December 22, 2020
I support this well-considered proposal, which may help discourage capital structures that are frequently associated with microcap fraud and market manipulation.
However, I believe the proposed amendment to the rule 144 holding period for market-based convertible securities should not be limited to unlisted issuers. The limited protections provided by exchange listing standards are insufficient to address the issue at hand, which is that the acquirer of the convertible security acted as an underwriter and acquired securities with an intent to distribute and did not bear investment risk. Shareholder approval of such a transaction does not change the risk or economic character of the selling security holders investment. While less frequent than among unlisted issuers, there are examples of listed issuers whose shareholders approved highly dilutive transactions or where favored insiders or financiers purchased privately placed securities with ratchet features not available to public stockholders. Exempting listed issuers could also create an illogical situation whereby a privately acquired market-based convertibles holding period would be satisfied the moment a previously unlisted security became exchange-traded, creating both the incentive and opportunity for an unregistered distribution in connection with initial listing.
Thank you for the opportunity to comment.