How to trade restricted and control securities 

How to trade restricted and control securities 

Restricted Tooltip securities and control Tooltip securities belong to a special class of securities that is governed by the U.S. Securities and Exchange Commission (SEC) Rule 144. This rule allows public resale of restricted and control securities if certain conditions are met.

If your client acquires restrictive securities, they can be received as a certificate bearing a restrictive legend or held at the Transfer Agent in restricted book entry. This restriction indicates the securities cannot be resold in a public marketplace unless they are registered with the SEC or are exempt from SEC's registration requirements.

Certificates or book entry shares for control securities do not bear a legend. However, if your client acquires securities from a control person or affiliate Tooltip , they will receive restricted securities, even if the securities were not previously restricted.

You can trade restricted and control securities using the required paper forms.

To trade restricted securities, you will need the following:

All processes (except SEC Rule 144A, Regulation D)
  • Restricted Tooltip or control Tooltip security certificates
  • Information for the issuer, including name, home address, IRS identification number, SEC file number Tooltip , and telephone number
  • Information for the client (seller of the securities), including name, relationship to issuer, home address, account number, and transaction preference
  • Information for the securities to be sold, including purchase date, acquisition method, payment method, title of the class of securities, brokerage firm name, brokerage firm address, number of shares or units, aggregate market value, number of outstanding units or shares, approximate date of sale, and each securities exchange name
  • Adobe® Reader® or Adobe Acrobat® 7.0 or higher (download the latest version on the Adobe website)
In addition to the information above, the following may be required:
SEC Rule 144A, Regulation D Tooltip
  • A signed document acquired during the purchase of the asset—only one is required:
    • Notice to Investor
    • Subscription Agreement
    • Purchase Agreement, Investor Certification
    • Exhibit (a, b, or c)
SEC Rule 701 Tooltip Information including option grant date, option exercise date, plan or contract name, and payment date
  1. Verify the client qualifies as an accredited investor or an accredited institutional investor. To be qualified, the client must meet one of the following:
    • Accredited investor (net worth)—Any natural person(s) whose individual net worth or joint net worth with the person's spouse exceeds $1 million at the time of purchase.
    • Accredited investor (income)—Any natural person(s) who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of the two previous years and has a reasonable expectation to reach the same income level in the current year.
    • Accredited institutional investor—Any trust, corporation, partnership, or foundation with total assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, and whose purchase is directed by a sophisticated person as described in SEC Rule 506(b)(2)(ii), and any entity in which all of the equity owners are accredited investors.
  2. Fax one of the following signed forms to the Schwab Advisor Services™ Restricted Stock Services ( AS RSS Tooltip ) team at 877-255-2064.
    • Notice to Investor
    • Subscription Agreement
    • Purchase Agreement
    • Investor Certification
    • Exhibit (a, b, or c)
  3. Contact the Rule144A, Regulation D team at 877-804-3525 to discuss the exception criteria for custody only.
  1. Determine if the affiliate or control person may have come into possession of material or nonpublic "inside" information about a company or its stock. If the affiliate has inside information, contact a 10b5-1 representative at 877-804-3525 to discuss the benefits of establishing a 10b5-1 Predetermined Trading plan Tooltip .
  2. If your client has not come into possession of inside information, select the applicable form(s) below to open the Forms & Applications page on Schwab Advisor Center®. Click Select and select Open PDF:
    • Form 144 (Notice of Proposed Sale of Securities) (one copy)
    • Seller's Rep Letter for Sales of Restricted or Control Securities under Rule 144 (one copy)
    • Irrevocable Stock or Bond Power (three copies for certificated shares only)
    • Intent Form for Restricted Stock (one copy)
    • Authorization to Confirm & Provide Reports of Transfers Directly to User (one copy)
    • Account Transfer Form and statement (for book entry shares held at transfer agent) 
  3. Print and complete the form(s) and obtain signatures from all account holders. Fax the signed form(s) to the AS RSS Tooltip team at 877-255-2064. Schwab recommends that your client keep photocopies of all completed forms along with front and back copies of all certificates for their records.
  4. Inform your client that AS RSS will work with the issuer's legal counsel Tooltip to verify the client is eligible to sell the shares. Schwab deals with outside sources, such as the issuer's legal counsel and transfer agents which can delay the process and can take three to five business days or longer. Do not guarantee an immediate approval to sell the shares.
  5. Once the issuer's legal counsel provides required verification, AS RSS will notify you and then file Form 144 with the SEC and the appropriate stock exchange, if required.
  6. Once approved, you may submit a trade electronically or contact the Advisor Services Equity Trading team at 800-553-0933 to place a trade.

Complete this process to sell restricted Tooltip or control Tooltip securities if your client is a non-affiliate and has held fully paid shares longer than six months but less than one year.

