Legal Definitions - rights off

The term rights off is synonymous with ex-rights. It refers to a situation where shares of a company'sstock are trading without the entitlement to participate in a specific corporate action, typically a "rights offering."

A rights offering is when a company gives its existing shareholders the option to purchase additional new shares, usually at a discounted price, before they are offered to the general public. This allows existing shareholders to maintain their proportional ownership in the company.

When shares trade rights off (or ex-rights), it means that a buyer of those shares will not receive the right to subscribe to the new shares being offered. The right to participate in the offering remains with the seller, who owned the shares before the designated "ex-rights date." The share price typically adjusts downwards on the ex-rights date to reflect the value of the detached right.

• Example 1: Investor Decision-Making

  Imagine "GreenTech Solutions Inc." announces a rights offering, allowing existing shareholders to buy one new share for every five shares they own at a discounted price. The company sets the ex-rights date for October 15th. An investor, Maria, wants to acquire these rights. To do so, she must purchase GreenTech Solutions shares before October 15th. If she buys shares on or after October 15th, those shares will be trading rights off, meaning she will not receive the entitlement to subscribe to the new, discounted shares. The seller of those shares on or after October 15th would retain or have already exercised/sold their rights.

• Example 2: Market Trading and Price Adjustment

  "Global Logistics Corp." initiates a rights issue to fund a new expansion project. The stock exchange announces that Global Logistics shares will trade rights off starting November 1st. On this date, the market price of Global Logistics shares is expected to drop by an amount roughly equivalent to the value of the subscription right. A day trader, David, buys 500 shares of Global Logistics on November 1st. He understands that because the shares are trading rights off, he is purchasing them without the attached right to buy new shares in the offering, and the price he pays reflects this absence.

• Example 3: Corporate Action and Shareholder Entitlement

  A pharmaceutical company, "MediCorp Innovations," decides to raise capital through a rights offering. They establish a record date for shareholders entitled to the rights, followed by an ex-rights date. After the ex-rights date, any shares of MediCorp Innovations that are bought or sold in the market are considered to be trading rights off. This means that the new buyer of these shares does not acquire the right to participate in MediCorp's new share issuance. Instead, the original shareholder who held the stock on the record date is the one who possesses the valuable right to subscribe to the new shares, even if they subsequently sell their existing shares after the ex-rights date.