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What happens to my shares position if the 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 your available options.

You can manage your elections for each event online in the ‘corporate actions’ section of My IG by following the steps below:

1. Log in to My IG

2. Navigate to the ‘live accounts’ tab

3. Select the relevant account from the dropdown menu on the left-hand side

4. Choose the ‘corporate actions’ option. Here, you’ll find any corporate actions affecting your account. You’ll see the stock name, live status and the IG deadline, which is the date by which you’ll need to elect for new shares, trade out of them or fund your 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 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 on a CFD account?

Depending on the event, you may have up to four options (listed below) for long positions on a CFD account. You can view all the actions you can take under a specific event in My IG.

1. Elect for new shares (agree to purchase the shares)
You can partially or fully take up your rights online in My IG before the IG deadline.

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

2. 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 in My IG before the IG deadline.

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

3. 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

4. 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. Once you’ve traded out of your position, the status of the event will change to ‘traded out’

What are my options for short positions on a 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’s 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, making you liable

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.

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 20 cents 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 20 cents 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.

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