Legal Definitions - rights on

When a security, such as a stock or a bond, is traded "rights on," it means that the buyer of that security is entitled to receive any declared benefits or entitlements that are associated with it. These benefits, which could include a dividend, a bonus share issue, or the right to subscribe to new shares, are still attached to the security at the time of purchase, even if they haven't been distributed yet. The price of the security typically reflects the value of these attached rights.

Here are some examples to illustrate this concept:

• Example 1: Dividend Entitlement

  Imagine "FutureTech Innovations Inc." announces it will pay a cash dividend of $0.75 per share to all shareholders on record by September 1st. If an investor purchases shares of FutureTech Innovations Inc. on August 28th, and these shares are trading "rights on," the investor will become the shareholder of record by September 1st. Consequently, they will receive the $0.75 dividend for each share they bought.

  Explanation: The shares were bought with the right to the upcoming dividend still attached. The buyer acquires this right along with the shares, meaning the purchase price implicitly includes the value of that dividend.

• Example 2: Bonus Share Issue

  "Global Manufacturing Co." declares a 1-for-5 bonus share issue, meaning for every five shares an investor owns, they will receive one additional share for free. The record date for this bonus issue is October 15th. If another investor buys 50 shares of Global Manufacturing Co. on October 10th, and these shares are trading "rights on," they will be entitled to receive 10 bonus shares (50 shares / 5 = 10 bonus shares) when the bonus issue is distributed.

  Explanation: The purchase of the shares occurred while the entitlement to the bonus shares was still linked to them. The new owner therefore benefits from the bonus issue as if they had owned the shares before the announcement.

• Example 3: Subscription Rights for New Shares

  "Clean Energy Solutions Ltd." decides to raise capital by offering existing shareholders the right to subscribe to new shares at a discounted price. This "rights issue" allows shareholders to buy one new share for every ten shares they currently own. If an investor purchases shares of Clean Energy Solutions Ltd. before the "ex-rights" date (the date when these subscription rights are separated from the shares), those shares are trading "rights on." This means the new owner will receive the valuable subscription rights and can choose to exercise them to buy new shares at the preferential price.

  Explanation: The acquisition of the shares included the valuable right to participate in the new share offering. This benefit transfers directly to the buyer when the shares are traded "rights on."