What Is Rule 144? Resale Conditions for Restricted and Control Securities

The convergence of two distinct regulatory pressures in 2025 has pushed Rule 144 compliance from a back-office concern to a front-line liquidity risk for Hong Kong issuers listing in the US. First, the SEC’s August 2024 amendments to the electronic filing requirements for Form 144 (SEC Release No. 33-11282) mandated mandatory EDGAR submission for all Rule 144 filings, eliminating the previously common practice of paper filing for smaller trades. Second, the Hong Kong Stock Exchange’s (HKEX) updated Chapter 18C guidance on SPAC de-SPAC transactions, effective January 2025, explicitly requires sponsors to address the liquidity of founder shares and PIPE securities in their post-business combination listing documents. For a Hong Kong company that completed a reverse merger with a US-listed SPAC in 2024, the lock-up expiry on its founder shares now triggers a complex interplay between SEC Rule 144 holding periods, HKEX’s 6-month minimum lock-up for backdoor listings (Listing Rule 14.06B), and the contractual lock-ups imposed by the SPAC’s initial public offering. A single misstep in the resale mechanics—such as failing to aggregate the holding periods of the SPAC sponsor and the target company—can render the entire block of shares unmarketable for an additional 6 to 12 months, a scenario that has already been documented in at least three SEC comment letters to Hong Kong-based registrants in 2024.

The Statutory Framework: Section 4(a)(1) and Rule 144 as the Primary Safe Harbor

Rule 144 is not a standalone regulation but a safe harbor under Section 4(a)(1) of the Securities Act of 1933, which exempts transactions by any person other than an issuer, underwriter, or dealer. For Hong Kong issuers and their shareholders, the critical distinction lies in whether the selling shareholder is classified as an “affiliate” (a control person) or a non-affiliate. The SEC’s definition of “control” under Rule 405 of Regulation C is deliberately broad, encompassing any person who directly or indirectly possesses the power to direct or cause the direction of the management and policies of the issuer.

Holding Periods: The 6-Month vs. 1-Year Threshold

The holding period under Rule 144 is the single most consequential factor for a Hong Kong company’s pre-IPO investors. For a company that is subject to the reporting requirements of the Securities Exchange Act of 1934—which includes all NYSE and NASDAQ-listed companies—the holding period for restricted securities is 6 months. This period begins to run from the date the securities were acquired and fully paid for from the issuer or an affiliate. For a non-reporting company, the holding period extends to 1 year.

A practical complication arises for Hong Kong companies that first listed on the HKEX Main Board and subsequently completed a secondary listing on NASDAQ via a SPAC merger. The SEC’s Division of Corporation Finance has consistently taken the position that the holding period for restricted securities in a SPAC context runs from the date of the de-SPAC transaction, not the date of the original issuance of the SPAC sponsor shares. This was explicitly confirmed in SEC Staff Legal Bulletin No. 14L (2021), which clarified that shares issued to a SPAC sponsor in a private placement are subject to a new holding period upon the business combination. For a Hong Kong target company whose shareholders received SPAC sponsor shares as part of the merger consideration, the 6-month clock starts on the closing date of the de-SPAC, not the date the target company’s shares were originally acquired.

Volume Limitations and Manner of Sale for Affiliates

An affiliate—defined as a person who controls, is controlled by, or is under common control with the issuer—faces additional restrictions beyond the holding period. The volume limitation under Rule 144(e) caps the number of shares an affiliate can sell in any three-month period to the greater of: (i) 1% of the outstanding shares of the same class, or (ii) the average weekly reported trading volume over the four calendar weeks preceding the filing of the Form 144. For a Hong Kong company with a dual-primary listing on the HKEX and a secondary listing on NASDAQ, the volume calculation must be based solely on the US trading volume, not the Hong Kong volume. This is a common trap: a company may have substantial liquidity on the HKEX but minimal trading on NASDAQ, effectively capping the affiliate’s US sales to 1% of the outstanding shares per quarter.

The manner of sale requirement under Rule 144(g) mandates that affiliates must sell their securities in “brokers’ transactions” or directly to a “market maker.” A “brokers’ transaction” is narrowly defined: the broker cannot solicit orders to buy the securities, cannot receive any compensation beyond the usual and customary brokerage commission, and cannot be acting as a principal in the transaction. For a Hong Kong family office seeking to liquidate a large block, this effectively prohibits a block trade or a registered secondary offering unless the seller first registers the shares under the Securities Act. The practical workaround is to engage a US broker-dealer to execute the sale on an unsolicited basis, but the broker must have no prior knowledge of the seller’s intent to sell.

