Rule 144A provides a mechanism for the sale of securities that are privately placed to QIBs that do not—and are not required—to have an SEC registration in place. Instead, securities issuers are only required to provide whatever information is deemed necessary for the purchaser before making an investment.
Criticism of Rule 144A
Rule 144A succeeded in increasing non-SEC trading activity. This led to concern over trading that was all but invisible to individual investors as well as to some institutional ones. The Financial Industry Regulatory Authority (FINRA) began to report Rule 144A trades in the corporate debt market in 2014 in order to bring more transparency to the market and to allow the reporting of valuation "for mark-to-market (MTM) purposes."9
The SEC also responded to questions in 2017 about the definition of qualified institutional buyers allowed to participate in Rule 144A trades, and how they calculate the requirement that they own and invest on a discretionary basis at least $100 million in securities of unaffiliated issuers.10
Concerns still endure about the effects of Rule 144A, including how it may allow unscrupulous overseas companies to fly under the regulatory radar when offering investments in the U.S. Critics say the rule ultimately creates a shadow market, allowing foreign companies to avoid the scrutiny of the SEC while opening the U.S. markets up to the possibility of fraud committed by these entities
Rule 144A provides a mechanism for the sale of securities that are privately placed to QIBs that do not—and are not required—to have an SEC registration in place. Instead, securities issuers are only required to provide whatever information is deemed necessary for the purchaser before making an investment.