  1. Select the applicable form(s) below to open the Forms & Applications page on Schwab Advisor Center. Click Select, and then select Open PDF:
    • Seller's Rep Letter for Sales of Restricted or Control Securities under Rule 144 (one copy)
    • Irrevocable Stock or Bond Power (three copies for certificated forms only)
    • Intent Form for Restricted Stock (one copy)
    • Also provide a copy of a statement (for book entry shares held at transfer agent)
  2. Print and complete the form(s) and obtain signatures from all account holders. Fax the signed form(s) to the AS RSS Tooltip team at 877-255-2064. Schwab recommends that your client keep photocopies of all completed forms along with front and back copies of all certificates for their records.
  3. Inform your client that AS RSS will work with the issuer's legal counsel Tooltip to verify the client is eligible to sell the shares. Schwab is dealing with outside sources, such as the issuer's legal counsel and transfer agents which can delay the process and can take three to five business days or longer. Do not guarantee an immediate approval to sell the shares.
  4. Once the issuer's legal counsel provides required verification, AS RSS will notify you. Once approved, you may submit a trade electronically, or contact the Advisor Services Equity Trading team at 800-553-0933 to place a trade.

Complete this process to remove the legends from  restricted Tooltip or control Tooltip securities with acquisition dates older than one year or fully paid for one or more years.

  1. Select the applicable form(s) below to open the Forms & Applications page on Schwab Advisor Center. Click Select, and then select Open PDF:
    • Seller's Rep Letter Legend Removal of Restricted Securities under Rule 144(b)(1) (one copy)
    • Irrevocable Stock or Bond Power (one copy for certificated forms only)
    • Intent Form for Restricted Stock (one copy)
    • Also provide a copy of a statement (for book entry shares held at transfer agent)
  2. Print and complete the form(s) and obtain signatures from all account holders. Fax the signed form(s) to the AS RSS Tooltip team at 877-255-2064. Schwab recommends that your client keep photocopies of all completed forms along with front and back copies of all certificates for their records.
  3. Inform your client that AS RSS will work with the issuer's legal counsel Tooltip to verify the client is eligible to sell the shares. Schwab is dealing with outside sources, such as the issuer's legal counsel and transfer agents which can delay the process and can take three to five business days or longer. Do not guarantee an immediate approval to sell the shares. 
  4. Once the issuer's legal counsel provides required verification, AS RSS will notify you. Once approved, you may submit a trade electronically, or contact the Advisor Services Equity Trading team at 800-553-0933 to place a trade. 
  1. Select the applicable form(s) below to open the Forms & Applications page on Schwab Advisor Center. Click Select, and then select Open PDF:
    • Seller's Rep Letter for Sale of Restricted or Securities Acquired Pursuant to Rule 701 (one copy)
    • Irrevocable Stock or Bond Power (three copies for certificated forms only)
    • Intent Form for Restricted Stock (one copy)
    • Also provide a copy of a statement (for book entry shares held at transfer agent)
  2. Print and complete the form(s) and obtain signatures from all account holders. Fax the signed form(s) to the AS RSS Tooltip team at 877-255-2064. Schwab recommends that your client keep photocopies of all completed forms along with front and back copies of all certificates for their records.
  3. Inform your client that AS RSS will work with the issuer's legal counsel Tooltip to verify the client is eligible to sell the shares. Schwab is dealing with outside sources, such as the issuer's legal counsel and transfer agents which can delay the process and can take three to five business days or longer. Do not guarantee an immediate approval to sell the shares.
  4. Once the issuer's legal counsel provides required verification, AS RSS will notify you. Once approved, you may submit a trade electronically, or contact the Advisor Services Equity Trading team at 800-553-0933 to place a trade. 
  1. Select the applicable form(s) below to open the Forms & Applications page on Schwab Advisor Center. Click Select, and then select Open PDF:
    • Form 144 (Notice of Proposed Sale of Securities) (one copy)
    • Seller's Rep Letter for Sales of Restricted or Control Securities under Rule 144 (one copy)
    • Irrevocable Stock or Bond Power (three copies)
    • Intent Form for Restricted Stock (one copy) 
    • Account Transfer Form and statement (for book entry shares held at a transfer agent)
  2. Print and complete the form(s) and obtain signatures from all account holders. Fax the signed form(s) to the AS RSS Tooltip team at 877-255-2064. Schwab recommends that your client keep photocopies of all completed forms along with front and back copies of all certificates for their records.
  3. Inform your client that AS RSS will work with the issuer's legal counsel Tooltip to verify the client is eligible to sell the shares. Schwab is dealing with outside sources, such as the issuer's legal counsel and transfer agents which can delay the approval process and can take three to five business days or longer. Do not guarantee an immediate approval to sell the shares.
  4. Once the issuer's legal counsel provides required verification, AS RSS will notify you and then file Form 144 with SEC and the appropriate stock exchange, if required.
  5. Once approved, you may submit a trade electronically, or contact the Advisor Services Equity Trading team at 800-553-0933 to place a trade.

