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Rights Entitlement in the Share Market

 

Rights Entitlement in the Share Market

Introduction


There are different ways out there for a listed company to gather and build up capital that they need for their upcoming ventures or for making some big steps and changes around the company. IPO, OFS and many other are ways for the companies to gain capital.

When a company wants to exceed their additional capital, they will do it with their shareholders through the right settlement and issue.
Right Entitlement of shares is a relatively newest and latest topic in the stock market. Right Entitlement is a recent concept, having been introduced in India’s stock market in May last year 2020 with RIL’s mega Rs.53,125 crore right issue.

Meaning of “Rights Entitlement” in stock market

When a listed company plans to raise its additional capital, often considers doing it from their existing shareholders, through right issues. Sometimes the rights that are issued are at a discounted market price.
When a company issues rights to its shareholders on a pre-determined date known as record date.

How are Rights Entitlement offered?


The companies offer rights Entitlements to their shareholders as a ratio to the number of securities held on this record date, as per the official NSE website.

To visit the NSE website, click here

A shareholder may refuse to subscribe to the rights issue by the company and just let the ‘right’ lapse. Alternatively, the shareholder can renounce/ trade or the entitlement in favour of another person.

Trading details about Rights Entitlement
There are some important trading details about right entitlement that should be followed by entitlement investors.
1. Market Type- Normal
2. Book type- Stop Loss (SL), Regular Lot
3. Series available for trading- BL and BE
4. Lot Size- one share
5. Order Type- Day, Immediate or Cancel (IOC), Limit and Market Order
6. Price steps- As per parent stock’s price steps
7. Price Band- +/- 40 per cent

Rights Entitlement would be traded on the Equity market of NSE exchange.

For more queries about Rights Entitlement, click here

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