NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Introduction to Securities Markets
Which of the following best describes a rights issue by a listed company?
A rights issue is an offer of new shares to existing shareholders in proportion to the shares they already hold. It differs from a bonus issue, which is free, from a QIP aimed at institutions, and from a buyback, which repurchases shares.
- AOffer of new shares to existing shareholders in proportion to their holdingsCorrect
- BOffer of shares only to qualified institutional buyers
- CFree shares issued out of reserves to shareholders
- DBuyback of shares from shareholders at a premium
Explanation
In a rights issue, the company offers new shares to its existing shareholders in a stated proportion to their holdings, usually at a price that may be discounted. Issuing shares only to QIBs describes a QIP, free shares from reserves describes a bonus issue, and a buyback is a repurchase of shares.
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