Once you have submitted your request:

  • The transfer agent removes the restriction from the sold or transferred shares. This takes three or more weeks; if reorganization is involved, it can take four to six weeks. The certificates are then returned to Schwab.
  • Once Schwab receives the certificates in negotiable form, the proceeds of the sale are released to your client.
  • For questions, call the Schwab Advisor Services™ Restricted Stock Services ( AS RSS Tooltip ) team at 877-804-3525.

To select a form, go to the Forms library on Schwab Advisor Center.

Form: Authorization to Confirm & Provide Reports of Transfers Directly to UserResource: Contributing Restricted Stock to Charity
Form: Form 144 (Notice of Proposed Sale of Securities)Resource: Why It Might Make Sense to Donate Your Best Investments Instead of Cash
Form: Intent Form for Restricted Stock 
Form: Irrevocable Stock or Bond Power 
Form: Letter of Authorization (LOA) Transfer of Restricted Stock 
Form: Seller's Rep Letter for Sale of Restricted or Securities Acquired Pursuant to Rule 701 
Form: Seller's Representation Letter for Sales of Restricted or Control Securities under Rule 144 
Form: Seller's Rep Letter Legend Removal of Restricted Securities under Rule 144(b)(1) 

How do I know if securities are restricted?
Restricted securities can be in a physical format such as a certificate or held back in book entry at the transfer agent. Most restricted certificates have a stamp on the front of the certificate that reads See Restrictive Legend on Back. On the back of most certificates, there is a legend with a paragraph that reads: "The securities represented hereby have not been registered under the Securities Act of 1933." The statement may indicate restricted for book entry shares, but it is advised to check directly with the transfer agent to determine status if additional restrictions exist.

Refer to the following list of conditions that could define restricted securities:

  • The securities were not purchased in the open market.
  • Your client is an officer, director, or 10% shareholder of an issuer.
  • The stock was received as a gift, pledge, or otherwise from an officer, director, or control person.
  • The stock was received as compensation.
  • The stock is included in a registration statement or current prospectus.
  • A legend appears on the certificate.

Are there restricted securities Schwab cannot accept?
Yes. Schwab cannot accept the following:

  • Restricted stock trading < $5 per share and does not trade on a national exchange
  • Third-party restricted stock
  • Certificates with Regulation S or Rule 904 restriction
  • Securities restricted under Rule 144A (exceptions can be made)

In addition to the owners of the restricted securities or control stock, is anyone else subject to Rule 144?
Yes. The following groups are subject to Rule 144:

  • Family members of the seller
  • Trusts and estates of which the seller and his or her family are trustees, executors, or 10% beneficiaries
  • Corporations, partnerships, and other entities in which the seller or his or her family owns a 10% interest
  • Persons holding shares received as compensation for underwriting a public offering, if certain conditions are met

Is there a fee for selling restricted securities?
Schwab Advisor Services does not charge any additional fees for the sale of restricted securities. Broker-assisted commission pricing schedule applies for all trades regardless of order entry method, whether through a broker or online.

Does Schwab accept third-party restricted securities?
No. Shares deposited into a customer's account must be registered as the title of the Schwab account. Third-party certificates, if deposited, are returned to the client.

Can restricted securities be gifted as a charitable donation?
Yes. See How to make charitable donations to help your client make a charitable donation of restricted securities.

How are restricted securities handled during a divorce?
Divorces are handled similarly to estate accounts. Schwab requires divorce documentation that states how the assets are divided. Schwab also requires an LOA to transfer the restricted stock from the owner(s) if shares are going to be reregistered.

This is a physical reregistration that can take approximately three to five weeks. The restricted legend will remain on the shares.

Can Schwab hold restricted security certificates for future sales?
Yes. You may deposit the restricted securities to be held for future sales. Schwab accepts the certificates without paperwork and holds them pending further instructions.

You must still submit the appropriate forms to sell the shares, to deliver the shares to the transfer agent, or to remove the legend.

Is there an alert on the status of restricted stock processing?
No. Schwab does not currently offer alerts for restricted or control securities, however, the Restricted Stock Team will actively contact you to provide updates as the transaction proceeds.

How do I determine the acquisition details and dates when the information received from the client's company is different from the information provided by Schwab?
Schwab verifies information with the issuing company's corporate and legal counsel.

