In a rights issue, arrangement by which shareholders are given the right to apply for any shares that are not taken up.
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In a new issue of a stock, the right of current shareholders to receive or purchase the rights or warrants to the new issue at a discount. This allows existing shareholders to maintain their current percentage of ownership in the company. The rights or warrants that are distributed are the rights some shareholders did not want to receive. Thus, these remaining rights or warrants are distributed among existing shareholders on a prorated basis. See also: Anti-dilution provision.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The opportunity to purchase, on a pro rata basis, any remaining shares not already subscribed to in a new stock offering. In a typical new offering using stock rights, new shares are priced below the market price in order to ensure a successful sale. Generally, however, some stockholders will neither use nor sell their rights to buy the new shares, thus leaving some stock unsold even at the bargain price. The issuer therefore allows the stockholders to oversubscribe in anticipation of extra available shares. It is generally in the stockholder's interest to use the oversubscription privilege. Compare subscription price.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.