Control stock

Control stock is any stock held by a control person (affiliate) of the issuing company. Affiliates include officers, directors, and any shareholder who owns more than 10% of the company's voting stock, along with their immediate family members. What makes stock "control stock" is who owns it, not how it was acquired — shares a CEO buys on the open market are control stock the moment they hit her account.

Because affiliates have access to inside information and large positions that could move the market, their sales are restricted by SEC Rule 144. In any 90-day period, an affiliate may sell no more than the greater of 1% of the company's outstanding shares or the average weekly trading volume over the prior four weeks. Sales above a minimal threshold must be reported by filing Form 144.

Control stock is often confused with restricted stock, but the two differ. Restricted stock is unregistered stock acquired in a private placement, and it carries a holding period before it can be resold. Control stock purchased in the open market is already registered, so there is no holding period — only the volume limits apply. When an affiliate holds restricted stock, both the holding period and the volume limits apply.

Control stock and Rule 144 appear across the securities exams: the SIE tests Rule 144 in the primary market context, while the Series 65 and Series 66 test the distinction between restricted and control stock and the federal exemptions that cover these resales. Know who counts as an affiliate, which limits apply, and how control stock differs from restricted stock.