Legal Definitions - ex-rights date

The ex-rights date is a specific calendar date that determines who is entitled to receive "rights" associated with a company's stock. Before this date, if you purchase shares of a company's common stock, you also acquire the right to participate in a special offering, typically to buy additional shares at a discounted price. On or after the ex-rights date, however, if you buy the same shares, you will no longer receive these special rights; they will remain with the seller of the stock. This date is crucial for investors to understand whether their stock purchase includes the privilege to subscribe to new shares.

• Example 1: Company Capital Raise

  Imagine "Tech Innovations Inc." announces a plan to raise capital by offering its existing shareholders the opportunity to buy new shares at a 10% discount. They set an ex-rights date of November 15th. If an investor, Maria, buys shares of Tech Innovations Inc. on November 14th, her purchase includes the right to participate in this discounted offering. However, if another investor, John, buys shares of Tech Innovations Inc. on November 16th, he will not receive these rights; the seller of those shares would have retained them.

  Explanation: This example illustrates that buying shares before the ex-rights date (November 14th) means you acquire the special subscription rights, while buying on or after the ex-rights date (November 16th) means those rights are no longer attached to the purchased shares.

• Example 2: Investor Trading Strategy

  A company, "Global Energy Corp.," declares a rights offering with an ex-rights date of July 1st. An investor, Sarah, owns shares in Global Energy Corp. and wants to sell them, but she also wants to exercise her right to buy additional discounted shares. To achieve this, she must sell her shares on or after July 1st. If she sold them on June 30th, the buyer would receive the rights, not her. Conversely, if another investor, David, wants to buy Global Energy Corp. shares but has no interest in the rights offering (perhaps he thinks the discounted price isn't attractive), he might wait until July 1st or later to buy, as the share price might adjust slightly downwards once the rights are no longer included.

  Explanation: This scenario demonstrates how the ex-rights date influences an investor's decision to buy or sell. Selling before the ex-rights date means transferring the rights to the buyer, while selling on or after means the seller retains the rights. Buying on or after means the buyer does not receive the rights.

• Example 3: Brokerage Account Notification

  Your brokerage firm sends you a notification about an upcoming rights offering for "Green Solutions Ltd.," a company whose stock you follow. The notification clearly states that the ex-rights date is April 20th. If you place an order to buy shares of Green Solutions Ltd. on April 19th, your purchase will include the privilege to subscribe to the new shares. However, if you place the same order on April 21st, the shares you acquire will not come with these rights, as they would have been separated from the stock on the ex-rights date.

  Explanation: This example highlights the practical implication for an individual investor making a purchase. The brokerage notification emphasizes the importance of the ex-rights date in determining whether a stock transaction includes or excludes the associated subscription rights.