General Securities Representative (Series 7) Practice Exam

Under Rule 144, what is the limit on the amount of stock an affiliate can sell during a 90 day period?

1. 20% of the outstanding shares

2. Average weekly trading volume

3. 1% of the outstanding shares

4. 10% of the outstanding shares

The correct answer is: 1% of the outstanding shares

Under Rule 144, an affiliate of a company can sell a limited amount of stock to prevent excessive selling that could negatively impact the market price of the shares. Specifically, the amount of stock an affiliate can sell during a 90-day period is capped at the greater of 1% of the outstanding shares of the company or the average weekly trading volume of the stock over the preceding four weeks. This measure is in place to instill a level of order in the market by preventing affiliates from inundating the market with large volumes of stock, which could create volatility and diminish investor confidence. The correct response reflects the provision of Rule 144 regarding the 1% limit. At the same time, the options concerning percentages of outstanding shares that exceed 1%, such as 10% or 20%, are incorrect because they do not align with the regulations that govern sales by affiliates, showcasing how understanding the specific details of securities laws is crucial for compliance and effective trading practices.