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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

A broker's dealer explains to a new client that a rights issue differs from a public issue. Which statement is correct?

A rights issue offers new shares to existing shareholders in proportion to the shares they already hold. It is a fresh issue by the company, not a secondary market trade, and it is not restricted to foreign investors or opened to the general public.

  1. AA rights issue is offered to the general public at large, not to existing shareholders
  2. BA rights issue offers new shares to existing shareholders in proportion to their holdingsCorrect
  3. CA rights issue is a secondary market trade between two investors
  4. DA rights issue can be subscribed only by foreign investors

Explanation

In a rights issue, a company offers additional shares to existing shareholders, generally in proportion to their existing holdings. A public issue is open to the general public. It is a fresh issue of shares, so it is not a secondary market trade.

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