What happens to my shares position if a company offers a rights issue?
A rights issue (or open offer) is when a company, in an effort to raise capital, offers its existing shareholders the opportunity to buy additional shares – usually at a discounted price.
How do I take part in a rights issue?
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 on 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 dealing or ISA 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.
What are my options for long positions?
You have four options for long positions on spread betting, CFD, share dealing and ISA accounts:
- Elect for new shares (agree to purchase the shares)
You can partially or fully take up your rights online by completing these steps on 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.
For share dealing and ISA accounts, the funds required will be calculated for you during the election process on 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. - 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 on 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.
For share dealing and ISA accounts, the funds required will be calculated for you during the election process on 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. - 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 dealing and ISA account holders may receive remuneration in the form of lapsed proceeds if this is part of the event. - 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.
What are my options if I have a short position on a spread bet or CFD account?
You’ll usually have two options:
1. Buy back the rights to close out your short position
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.
2. Do nothing and don’t close out the position (IG default)
Doing nothing could mean having the rights removed around the pay date, and potentially having a new short position in the stock booked at the subscription price.
If oversubscription is part of the event, you may have a position larger than your original entitlement booked on to your account on the pay date because you’re short and liable.
Why were my new shares not purchased even though I made my election on my share dealing or ISA account?
If no new shares were allocated to your account after the pay date and your rights issue position disappeared from your open positions, it most likely means you didn’t maintain sufficient available funds in your account for purchasing the new shares during the specified time frame.
If the rights issue is scaled back, allocation of shares and refunds may be based on the restriction level (registered or underlying beneficiary level) and will be at the sole discretion of the company.
How do I purchase the new shares in my ISA if I’ve already fully subscribed for the tax year?
When you elect in My IG, you’ll have the option to move your shares from your ISA to your share dealing account. To take up the event, you’ll need to ensure that you have sufficient funds in your share dealing account by the IG deadline and then maintain those funds beyond the pay date of the event. As long as your share dealing account is properly funded before the deadline date, we’ll take care of the rest.
How do I know if there’s an option to apply for more shares than I have (oversubscription) and how can I apply?
You’ll see the option on the My IG election page, where you can elect to take up your full basic allocation and apply to purchase more. Once you’ve elected and received a confirmation email, please make sure that you fund the relevant account by the deadline date to cover both the basic and oversubscription amounts. If you don’t have sufficient funds in your account to also cover the oversubscription amount, then only your basic entitlement will be taken up.
Oversubscription might be subject to scale-back, which means you may not receive the full number of shares you applied for.
When is the pay date?
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.
I have a guaranteed stop position – what’ll happen to it?
If you hold a position with a guaranteed stop at the close of business the day before the ex-date, we’ll amend the position on your behalf – pre-market on the morning of the ex-date – to automatically take up the rights issue or open offer. The stop, level and size will be amended to keep the monetary risk the same as pre-event.
This process will usually take place if the issue/offer is in the money (ie the share price exceeds the issue/offer price) on the ex-date, otherwise we won’t take any action. You won’t be required to do anything for this event.
I have a non-guaranteed stop or limit on my position – what’ll happen to it?
Any non-guaranteed stops or limits will be amended according to the terms of the event to take onboard the dilution of the price in the underlying stock.
Why was my rights issue or open offer booked on a 1-for-1 basis and not at the ratio?
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).
How can I make an election or trade my entitlement if My IG isn’t working?
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.
Examples of a rights issue:
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 20p 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 20p per share
What are the pros and cons of a rights issue?
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.
