Rule 144 Volume Caps: One Percent of Shares or the Four-Week Average

A ceiling filed before the trade, not a print after it

An EDGAR alert lands at 4:41 p.m. Eastern: Form 144, an officer you recognize, 250,000 shares. Nothing in that filing said a share had changed hands. A Form 144 is a notice of proposed sale. It states a ceiling the seller has calculated and a sale the seller intends, not an execution.

That gap is the same one that makes corporate filings easy to misread on a screen showing only prices. A 13F is a position list as of a quarter-end date that has already passed, which is the point of Read a 13F as a Quarter-End Snapshot, Not a Current Position List. A buyback press release announces an authorization, not a purchase. A Form 144 announces a permitted quantity, not a filled order.

What makes Rule 144 worth an afternoon is that the permitted quantity is not discretionary. It is an arithmetic result produced by two numbers that are public before the filing exists: the issuer's share count and four calendar weeks of consolidated trading volume. Pull those two numbers and you can compute the same ceiling the seller's counsel computed, and tell whether a Form 144 represents an unusual amount of stock or the largest amount the rule happened to allow that month.

Concrete Framework: two public numbers decide the cap

The operative language sits in paragraph (e) of the rule. In the text published by the Office of the Federal Register at eCFR, 17 CFR 230.144 (Persons deemed not to be engaged in a distribution and therefore not underwriters), subsection (e)(1) opens: "If any securities are sold for the account of an affiliate of the issuer, regardless of whether those securities are restricted, the amount of securities sold, together with all sales of securities of the same class sold for the account of such person within the preceding three months, shall not exceed the greatest of:".

Three tests follow. The first is a share-count test: "One percent of the shares or other units of the class outstanding as shown by the most recent report or statement published by the issuer". The second is a volume test: "The average weekly reported volume of trading in such securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the filing of notice required by paragraph (h)", and the clause continues, "or if no such notice is required the date of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker". The third test is the consolidated-tape version of the second, phrased as "The average weekly volume of trading in such securities reported pursuant to an effective transaction reporting plan or an effective national market system plan as those terms are defined in § 242.600 of this chapter during the four-week period specified in paragraph (e)(1)(ii) of this section."

Work an example. The issuer's most recent report shows 240,000,000 shares outstanding, and the consolidated tape reports 30,000,000 shares traded across the four calendar weeks before the notice. The one percent test yields 2,400,000 shares. The volume test yields 30,000,000 divided by four, or 7,500,000 shares per week on average. The rule says greatest of, so the binding ceiling for that three-month period is 7,500,000 shares, not 2,400,000. A 250,000-share Form 144 against that ceiling is roughly three percent of what was available, which is a very different headline than the raw number suggested.

The same structural idea appears whenever a rule converts a discretionary decision into an arithmetic band. A repurchase program does the same thing from the buy side, where the daily safe-harbor volume condition is traced in Buyback Authorizations Are Not Purchases, and Rule 10b-18 Caps the Daily Volume.

The crossover sits exactly at one percent weekly turnover

Because the one percent test is measured against shares outstanding and the volume test is measured against weekly trading in the same shares, the two tests can be put on one axis. Express average weekly volume as a percentage of shares outstanding. That quantity is weekly turnover. The volume test beats the one percent test precisely when weekly turnover exceeds 1.0 percent, because at that point the average week already trades more than one percent of the class.

The example above has weekly turnover of 7,500,000 divided by 240,000,000, or about 3.1 percent, which is why the volume test won by a wide margin. Flip the facts. A company with 18,000,000 shares outstanding and 400,000 shares of four-week consolidated volume has an average weekly volume of 100,000 shares and a one percent test of 180,000 shares. Weekly turnover is roughly 0.6 percent, below the crossover, so the one percent test binds and the affiliate may sell up to 180,000 shares in the three-month window.

For a heavily traded large capitalization name, the one percent test rarely binds and the affiliate's ceiling floats with the tape. For a thin name, the ceiling is anchored to the share count and moves very little.

The four-week window is tied to the notice, not to the calendar quarter

The four calendar weeks run backward from the filing of the Form 144 notice, and where no notice is required, from the date the broker receives the order or the date the sale is executed directly with a market maker. That anchor is the seller's own action, not a quarter-end or a month-end.

Two consequences follow. First, a seller whose four-week window happens to include an index rebalance or an earnings gap inherits a larger ceiling than the same seller would have had a month earlier. The permitted quantity is a function of recent liquidity, and recent liquidity is lumpy. Second, the aggregation clause works on a rolling basis: sales are counted "together with all sales of securities of the same class sold for the account of such person within the preceding three months". Those three months look backward from the current sale, so capacity refills gradually rather than resetting on a fixed date.

There is also a separate branch for debt. Paragraph (e)(2) caps a debt sale at "the greater of the limitation set forth in paragraph (e)(1) of this section or, together with all sales of securities of the same tranche (or class when the securities are non-participatory preferred stock) sold for the account of such person within the preceding three months, ten percent of the principal amount of the tranche (or class when the securities are non-participatory preferred stock) attributable to the securities sold". The (e)(1) tests are one branch of that greater-of test, not something the debt branch displaces.

Form 144 is a notice of intent, and it has a clock

The filing trigger is narrower than a blanket requirement. Paragraph (h)(1) applies when "the issuer is, and has been for a period of at least 90 days immediately before the sale, subject to the reporting requirements of section 13 or 15(d) of the Exchange Act and the amount of securities to be sold in reliance upon this rule during any period of three months exceeds 5,000 shares or other units or has an aggregate sale price in excess of $50,000". Paragraph (h)(2) covers an issuer outside that reporting perimeter and calls for "three copies of a notice on Form 144", not an electronic submission. Below both thresholds, an affiliate can sell within the volume cap without a Form 144 reaching EDGAR, which is why the absence of a filing is weak evidence about insider activity.

