Rights

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DEFINITION of 'Rights'

A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally at a discount to the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.

Also known as "subscription rights" or "share purchase rights."

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BREAKING DOWN 'Rights'

Rights can and do trade independently of the underlying stock on an exchange. Similar to options, the price of a right is determined by a number of factors, such as its subscription price, the underlying stock price, its volatility, interest rates and time to expiration. The intrinsic or theoretical value of a right during the cum rights period - when the stock trades with the rights attached - is different from the value of a right during the ex-rights period, when it trades independently.

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RELATED FAQS
  1. What is the difference between share purchase rights and options?

    There is a big difference between share purchase rights and options. With share purchase rights, the holder may or may not ... Read Full Answer >>
  2. What are some advantages of ordinary shares?

    Ordinary, or common, shares have many benefits for both the investor and the issuing company. For individuals, investing ... Read Full Answer >>
  3. What is the difference between preference and ordinary shares?

    Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation ... Read Full Answer >>
  4. How does additional equity financing affect existing shareholders?

    Additional equity financing dilutes existing shareholders. There are two types of candidates for equity financing. One is ... Read Full Answer >>
  5. What rights do all common shareholders have?

    Individuals that own common shares of company stock are viewed as the true owners of that company. As such, a common shareholder ... Read Full Answer >>
  6. Why is a shareholder rights plan called a "poison pill?"

    To avoid being the target of a hostile takeover by a larger firm, a corporate board might adopt a defensive strategy called ... Read Full Answer >>

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