Definition

Noun: 1. A privilege granted to existing shareholders of a corporation: This right allows them to purchase additional shares of a new stock issuance, often at a discounted price, before the shares are made available to the general public. This mechanism helps companies raise new capital while giving current shareholders the opportunity to maintain their proportional ownership stake and avoid dilution.

Usage

• Subscription rights are typically issued in proportion to the number of shares a shareholder already owns.
• They have a specific expiration date and are often transferable, meaning shareholders can sell the rights on the open market if they do not wish to exercise them.
• The process of issuing these rights is called a rights offering or rights issue.

Examples

• The company announced a rights issue, granting each shareholder one subscription right for every five shares held.
• He decided to sell his subscription rights on the market because he did not have additional capital to invest.
• By exercising her subscription rights, the investor was able to buy new shares at a 10% discount to the market price.

Advanced Usage

• "Lapsed rights": Refers to subscription rights that were not exercised or sold before their expiration date, resulting in the loss of the opportunity.
• "Theoretical ex-rights price (TERP)": A calculated estimate of a stock's market price after a rights issue is announced, accounting for the dilutive effect of the new shares.

Variants and Related Words

• Rights Offering / Rights Issue (n): The corporate action in which subscription rights are distributed to shareholders.
• Warrant (n): A similar, but typically longer-term, financial instrument that gives the holder the right to buy shares at a specific price. Unlike subscription rights, warrants are often issued for a longer duration and may be attached to other securities like bonds.

Synonyms

• Preemptive right: A legal right, often synonymous with subscription right in this context, that allows existing shareholders to maintain their percentage of ownership by buying a proportional number of new shares.
• Shareholder right (in the specific context of a new issue).

Related Phrases

• "To exercise one's rights": To use the subscription rights to purchase the new shares.
• "To trade/renounce the rights": To sell the subscription rights to another investor.
• "Rights-on" vs. "Ex-rights": A share trades "rights-on" when it carries the entitlement to the upcoming subscription right. It trades "ex-rights" after that entitlement has been separated from the share.

Noun

1. the right of a shareholder in a company to subscribe to shares of a new issue of common stock before it is offered to the public