Rule 144A (formally 17 CFR § 230.144A) is a Securities Exchange Commission (SEC) regulation that enables purchasers of securities in a private placement to resell their securities to qualified institutional buyers (QIBs) under certain conditions.
Generally, under Rule 506 of Regulation D, purchasers of securities issued in a private placement may not resell their securities. Rule 144A allows purchasers of such securities to resell those securities if: (1) the sale is to a qualified institutional buyer (QIB); (2) the seller takes affirmative steps to ensure that the buyer is aware that the seller relies on Rule 144A to sell their security; (3) the securities are not of the same class as securities traded on a national securities exchange; and (4) the purchaser has the right to request information from the original issuer of the security.
Rule 144A makes issuing large quantities of securities in private placements under Rule 506 more attractive because it increases the liquidity of those securities sold in a private placement. That is, since the institutional investors who initially purchased the issuer’s securities in a private placement can sell to a broader group of prospective secondary purchasers under Rule 144A, it makes private placements more attractive.
[Last updated in January of 2022 by the Wex Definitions Team]