Restricted securities are securities purchased in a private placement that are:

• A. Unregistered and restricted from resale for a specified period
• B. Registered and freely tradable
• C. Exempt from SEC reporting
• D. Not subject to resale restrictions

Answer: (A)

Restricted securities are securities purchased in a private placement that have not been registered with the SEC, and they carry resale restrictions for a specified period. Because they were obtained privately, there isn’t the same public disclosure that comes with a registered offering, so sales to the public are restricted until Rule 144 conditions are met or the issuer registers the shares. This protects investors and helps maintain market integrity by preventing a sudden influx of unregistered shares. Once the holding period and any other conditions are satisfied (or a registration occurs), the restrictions lift and the securities can be sold more freely.