Stock securities trading is a very complex process, and many people have confused regarding the rights issues that happen in the stock market exchanges. This guide will provide you with all information about such shares issues to help you understand what it is and how they work.
What is the Rights issue in stock trading?
Rights issue (供股)refer to an issue of new shares in a company to existing shareholders. Companies often use these types of offerings to raise capital but don’t want to issue bonds or take on more debt.Rights issue is when the company sells its shares to existing shareholders (in the proportion of their holding) by offering them new securities at a certain discounted price. Of course, the right investor needs to pay money for this, but they are only entitled to buy these rights until or on a specific date set during the selling process.
How do Rights Issues work?
When you have bought stocks, your priority level changes when it comes to buying new ones because now you are a shareholder, the difference between this type of offering and an IPO (Initial Public Offering) is that the shareholders have to pay for rights issue shares, but they don’t have money invested in the company yet at initial stages.
When companies create new stocks, they spread information through press releases so investors know what kind of securities they can buy on a specific date. Then when you want to invest in these types of offers, you need to subscribe by purchasing a certain number or percentage of rights before the expiration date set during the selling process.
If not enough people buy them, the offer will be declined, which means nobody gets any cashback, no matter how many existing stocks he owns.
How do one participate?
The only way to participate in such an issue is by getting a bank that handles the offer on your behalf. You can check with them to see which offers they are making at any given moment and then invest accordingly. The rights often will be sold through online systems, but it may also depend on what kind of stock you want to buy because there might be some limitations for certain types of investors.
How much does one need?
The price paid for shares depends entirely on how many people subscribe to buying new stocks offered by the company. It means that if more people purchase these securities than planned, the price per share goes down and its value.
What is the time frame?
When you subscribe to the new rights issue in stock trading, it usually happens before the expiration date set during the selling process. In case of a decline of sale, then you get your money back, but nothing else changes.
You can sell or buy stocks from this company after subscription without any difficulties because all transactions are completed normally on market exchanges. The only difference between existing shareholders and right investors is their priority level when buying certain securities offered by a particular business. If so desired, one can also cancel his request to keep their current shareholding ratio unchanged.