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. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  2. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  3. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  4. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  5. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  6. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
Trading Center