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

Which statement about a rights issue is correct for a client who holds shares in demat form on the record date?

For a rights issue, rights entitlements are credited to the demat account of eligible shareholders as of the record date. The shareholder may then subscribe to the new shares or renounce the entitlement within the issue period. A DP cannot act on its own without client instructions.

  1. ARights entitlements are credited to the demat account of eligible shareholders and can be renounced or applied for within the issue periodCorrect
  2. BRights are available only to holders of physical certificates
  3. CRights entitlements lapse automatically on the record date
  4. DOnly the DP can subscribe on behalf of the client without instruction

Explanation

Under the current framework, rights entitlements (REs) are credited to the demat account of eligible shareholders as of the record date. They can be used to subscribe or be renounced, typically by off-market or on-market transfer, during the issue period. Physical-only and automatic-lapse statements are wrong, and a DP cannot subscribe without client instructions.

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