What happens to my shares position if a company offers a rights issue? (Share trading accounts)

If you’d like to participate in a rights issue and buy shares, you’d first have to qualify by holding a shares position in the company at the close of business the day before the ex-date.

For qualifying shareholders, we’ll create a new position called ‘(company name) – rights issue’ on your account and our corporate actions team will send you an email notification containing the terms of the rights issue, important dates and available options. This information will also show in My IG within the ‘corporate actions’ section of the ‘live accounts’ tab, where you’ll be able to make your election.

The above screenshot is shown as a generic example, as events have different terms and options available. Make sure you’re viewing the relevant account.

Additional information

Please don’t try to elect before the ex-date or email the corporate actions team – we’ll only accept elections via My IG from the ex-date onwards.

If you hold rights on multiple accounts, you’ll need to elect for each account separately in My IG to take up the offer, and we’ll progress it from there.

You’ll receive an automated email confirmation for each election that we receive from you. We’ll process your election provided that your preferences for the event reach us ahead of the IG deadline.

If you’re making an election using a share trading account, you’ll need to ensure that your account is funded by the IG deadline in order to be able to pay for the new shares. The deadline date will be visible in My IG.

If the option exists to oversubscribe for the event, we’ll make this clear in My IG.

Please note that the information we provide to you is preliminary. The application for and allocation of rights are subject to shareholder eligibility, which is determined solely by the company and can be changed/cancelled at the sole discretion of the company.

Depending on the event, you may have up to four options (listed below) for applicable positions on your share trading account. You can view all the actions you can take under a specific event in My IG.

1. Elect for new shares (agree to purchase the shares)

You can partially or fully take up your rights online by completing these steps in My IG before the IG deadline.

Ensure that the relevant account is sufficiently funded with settled cash (ie funds shown as ‘available to withdraw’) to pay for the new shares.

The funds required will be calculated for you during the election process in My IG.

You’ll need to maintain the settled funds beyond the pay date of the event – when the new shares are due to be booked on to your account – or this election will lapse by default. The corporate actions team won’t take an instruction to transfer cash between accounts – it’ll be your responsibility to have funds in the relevant account.

If rights were successfully taken up, the new shares will be booked on to your account – usually within five working days of the pay date. In some circumstances, it may take longer.

2. Elect for new shares and oversubscribe

If you want to purchase more shares than your entitlement from the rights issue (ie oversubscribe), you’ll be able to apply by completing these steps in My IG before the IG deadline.

Ensure that the relevant account is sufficiently funded with settled cash (shown as ‘available to withdraw’ in your account balance) to pay for both the basic entitlement and excess number of shares you’ve chosen.

The funds required will be calculated for you during the election process in My IG.

You’ll need to maintain these funds beyond the pay date of the event – when the new shares are due to be booked on to your account – or this election will lapse by default. The corporate actions team won’t take an instruction to transfer cash between accounts – it’ll be your responsibility to have funds in the relevant account.

If rights were successfully taken up, the new shares will be booked on to your account – usually within five working days of the pay date. In some circumstances, it may take longer

3. Do nothing and let the rights lapse (IG’s default)

The rights issue position would eventually be removed and you’d forfeit the opportunity to purchase the shares. You don’t need to take any action in this case, as this is IG’s default option. Share trading account holders may receive remuneration in the form of lapsed proceeds if this is part of the event.

4. Trade out (sell) the rights

You’d need to do so online through our trading platform during trading hours and between the trading dates shown in the corporate actions section of My IG.

The pay date for the event will be shown in the corporate actions section of My IG. This is the earliest date that you can expect to receive your new shares. However, the new shares are generally booked up to five working days after the pay date and in some instances longer.

Depending on what type of event is taking place, the rights issue/open offer will first be booked on a 1-for-1 basis on the ex-date and then at the ratio of the event on the pay date. It can, however, also be carried out in the opposite manner (ie at the ratio on the ex-date and on a 1-for-1 basis on the pay date).

You can see if My IG is operational on our systems status page. If My IG’s status is showing as ‘operational’, try clearing your cookies from your web browser’s settings and then reload the page. If, after that, you’re still unable to log in to My IG to make your election, contact our helpdesk.

You won’t need access to My IG if you’d simply like to close out a rights issue position, as you can do so on our trading platform.

a) Say you already own 100 shares of company XYZ, and the shares are currently trading at $20 each. To raise more money, the company announces a rights issue for current investors at a price of $15 a share, which will last for 30 days.

The company also sets a conversion rate of 5 for 10, meaning that you can buy five discounted shares for every ten you currently own.

As a result, you could buy 50 more shares for $750, a discount of $250. Holding all else equal, the price of the ordinary shares would fall on the ex-date in proportion to the terms. This is because the ordinary shares will be diluted by the rights issue shares.

b) A company you have a long position on offers a rights issue, allowing you to buy five shares at 20 cents for every one share you already own. On the ex-date, your position is equivalent to owning ten shares.

We’ll open a new position worth 50 shares, leaving your original position unaffected. If you decide to take up the offer, you’ll get 50 new shares at a level of 20 cents per share.

Pros of a rights issue

A rights issue is an opportunity for current shareholders to increase their stake in a company at a reduced cost. In doing so, they increase their exposure to a company’s stock – which could be good or bad, depending on the company’s profit and loss statement.

The number of new shares that an investor can buy depends on their current holdings, but it’s usually proportional – with larger shareholders being able to purchase more shares than smaller shareholders.

A rights issue is also a chance for an individual to protect their investment from the eventual dilution that will come when the company issues more stock. Dilution may occur if current shareholders sell their new stocks to other traders – although this isn’t always guaranteed during a rights issue.

Cons of a rights issue
If the issued shares are sold on the open market, their value could be diluted relative to the increased market supply.

Rights issues can also be a risk, as current shareholders may not want to buy any more shares in the company if it’s experiencing slower growth. The market may interpret a rights issue as a warning sign that a company is struggling. This might even cause investors to sell their shares, which would bring the price down. With an increased supply of shares available following a rights issue, this could be bad news for a company’s market value.