letter stock

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Related to letter stock: Restricted stock

Letter stock

Privately placed common stock, so-called because the SEC requires a letter from the purchase stating that the stock is not intended for resale.

Restricted Security

A stock or right that one acquires through some means other than the open market. One may receive a restricted security through a merger or acquisition, private placement prior to an IPO, or sometimes through a stock option. A restricted security is not registered with the SEC and thus may not be sold publicly until registration has been made. It is less commonly called a letter security.

letter stock

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Although such rules were intended to be anti-avoidance rules (e.g., preventing acquisition of letter stock tracking passive assets), their potential application may inadvertently extend to active joint ventures or other NRE equity investments in which there is no tax policy reason for the rules applying.
(1) Pratt (1989) cites various studies that indicate that restricted public market shares (e.g., 144 Letter Stock) receive discounts from 25 to 50 percent below unrestricted public market shares.
(47) Also, the tracking interest rules will generally not apply where at least 50 percent of the NRE's tracked property is not "investment property" (48) (which would be expected to be the case where letter stock tracks the performance of an active business division of an NRE).