Legal Definitions - ex rights

The term ex rights refers to a situation where a financial asset, typically a share of stock, is traded without an accompanying privilege or entitlement that was previously associated with it. When an asset is traded "ex rights," the buyer acquires the asset itself but does not receive the specific right or benefit that has been detached or separated from it. This often occurs around a specific date (known as the "ex-rights date") after which the right is no longer transferred with the asset.

Here are some examples to illustrate this concept:

• Subscription Rights Offering: Imagine a technology company, "TechInnovate Inc.," decides to raise capital by offering its existing shareholders the exclusive right to purchase new shares at a discounted price. This privilege is called a "subscription right." If an investor buys shares of TechInnovate Inc. after the announced ex-rights date, they will acquire ownership of the shares, but they will not receive the separate subscription right to buy the new, discounted shares. The previous owner, who held the shares before the ex-rights date, would retain or have already exercised that specific right.

  This illustrates "ex rights" because the purchaser of the shares is buying them "without" the valuable right to subscribe to the new stock offering.

• Stock Dividend: A well-established manufacturing firm, "Global Gears Corp.," announces a stock dividend, meaning it will issue one additional share for every ten shares currently owned by its shareholders. If an investor purchases shares of Global Gears Corp. on or after the ex-dividend date (which functions as an ex-rights date for this specific dividend), they will own the shares, but they will not be entitled to receive the upcoming stock dividend. The seller, who owned the shares before the ex-dividend date, will be the one to receive the extra shares.

  This demonstrates "ex rights" because the buyer acquires the stock "without" the right to receive the declared stock dividend.

• Bonds with Detachable Warrants: A utility company issues corporate bonds that come with "warrants," which are separate rights allowing the bondholder to purchase a certain number of the company's common stock shares at a predetermined price. These warrants can sometimes be detached and traded separately. If the utility company's bonds are later traded "ex warrants," a new buyer of these bonds will receive the bond itself and its interest payments, but they will not receive the additional right (the warrant) to buy the company's common stock. The warrants would have been separated and either exercised or sold by the previous bondholder.

  This example shows "ex rights" because the buyer of the bond receives it "without" the attached right (the warrant) to purchase common stock.