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NISM Certifications · NISM-Series-VI: Depository Operations · Special Services - Public Offering / Corporate Actions

In a rights issue of 2 shares for every 5 held, an investor holds 1,000 shares on the record date and sells the entire rights entitlement through the market during the renunciation period. What is the correct position?

He is credited with 400 rights entitlements in a separate ISIN, calculated as 1,000 times 2/5. These are tradable, so selling them transfers the right to subscribe to the buyer. Having sold all, he cannot subscribe, though his original 1,000 shares remain unaffected.

  1. AHe gets 400 rights entitlements credited to his demat account in a separate ISIN, which he can sell, and he cannot subscribe after selling themCorrect
  2. BHe gets 400 additional shares credited immediately
  3. CHe gets 2,500 rights entitlements credited to his account
  4. DHe loses entitlement to the existing 1,000 shares

Explanation

Entitlement is 1,000 x 2/5 = 400. Rights entitlements are credited in a separate temporary ISIN and are tradable during the issue period. Once all are sold, he has nothing to apply with. His existing shares are unaffected; 2,500 comes from inverting the ratio.

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