Rights Issues and Rights Entitlements (RE) - FAQs
Q. What are Rights Entitlement (REs)?
Rights Entitlements (REs) are temporary demat securities that represent the shareholder’s eligibility to apply for the rights issue. Rights entitlements are offered to shareholders as a ratio to the number of securities held on the record date.
Q. When are REs credited to the demat account?
REs are credited to the demat account before the date of opening of the issue.
Q. How are REs traded?
REs are traded on the secondary market platform, with a T+1 rolling settlement, similar to equity shares.
Q. When does trading in REs start?
Trading in REs starts along with the opening of the rights issue.
Q. When does trading in REs close?
Trading in REs closes at least four days prior to the closure of the rights issue.
Q. How can investors holding REs in demat form renounce it?
Investors holding REs in dematerialized mode shall be able to renounce their entitlements by trading or off-market transfer. Such trades will be settled by transferring dematerialized REs through a depository mechanism in the same manner as done for all other types of securities. The transactions in REs will be settled on a trade-for-trade basis.
Q. What are the payment modes available for the rights issue?
To apply for a rights issue, shareholders can use the Applications Supported by Blocked Amount (ASBA) process if their bank supports it. Alternatively, the company's Registrar and Transfer Agent (RTA) will send a Composite Application Form (CAF) via courier to those who cannot apply online. The filled form can be submitted at a Self-Certified Syndicate Bank (SCSB) branch (WEB). The forms can also be downloaded from the BSE and NSE websites by visiting bseindia.com/publicissue.html and nseindia.com/market-data/all-upcoming-issues-ipo.
Q. How many applications can be made from one demat account for REs?
Investors can submit only one application form for REs available in a demat account.
Q. Can applicants who are not existing shareholders of the issuer company as of the record date/ex-date apply for the rights issue?
Yes, by purchasing the REs, a person who is not an existing shareholder of the issuer company can apply for the rights issue.
Q. Where can detailed information about a RE be obtained?
Refer to the Letter of Offer (LOO) of such issuer regarding the Rights issue. They are required to include detailed processes related to REs, their trading etc., in their LOO. RTA sends LOO on registered email after the rights issue is announced.
Q. Which segments are REs traded in?
Rights entitlements are traded on the equity market segment of BSE.
Q. How is the base price calculated?
On the first day of the Right Entitlement, the base price would be calculated as (The closing price of the stock - Right Entitlement price). On every subsequent day, the closing price of the Right Entitlement trading would be the base price.
Q. What is the settlement process for RE?
All clearing members in the CM (Clearing Member) segment shall be eligible for clearing and settlement of rights entitlement. Trades executed shall be settled on a T+1 basis. Trades executed shall be cleared and settled on a gross basis, and funds shall be settled on a net basis.
Q. What happens to shortages in settlement of such trades?
Any shortages in rights entitlement will be directly closed-out at the highest price of rights entitlement prevailing across the exchanges from the day of trading till the T+1 day or 20% above the settlement price of Rights Entitlement on the T+1 day, whichever is higher.
Q. Would an individual be eligible for the rights issue if shares are purchased on the ex-date/record date?
No, the shares must be purchased one day prior to the ex-date/record date for the shareholder to be eligible for the rights issue.
Q. If shares are sold after the ex-date/record date, would eligibility for the rights issue still apply?
Yes, individuals are entitled to receive the RE if they have sold their shares after the ex-date/record date. The RE will be credited to the broker on their behalf, who will then credit it back to them.
Q. If a Third Party Verification error occurs on the RTA's portal, what actions can be taken?
One possibility is that the bank account being used may have a misspelt name. In this case, an alternative bank account can be used, or net banking ASBA can be utilized if the bank allows it.
Q. If an individual does not apply for the online rights issue, what will occur with their purchased holding of RE shares?
The REs in the form of temporary demat securities will lapse, resulting in a loss of the premium paid to acquire them if they are not renounced or exercised before the trading window closes.