The Control Securities Distinction: Affiliates vs. Non-Affiliates

The term “control securities” refers to securities held by an affiliate of the issuer, regardless of whether those securities were acquired in a registered offering or a private placement. This distinction is critical because an affiliate can never rely solely on the holding period expiration to sell freely; they must always comply with the volume, manner of sale, and notice requirements of Rule 144.

The Form 144 Filing Obligation

An affiliate selling more than 5,000 shares or more than USD 50,000 in gross sales price in any three-month period must file a Form 144 with the SEC. The filing must be made concurrently with the placement of the sell order with the broker. The SEC’s 2024 amendments (effective September 2024) now require all Form 144 filings to be submitted electronically via EDGAR, eliminating the paper filing option that was previously available for smaller transactions. For a Hong Kong-based affiliate, this means engaging a US-based filing agent or law firm to handle the EDGAR submission, as the SEC’s EDGAR system requires a CIK number and passphrase that are not easily obtained by non-US entities.

A common oversight is the “bona fide intention to sell” requirement. The Form 144 must be signed by the person for whose account the securities are to be sold, and the seller must have a bona fide intention to sell the securities within a reasonable time after the filing. If the seller does not execute the sale within 90 days of filing, the Form 144 expires and a new filing is required. For a Hong Kong family office that files a Form 144 but then decides to hold the shares for another quarter due to market conditions, the filing becomes stale and cannot be used for a later sale.

The “Shell Company” Rule Under Rule 144(i)

Rule 144(i) imposes a special restriction on securities issued by “shell companies,” which includes SPACs prior to their business combination. For a Hong Kong company that merges into a SPAC, the securities issued in the de-SPAC transaction are considered to have been issued by a former shell company. Under Rule 144(i), the holding period for such securities does not begin until the issuer has ceased to be a shell company and has been subject to the Exchange Act reporting requirements for at least 12 months. This effectively extends the holding period for SPAC sponsor shares and PIPE investors from 6 months to 12 months post-de-SPAC.

The SEC’s Staff Legal Bulletin No. 14L (2021) provides a limited exception: if the SPAC was not a shell company at the time of the business combination, or if the issuer is a “successor issuer” that was not a shell company, the 12-month requirement may not apply. However, the SEC has taken a narrow view of this exception. For a Hong Kong company that was itself a shell company prior to the SPAC merger—a common structure for reverse mergers—the 12-month period applies without exception. This was confirmed in the SEC’s 2023 enforcement action against a Hong Kong-based SPAC sponsor, where the SEC imposed a penalty for premature resales of sponsor shares (SEC v. Alpha Capital, 2023).

Practical Compliance for Hong Kong Issuers and Their Shareholders

The interplay between US federal securities laws and Hong Kong’s Listing Rules creates a compliance matrix that requires careful coordination. A Hong Kong company that is dual-listed on the HKEX Main Board and NASDAQ must ensure that its shareholder lock-ups comply with both regimes.

Contractual Lock-Ups vs. Rule 144 Holding Periods

Most US IPO underwriting agreements and SPAC business combination agreements impose contractual lock-up periods that are longer than the Rule 144 holding period. A typical SPAC sponsor lock-up is 12 months from the closing of the de-SPAC transaction. For a Hong Kong target company’s shareholders who receive SPAC sponsor shares, the contractual lock-up supersedes the Rule 144 holding period. Even if the Rule 144 6-month period expires, the shareholder cannot sell until the contractual lock-up expires.

HKEX’s Listing Rule 14.06B imposes a 6-month minimum lock-up for “backdoor listings,” which includes SPAC de-SPAC transactions where the target company is considered the acquiring entity. For a Hong Kong company that is the target in a SPAC merger, the HKEX may require a lock-up that is coterminous with the US lock-up, or longer. This was the case in the 2024 de-SPAC of a Hong Kong-based fintech company, where the HKEX imposed a 12-month lock-up on all founder shares, matching the US sponsor lock-up but exceeding the Rule 144 6-month minimum.

The “Tacking” Issue for Pre-IPO Investors

Pre-IPO investors in a Hong Kong company that later lists on NASDAQ via a SPAC merger face a tacking issue. Under Rule 144(d), the holding period for restricted securities can be “tacked” (i.e., the holding period of the prior holder can be added to the current holder’s period) only if the securities were acquired from an affiliate or from the issuer. For a Hong Kong angel investor who purchased shares in the company’s pre-SPAC private placement, the holding period starts from the date of that private placement, not the date of the SPAC merger.

