Oversubscription Privilege

Definition of 'Oversubscription Privilege'


A privilege provided to existing shareholders in a company when the company issues a rights or warrants offering. This enables shareholders to "subscribe" to purchase extra shares that are not picked up by the remaining shareholders.

When a company issues a rights or warrants offering, existing shareholders are given the option to maintain their current percentage of ownership in the company by acquiring the rights to further shares. If any current shareholders decide to not accept all of the rights for which they are eligible, these extra rights/warrants become available to the rest of the shareholders at a predetermined ratio (ie. the right to purchase 0.25 shares for every existing share held).

Investopedia explains 'Oversubscription Privilege'


There will always be a maximum number of rights or warrants available on the whole, and should there be more oversubscription demand than supply available, whatever is left over will be allocated on a pro-rata basis to those who pick up their oversubscription privilege.

Companies that decide to issue a rights or warrants offering do so in lieu of a secondary stock offering, which would be available to other investors as well. While the goal of all three offerings is to raise capital for the issuer, if a company bypasses conducting a secondary stock offering, then it shows investor demand is not high enough for them to do so.



comments powered by Disqus
Hot Definitions
  1. National Best Bid and Offer - NBBO

    A term applying to the SEC requirement that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities.
  2. Maintenance Margin

    The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and FINRA, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account.
  3. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  4. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  5. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  6. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
Trading Center