In a rights issue, a company issues subscription rights (sometimes also referred to as 'claims') to its existing shareholders to raise additional money. These subscription rights can be used to buy additional shares in the company at a predetermined price that is usually below the current market price. Existing shareholders receive rights in their portfolio on a pro rata basis, meaning that the number of rights they receive depends on the number of shares they own before a specified date. This date is known as the 'ex-date'.
The receivers of these rights are not obliged to exercise them. However, they must make their choice before the rights expire. Generally, the receiver of rights has three options:
- Use the rights to buy new shares (also known as 'subscribing' to the new shares or 'exercising' the rights)
- Trading the rights in the market (only if the rights are listed on an exchange)
- Take no action. The rights will eventually be booked out as worthless.
All the necessary and relevant information about a rights issue can be found on the company's Investor Relations page or a major financial news source.
How are rights processed in my account?
If you own enough shares to qualify for the subscription rights before the ex-date, you will automatically receive these rights in your portfolio. To help you along, we will send you an e-mail about these rights and what you can do with them (on a best effort basis).
If you have successfully exercised your rights, we will remove them from your portfolio after the deadline has passed and replace them with a non-tradeable position that acts as a placeholder. Once we receive the new shares, we remove the non-tradeable position and add the new shares to your portfolio (on a best effort basis).