On Friday, Feb. 15, billions of dollars in restricted stock will become eligible for trading on the open market as new Securities and Exchange Commission rules take effect.
The commission in November eased restrictions on private placements and other restricted securities, which hedge fund managers and other institutional investors buy directly from corporations.
By one estimate, the new rules will put on the order of $35 billion in previously restricted shares on the market in one day, and many observers will see whether a flood of shares will hit the market at once.
At issue is the SEC's Rule 144, which permits sophisticated investors to bypass the public markets. Hundreds of millions of dollars in restricted stock is issued annually, but until now holders of the shares have been prohibited from selling them for between one and two years.
But pressed by financiers and fueled by technology and globalization, the SEC is allowing investors to sell those securities as soon as six months after the placement. This step, securities lawyers, underwriters and hedge fund mangers generally agree, will drive additional investment to the capital markets by way of institutional investors.
"It provides greater flexibility to both investors and corporations," said David Danovitch, partner at Gersten Savage LLP in New York....MORE