Paragraph (h)(3) carries the timing. The notice is to be "transmitted for filing concurrently with either the placing with a broker of an order to execute a sale of securities in reliance upon this rule or the execution directly with a market maker of such a sale". Concurrently with the order, not after the fill.

The form itself reinforces the point. Its instructions call for the "Aggregate market value of the securities to be sold as of a specified date within 10 days prior to the filing of this notice" and the "Number of shares or other units of the class outstanding, or if debt securities the face amount thereof outstanding, as shown by the most recent report or statement published by the issuer". Both are valuation inputs, dated before the trade. The signer also represents that "he does not know any material adverse information in regard to the current and prospective operations of the Issuer of the securities to be sold which has not been publicly disclosed."

The filing window itself was widened. In Release No. 33-11159, the Commission provided that "a Form 144 that otherwise complies with applicable filing requirements that is submitted by direct transmission after 5:30 p.m., but no later than 10:00 p.m., will be deemed filed the same business day", and stated that "The amendments are effective on March 20, 2023." Mandatory electronic submission followed a few weeks later, under an announcement that "Affected filers have until April 13, 2023 to transition from paper to electronic filing of Form 144."

Manner of sale narrows the path further

The volume cap is a quantity constraint. Paragraph (f) adds a routing constraint for equity securities, and it is easy to overlook when reading only the share count. The text in Cornell Legal Information Institute, 17 CFR 230.144 requires that the securities be sold in one of three ways: "Brokers' transactions within the meaning of section 4(4) of the Act", "Transactions directly with a market maker, as that term is defined in section 3(a)(38) of the Exchange Act", or riskless principal transactions meeting conditions including that the offsetting trades be executed at the same price exclusive of a disclosed markup, markdown, commission equivalent, or other fee.

Paragraph (g) then defines what counts as a brokers' transaction, and the definition is restrictive in ways that matter to execution quality. The broker "Receives no more than the usual and customary broker's commission" and "Neither solicits nor arranges for the solicitation of customers' orders to buy the securities in anticipation of or in connection with the transaction". That second condition carries a carve-out, and the carve-out is the part traders should read: "Provided, that the foregoing shall not preclude: (i) Inquiries by the broker of other brokers or dealers who have indicated an interest in the securities within the preceding 60 days", with further clauses covering the broker's own customers who showed unsolicited bona fide interest within the preceding 10 business days, and published bid and ask quotations.

A seller working against a cap of 7,500,000 shares can have the broker canvass counterparties who already raised their hands inside those look-back windows. What the broker may not do is generate the demand.

Where This Doesn't Apply

The volume cap in paragraph (e) applies to sales for the account of an affiliate. It is not a universal resale limit. The 2007 amendments restructured the treatment of non-affiliates, and the Commission's plain-language summary, SEC, Revisions to Rules 144 and 145: A Small Entity Compliance Guide, states that "if the issuer of the securities has been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for at least 90 days, then the restricted securities of such an issuer are subject to a six-month holding period", while "Restricted securities of issuers that are not subject to the Exchange Act reporting requirements, however, must be held for one year before any public resale." The same guide notes that "The amendments to Rules 144 and 145 are effective on February 15, 2008."

The adopting release published at Federal Register, Revisions to Rules 144 and 145 (72 FR 71546, December 17, 2007) describes the position for a non-affiliate holding restricted securities of a reporting company "After six-month holding period but before one year" as "unlimited public resales under Rule 144 except that the current public information requirement still applies". A former insider past the relevant holding period sits in a different regime than a sitting officer.

Three further exclusions matter. Securities sold under an effective registration statement sit outside this analysis, so a large secondary offering will not show up as a Form 144. The rule is unavailable for resales of securities initially issued by certain shell companies, subject to the conditions in paragraph (i). And the arithmetic here comes from the equity tests; debt and non-participatory preferred have their own tranche-based ceiling.

What Would Invalidate This

Several inputs could move, and each has a specific observable that would tell you it moved. The share count comes from "the most recent report or statement published by the issuer", so a large issuance, a buyback that retires stock, or a split changes the one percent test as soon as the next report is out. If you are computing a ceiling from a share count that predates a follow-on offering, your number is stale in a direction you can check.

The volume input is also fragile. The tests reference volume reported on national securities exchanges, through the automated quotation system of a registered securities association, and under an effective transaction reporting plan or national market system plan. Venue and reporting structure can change, and which prints are included drives the measurement. If a name's volume shifts toward venues whose prints are reported differently, the four-week average the rule contemplates may not match the number a retail data vendor displays.

The thresholds themselves are rule text and can be amended. The 5,000-share and $50,000 figures in paragraph (h) are not indexed, so their practical bite narrows as prices rise, and the filing-hours change effective March 20, 2023 is a reminder that operational details move too. This piece treats the cap as a constraint on quantity; whether any particular sale complies with the rule depends on facts the filing does not disclose.

Reading the filing on a live tape

When the next Form 144 alert appears, three steps reproduce the ceiling. Pull the share count from the issuer's most recent report and take one percent. Pull four calendar weeks of consolidated volume ending at the filing date and divide by four. Take the larger number, and express the filed amount as a fraction of it.

A filing at ten percent of the ceiling and a filing at ninety-five percent describe different amounts of room under the same rule, even though a headline feed prints them the same way. Neither tells you a share has traded. The tape is where a Form 144 turns into volume.