider the Rule 144 amendment and the Reg S rule proposal, and an agency spokesman declined to comment on whether a meeting would be scheduled for Tuesday.