- Q. What are restricted securities?
- A. Restricted securities are stocks, warrants or other securities that are acquired directly or indirectly (for example by gift) from a public or private company or from an affiliate of the company in a transaction that is not registered by the SEC, and is also known as a private offering. For example, restricted stock can be acquired through corporate mergers, exercise of stock options, as bonus shares, or as compensation for services provided, but not through a public offering.
- Restricted securities are not registered with the SEC and can usually be identified by a legend on the stock certificate restricting the manner of the sale. Sale of the shares will depend on how and when the securities were acquired. Sometimes there is a contractual restriction, such as a lock up agreement which further restricts the resale of the stock.
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- Q. Is restricted stock the same as employee stock options?
- A. No. An employee stock option refers to the right to purchase a certain number of shares of your company’s stock at a pre-established price over a defined period of time. Stock acquired in this manner may or may not be restricted.
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- Q. How might I acquire restricted stock?
- A. Restricted stock is usually acquired through:
- Corporate reorganizations (mergers and acquisitions)
- Direct purchases from the company or insider
- Stock dividends or splits
- Partnership distributions
- Private placements
- Venture capital investments
- Payment for professional services
- Stock options
- Stock purchase plans
- Gift
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- Q. Who is a control person?
- A. A control person, or affiliated person, is an individual in a position to exert direct influence on the actions of an issuer. For example, officers, directors, policy-making executives, major shareholders (generally own 10% or more of outstanding shares), and other people who are in a position to directly or indirectly control the management of the company are considered control persons. This includes spouses, family members who live with them, and other entities such as trusts or corporations affiliated with control persons, as defined in Rule 144.
- Sale of an issuer’s securities by a control person or an insider of the issuer is subject to restrictions, regardless of whether the security is restricted or purchased in the market. A control person must complete Rule 144 documentation and comply with Rule 144 when selling control stock. Control securities are securities acquired by control persons or affiliates as described in this section.
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- Q. Do I need to be a Fidelity client to use Fidelity’s services?
- A. Yes. You will need a Fidelity AccountSM to hold restricted stock at Fidelity. You can open a Fidelity Account online. Fidelity’s Control and Restricted Stock Services group offers a range of support for customers who are trading restricted stock.
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- Q. Can Fidelity take custody of my shares of my control and restricted stock?
- A. Yes. Call the Control and Restricted Stock Specialists at 800-544-6161 and they can help you with the necessary steps. You will need a Fidelity Account for Fidelity to keep custody of your control and restricted stock. If you don’t have an account, you can open a Fidelity Account online.
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- Q. What is the typical sales process for a restricted or control stock?
- A. Fidelity will help you complete the necessary steps in selling your restricted or control securities.
- To trade restricted stock Fidelity will:
- Identify if the stock is restricted – We can help determine whether the stock you own has restrictions with the information you provide us regarding how the stock was acquired and how long you have owned it.
- Complete the documentation – We can help you complete the necessary paperwork and take delivery of your stock certificate(s)
- Request legal approval – We will contact the stock issuer’s legal counsel who will confirm that you are cleared to sell
- Place the trade – Once we have the necessary paperwork, and the issuer counsel’s confirmation stating that the shares can be sold, we will file the necessary paperwork with the SEC on your behalf, and place the order to sell per your instructions
- Obtain clean stock certificates – We contact the stock issuer’s transfer agent to remove the restrictive legends from your stock certificates and then make the sales proceeds available to you
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- Q. What commissions or fees apply to restricted stock transactions?
- A. Fidelity’s regular stock commission schedule.
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- Q. How do I track the status of the sales process?
- A. Once you have initiated the sales process, you can call our Control and Restricted Stock Specialists at 800-544-6161. They will be able to provide you with the status of your transaction.
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