Why doesn't Schwab accept third-party restricted stock with a Third-Party Release Form?
Restricted certificates are not eligible to be deposited into book-entry form. They are held physically and registered in the name of the shareholder. Restricted stock must be deposited into an account that is registered in the name of the shareholder on the certificate.

If the client wants to gift or journal shares into an account that does not have like registration, refer to the How to gift, journal, or transfer restricted securities module. 

A restricted stock Letter of Authorization to Transfer Package must be completed, and shares sent out to the transfer agent for re-registration with opinion from the issuers counsel.* This process can take about three to five weeks to complete. Transfer agents will not accept Third Party Release Form as proper documentation to change the registration on restricted stock.

*Re-registration of the shares does not include removal of the restrictive legend. The recipient may be subject to the same restrictions.

What happens if I transfer (TOA) in securities with an irrevocable stock power not knowing if it is restricted?
Restricted securities cannot be delivered through the Deposit/Withdrawal at Custodian (DWAC) or the Depository Trust Company (DTC). If the certificate is sent in physical form or with a stock power, then there's a possibility it could be restricted.

If you are unsure if a certificate is restricted, copy the front and back of the certificate and fax it to the Schwab Advisor Services™ Restricted Stock Services ( AS RSS Tooltip ) team at 877-255-2064 for clarification.

Note: Schwab encourages investment advisors to affirm their trades through DTC. Please contact the Trade Away team at 1-800-404-6996 #1 for more information and the standard letter of agreement that you will need to complete.

How do I identify restricted stock when acquiring assets from another broker?
If the security is registered in street name Tooltip , in most cases it may not be restricted. However, if the new custodian requires the physical certificates or if the certificates are registered in the client's name, they could be restricted.

If you are unsure if a certificate is restricted, copy the front and back of the certificate and fax it to the AS RSS team at 877-255-2064 for clarification.

When viewing the position on Schwab Advisor Center, can I tell if the account has received a restricted security?
No. You can see when a security comes into the account however, Schwab Advisor Center does not distinguish between shares held in street name Tooltip and restricted shares. If you have questions about whether shares are restricted, contact AS RSS Tooltip at 877-804-3525.

How long does it take to obtain verification to sell restricted securities?
This depends on how quickly the issuer's counsel responds to Schwab's inquiry. The average time for legal counsel to respond to Schwab is from three to five business days, but can take longer.

Do funds that are held from the sale of restricted stock accrue interest?
No. The funds for a restricted stock trade do not settle until Schwab receives the negotiable certificate back from the transfer agent. Upon settlement funds are able to earn interest.

How can a restriction be lifted from restricted stock?
See the How to remove a legend on restricted securities module for steps to lift the restrictions from your clients' stock.

Is there a penalty for removing a restrictive legend?
Generally, a restrictive legend can only be removed if the client has held the shares, fully paid, for over one year and they are not considered an affiliate of the issuer for the past 3 months (Rule 144 (b)(1)).

Schwab recommends that clients proactively remove the legend, even if they do not plan to sell the position immediately. Removing the legend makes the sales of shares easier and proceeds from the sale are released on a normal settlement date.

Who pays for the legal opinion?
Most issuing companies pay for the legal opinion as a courtesy to their investors and shareholders. However, some companies require their shareholders to pay for their own opinions, the cost of which can vary.

Does Schwab still need to follow up with issuing companies legal counsel if my client already has a written or verbal opinion from their firm's legal counsel?
Yes. Schwab always contacts the issuing company's legal counsel before allowing trades because Schwab is responsible for clearing the security.

If your client has a legal opinion, they must fax a copy to AS RSS Tooltip at 877-255-2064 so it can be included with paperwork for the transfer agent. Schwab also calls the legal counsel to verify the opinion is valid.

Can my client gift shares of restricted securities?
Yes. To gift shares of Restricted securities, have your client complete and sign the appropriate forms and forward to AS RSS Tooltip . The Letter of Authorization form can be used to:

  • Re-register shares in a different name
  • Journal the shares to a different Schwab account
  • Deliver the certificate out of the account or to deliver the shares to another financial institution

The process of gifting shares of restricted stock can take from three to five weeks for completion.

Is the Intent Form for Restricted Stock binding?
Yes. This form lets AS RSS Tooltip know your client wishes to sell, hold, or remove the legend on the restricted stock.

Note: Acknowledgement, Indemnification and Responsibility statements in signing the form.

Do I need to include the issuing company's SEC or control number on the paperwork?
No. AS RSS Tooltip can complete the section of the form for you. However, you can find this information at edgar-online.com. Enter the company's symbol to pull up the company filing which includes the security and control numbers.

Can the client establish a 10B51 Trading Plan?
Yes. Contact AS RSS at 877-804-3525 to speak with a 10B51 specialist.

How to make charitable donations