What are restricted securities?

Restricted securities are defined as securities that are subject to transfer or ownership restrictions. These restrictions are typically put in place to comply with federal securities regulations, particularly in relation to private placements or securities not registered with the SEC. As a result, they cannot be sold or transferred freely in the market until certain conditions are met, often including holding periods or obtaining specific approvals.

For example, individuals or entities that receive restricted securities, often through private placements or employee stock options, may be required to hold these securities for a specific timeframe before they can sell them publicly. This is to ensure that the investors have sufficient information about the securities and to prevent immediate sales that could disrupt the market.

Recognizing and adhering to the regulations surrounding restricted securities is crucial in the securities industry, particularly for maintaining compliance with the law and protecting both the issuer and the investor's interests.