Q. While applying for rights shares, it shows 'Please enter your correct DPID or client ID'?
There is a possibility that the entered information is incorrect. Ensure that the 16-digit ID being entered is correct. To learn more, see What are DP name, DP ID, BO ID and demat ID?
Q. What is the difference between:
I am a shareholder as on Record Date and undertake to hold RE till issue closing date
I am renouncee and hold rights entitlement in valid demat account to hold RE till issue closing date.
Which option must be chosen?
When purchasing REs from the secondary market, it means acquiring them from someone who is renouncing their right. The seller is the renouncer, while the buyer becomes the renouncee. To qualify as an eligible investor and select the share-holder option, one needs to have held at least X number of shares as of the record date. The I am a shareholder as on.. option must be chosen in this case.
Q. If an individual purchases REs without holding any shares, are they eligible to apply for REs?
Even if one does not hold any shares, they are still eligible for the rights issue. They can apply for the rights shares either through the RTA's portal or via net banking ASBA if their bank permits it. However, if no action is taken and the REs are left in the Zerodha account, they will lapse after the issue.
Q. Will the rights entitlement appear on Kite holdings automatically, and will it be possible to sell them?
After the REs have been credited to the account, they can be viewed and sold in the same manner as regular cash market instruments.
Q. What would be the expiry date and time of REs?
The REs will theoretically lapse on issue closure. They should be removed from the demat account once the Registrar and Transfer Agent (RTA) have processed all the applications, which happens within a few days from issue closure.
Q. If an individual has 10 shares of a company in one demat account and 5 shares in another, and the company has announced a rights issue in the ratio of 1:15, would they be eligible to exercise the rights?
Eligibility is determined on a folio-wise basis by the RTA. Even though both demat accounts may be linked to the same PAN, the shares would be held in separate folios in the RTA's records. Therefore, in a situation where an individual has 10 shares in one demat account and 5 shares in another, they would not receive the rights entitlement.
Q. Where can I apply for the rights issue?
The RTA will put up the exact link on their website once the issue is live. The same goes for the banks which will support the issue.
Q. Can I sell the shares on the record date/ex-date and still get the rights issue benefit?
If you had the shares in your holdings on the record date, even if you sell on the record date/ex-date you’ll still be eligible to apply for the rights.
Q. What if someone sells their REs and then applies for the rights issue?
The RTA will collect your demat account details and then check for the REs before allotment.
Q. Should I unpledge the shares to receive REs and be eligible for the rights issue?
No, the shares do not need to be unpledged to receive REs, and they will be credited to the demat account.
Q. At what price can I sell my REs in the market?
There is no fixed price for REs, and market forces determine the price at which the REs will trade?
Q. What will happen to my RE’s if I do not sell them?
The REs will get lapsed and will be removed from your holdings, You will lose the premium, if any, paid to acquire those REs.
Q. I have X number of shares and I’ve applied for Y more apart from my eligible 1 entitlement. In this case, will I actually be considered for additional shares? I’ve paid the initial amount to RTA. If not eligible for additional shares will they refund to my registered bank account?
The RTA can consider you for additional allotment depending upon the issue subscription. The amount you’ve paid is kept in an escrow account maintained by RTA and will be refunded if the allotment is not made. This is how IPO subscriptions would also work before ASBA.
Q. What does that renouncee signify here?
If you’re buying REs from the secondary market, you’re buying it from someone who is renouncing his right. The seller would be the renounce, and the buyer would be renouncee.
Q. How can NRIs buy REs, since they cannot pay through RTA?
If your bank allows ASBA through net banking, you should be able to apply as an NRI.
Q. How to apply for rights issues if the REs are purchased from the markets or via trading?
Yes, you will be able to either apply for REs via ASBA or directly through the RTA.
Q. Does purchasing REs guarantee that a share will be given or is it like subscribing to an IPO?
If you have X REs, and you apply for X+Y shares. You will get X right shares since you’re eligible. For the remaining Y, there will be a lottery system similar to an IPO.
Q. Does the REs need to be credited to my account to be eligible for applying for rights issue?
Yes, the REs need to be credited to the demat account for the shareholder to be eligible to apply for the rights issue.