However, if the pre-IPO investor was an affiliate of the Hong Kong company at the time of the private placement, and the company later became a shell company for the SPAC merger, the Rule 144(i) shell company rule may restart the holding period. This creates a paradoxical result: a long-term pre-IPO investor who held shares for 3 years prior to the SPAC merger may still be subject to a 12-month holding period post-de-SPAC if the company was deemed a shell company. The SEC has not provided clear guidance on this specific scenario, and legal counsel should be sought for each fact pattern.

The Role of the Transfer Agent and Legal Opinion

A US-based transfer agent will not process a sale of restricted or control securities without a legal opinion from US counsel confirming that the sale complies with Rule 144. For a Hong Kong company, this means engaging a US law firm with SEC practice experience to issue the opinion. The opinion must address: (i) the holding period calculation, (ii) the affiliate status of the seller, (iii) the volume limitation, and (iv) the manner of sale requirement.

The transfer agent will also require a representation letter from the seller, signed under penalty of perjury, confirming that the seller is not an underwriter and that the sale is not part of a distribution. For a Hong Kong family office that is selling a block of shares, the representation letter must explicitly state that the seller has no arrangement with any other person to sell shares of the same class, as such an arrangement could be deemed a “distribution” requiring registration under the Securities Act.

The SPAC-Specific Nuances: Rule 144 and the De-SPAC Transition

The SPAC market in 2024-2025 has seen a resurgence in Hong Kong-based targets, with at least 8 Hong Kong companies completing de-SPAC transactions on NASDAQ in 2024 (source: SPAC Research, 2024). Each of these transactions required careful navigation of Rule 144.

The “PIPE” Investor Safe Harbor

Private Investment in Public Equity (PIPE) investors in a SPAC de-SPAC transaction are generally considered to have purchased their securities in a private placement exempt under Section 4(a)(2) of the Securities Act. As such, the PIPE securities are “restricted securities” under Rule 144. The holding period for PIPE securities begins on the date of the closing of the PIPE investment, which is typically the same date as the de-SPAC closing. For a Hong Kong-based PIPE investor, the 6-month holding period under Rule 144 applies, but the contractual lock-up in the PIPE subscription agreement is typically 6 to 12 months.

A critical nuance: if the PIPE investor is also an affiliate of the SPAC sponsor or the target company, the PIPE securities are both restricted securities and control securities, triggering the full Rule 144 compliance requirements for affiliates. This dual classification is common for Hong Kong family offices that serve as both PIPE investors and strategic advisors to the target company.

The “Founder Share” Restriction

SPAC founder shares are typically issued at a nominal price (often USD 0.001 per share) and are subject to a 12-month lock-up from the closing of the de-SPAC transaction. Under Rule 144, founder shares are restricted securities, and the holding period begins on the closing date. However, because the SPAC was a shell company prior to the de-SPAC, the Rule 144(i) 12-month requirement applies, meaning the founder shares cannot be sold under Rule 144 until 12 months after the de-SPAC closing, even if the contractual lock-up expires earlier.

For a Hong Kong sponsor that holds founder shares, the practical effect is a minimum 12-month holding period from the de-SPAC closing. This is consistent with the HKEX’s 12-month lock-up requirement for backdoor listings under Listing Rule 14.06B, but it can create a liquidity crunch if the sponsor needs to exit earlier. The only relief is a registered secondary offering, which requires the issuer to file a registration statement with the SEC—a process that takes 3 to 6 months and requires the issuer’s cooperation.

Actionable Takeaways for Hong Kong Issuers and Shareholders

1. For any Hong Kong company completing a SPAC de-SPAC transaction on NASDAQ, the Rule 144(i) shell company rule imposes a mandatory 12-month holding period on all restricted securities, including SPAC sponsor shares and PIPE investments, regardless of any shorter contractual lock-up.

2. An affiliate of a Hong Kong dual-listed company must calculate the Rule 144 volume limitation based solely on US trading volume on NASDAQ or NYSE, not the HKEX trading volume, which can cap sales to 1% of outstanding shares if US liquidity is low.

3. The Form 144 filing obligation now requires mandatory EDGAR submission for any sale exceeding 5,000 shares or USD 50,000 in gross proceeds, and the filing must be made concurrently with the sell order—not after.

4. Pre-IPO investors in a Hong Kong company that later merges into a SPAC should obtain a legal opinion confirming whether their holding period tacks from the original investment date or restarts upon the de-SPAC closing, particularly if the company was deemed a shell company.

5. A contractual lock-up imposed by the SPAC business combination agreement or the HKEX Listing Rules supersedes the Rule 144 holding period; no sale is permitted until the later of the two expiration dates.