The RTA will check the demat account for REs during allotment. However, it is asking the investors to declare whether they already have the REs or have purchased it. There isn’t a third option which say you will purchase the REs within the RE trading period.
Q. What is the tax treatment in case of the sale of REs?
The taxation of RE sold would be same as in case of sale of equity shares:
If STT is paid:
Short Term Capital Gain (STCG) - 15% under Sec 111A.
If STT is not paid: STCG - slab rate.
Q. While applying for REs in multiple transactions, does the order needs to be placed multiple times or can one consolidated order be placed?
You can place one consolidated order for all the REs purchased.
Q. Can multiple applications for REs be made?
RTA has informed that multiple applications are not allowed, and are liable to get rejected.
Q. I am getting an error on the RTA's website - "Details do not exist in Record Date."
If you have purchased RE from the secondary market then try applying under the renouncee category.
Q. What will happen to the amount if I don't receive an allotment?
The money for any shares not allotted to you will be credited to your bank account by the RTA after the process is complete.
Q. Can I make the payment from any bank account?
You can make a payment from any bank account as long as you’re the registered account holder. The RTA performs a penny drop check to verify the account holder’s name. The third-party bank account restriction implies that you cannot use someone else’s bank account to pay for your application.
Q. I don’t have any securities on the record date, can I still purchase RE through Zerodha trading platform and then buy the shares against the RE?
Yes, you can purchase the REs till the RE window closure date and apply before the rights issue closes.
Q. Since my bank account is not automatically mapped, I’m trying to pay through a different account. However, in spite of it being my account, I get an error “3rd party validation failed”. What could be the reason?
If you’re using a bank account where you’re the registered account holder, possible reasons could include a misspelling of your name, incomplete name on record of the bank, etc. In such cases, please confirm with the RTA.
Q. Is CAF number mandatory to apply for Rights issue?
CAF number isn't supposed to be mandatory now since there are no physical rights composite application forms. If the bank hasn't removed it from their portal, you can enter any dummy number (For e.g.your PAN). Please reach out to your bank for making the required changes on their portal. Some banks have already grey-ed out this field.
Q. What will happen to REs that are neither renounced nor subscribed by the shareholders?
REs which are neither renounced nor subscribed by the shareholders will lapse after the closure of the rights issue.
Q. Are the REs credited in the same ISIN number as equity shares or in different ISIN number?
The REs are credited in a separate ISIN to the demat account of the shareholders, against the shares held by them as on the record date.
Q. What are the options available with a shareholder for the REs credited to the demat account?
Shareholders can deal with REs credited to their account in the following manner:
- They can apply for the equity shares of the company in full or in part of their REs.
- They can renounce or sell their REs.
Q. How can shareholders get the application form for the Rights issue?
- The issuer shall dispatch a common application form to its shareholders as on the record date. Along with the application form, the issuer shall also send the details of the rights entitlements of the shareholder separately.
- This application form can be used both by shareholders or renouncee.
- The registrar to the issue shall also upload the application forms on its website.
- Applicants can use the application form available on the website of the registrar to the issue or printed forms sourced from the issuer, merchant bankers or registrars to the issue.
- In terms of Regulation 78 of the ICDR Regulations, the investor also has the option to make an application in writing on plain paper.
Q.What will happen if the demat account of the shareholder is frozen?
If the demat account of a shareholder is frozen or demat account details are not available, including shares held in an unclaimed suspense account or in the account of Investor Education and Protection Fund (IEPF) Authority, then REs shall be credited in a suspense escrow demat account of the company and an intimation should be sent to such shareholder by the issuer or registrar to the issue.
Q. What are the related trading details for REs?
BSE - PUBLIC details of different parameters as mentioned below:
- Market Type- Equity Market
- Order Matching – Anonymous Order Book. Continuous Matching with Price Time Priority
- Group available for trading- “R”
- Lot size- 1 share
- Order Type- All order types applicable in continuous trading
- Tick Price- ₹0.05 or Rs 0.01
- Price band- +/- 40%
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