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FAQs on Rights Entitlement Trading
These FAQs offer only a simplistic explanation/clarification on Credit of Rights Entitlements (REs) in
dematerialized form, the Renunciation process and trading of REs on the stock exchange platform and
terms/concepts related to the SEBI/HO/CFD/DIL2/CIR/P/2020/13 dated January 22, 2020, on Streamlining
the Process of Rights Issue (SEBI Circular). Any such explanation/clarification that is provided herein
should not be regarded as an interpretation of law nor be treated as a binding opinion/guidance from the BSE
Ltd. (Exchange). For full particulars of laws governing the Rights Entitlement (REs), please refer to the
actual text of the said SEBI Circular along with relevant Acts/Regulations/Circulars issued by SEBI and other
regulatory authorities.
1. What is Rights Entitlement (REs)?
Rights Entitlements (REs) are the number of new shares that the shareholder of a company is eligible
to apply for under the Rights issue offer of that company. REs are basically calculated by applying a
ratio on the existing shareholding of the shareholders on a specific day called Record Date (RD).
2. Whether REs are given in physical or in Demat form?
REs are credited to the Demat account of eligible shareholders in dematerialized form.
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.
4. When REs are credited?
REs are credited to the Demat account of the shareholders before the date of opening of the issue.
Physical shareholders shall be required to provide their Demat account details to the Issuer / Registrar
to the Issue for credit of REs not later than two working days prior to the issue closing date, such that
credit of REs in their Demat account takes place at least one day before the issue closing date.
A shareholder can deal with REs credited to his account in the following manner:
a. He can apply for the equity shares of the company in full are in the part of his REs
b. He can renounce/sell his REs
a. He can apply for the equity shares of the company in full are in the part of his REs
b. He can renounce/sell his REs
7. How trading will happen in REs?
REs shall be traded on the secondary market platform of Stock exchanges, with T+2 rolling
settlement, similar to the equity shares.
8. When trading in REs will commence?
Trading in REs on the secondary market platform of stock exchanges shall commence along with the
opening of the rights issue.
9. When trading in REs will close?
Trading in Res shall be closed at least four days prior to the closure of the rights issue
10. How investors holding REs in Demat form can renounce it?
Investors holding REs in dematerialized mode shall be able to renounce their entitlements by trading
on a stock exchange platform 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
11. What are the payment modes available for the Rights Issue?
Application for a rights issue shall be made only through the ASBA facility.
12. How I can get the application form for the Rights issue?
a. 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.
b. This application form can be used both by shareholder or renouncee.
c. The registrar to the issue shall also upload the application forms on its website.
d. Applicants can use application form available on the website of registrar to the issue or printed forms sourced from the issuer, merchant bankers or registrars to the issue.
e. In terms of Regulation 78 of the ICDR Regulations, investor also has option to make an application in writing on a plain paper.
b. This application form can be used both by shareholder or renouncee.
c. The registrar to the issue shall also upload the application forms on its website.
d. Applicants can use application form available on the website of registrar to the issue or printed forms sourced from the issuer, merchant bankers or registrars to the issue.
e. In terms of Regulation 78 of the ICDR Regulations, investor also has option to make an application in writing on a plain paper.
13. How I will know what is the ISIN Number for REs?
The issuer is required to specify the ISIN for REs while announcing the record date. Based on the
rights entitlement ratio, the issuer shall credit REs in dematerialized mode through corporate action
to shareholders holding shares as on the record date.
However, this ISIN of REs shall be kept frozen (for debit) in the depository system till the date of
opening of the issue
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 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/Registrar to the issue.
REs which are neither renounced nor subscribed by the shareholders, shall be lapsed after the closure
of the Rights Issue.
As mentioned in point number 15 above, such REs shall be lapsed after the closure of the Rights
issue.
17. How many applications can be made from one Demat account for REs?
Investors shall submit only one application form for REs available in a particular Demat account.
Yes. By purchasing the REs, a person who is not an existing shareholder of the issuer company can
apply to the Rights Issue.
19. From where I can get the detailed information about REs of the Rights Issue of an issuer?
Please refer to the Letter of Offer (LOO) of such issuer coming up with the Rights issue. They are
required to include detailed processes related to REs, their trading etc. in their LOO.
Trading in REs
Details of different parameters as mentioned below:
a. Market Type: Equity Market
b. Order Matching: Anonymous Order Book. Continuous Matching with Price Time priority
c. Group Available for Trading:
d. Lot Size: 1 share
e. Order Type: All Orders types applicable in continuous trading
f. Tick Price: Rs 0.05 or Rs 0.01
g. Price Band: +/- 40%
a. Market Type: Equity Market
b. Order Matching: Anonymous Order Book. Continuous Matching with Price Time priority
c. Group Available for Trading:
d. Lot Size: 1 share
e. Order Type: All Orders types applicable in continuous trading
f. Tick Price: Rs 0.05 or Rs 0.01
g. Price Band: +/- 40%
21. In which segment do you trade Right Entitlement?
Rights entitlement would be traded on the Equity market segment of BSE.
22. What would be the symbol of the Right Entitlement stock?
The Exchange shall intimate the market pre-trading date.
23. Which all market sessions would the Right Entitlement be available for trading?
Trading in Rights Entitlement will be permitted in all the Trading Sessions i.e. the pre-open, auction
session, continuous trading session, both block deal sessions (morning and afternoon) & post closing
session.
24. How would be base price calculated?
On the first day of the Right Entitlement, the base price would be calculated as (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.
Clearing & Settlement
25. How would the settlement happen for Rights entitlement?
All clearing members in the CM segment shall be eligible for clearing and settlement of Rights
Entitlement. Trades executed shall be settled on a T+2 basis. Trades executed shall be cleared and
settled on a gross basis and funds shall be settled on a net basis.
26. What would be the applicable margin for trading Rights?
Applicable margin shall be 100% of Rights Entitlement.
27. Can we put the trade as INST and then allocated the trades in different accounts in OTR?
Yes
28. What would be the settlement type for such trades?
Trade to Trade & T+2 Rolling Settlement.
FAQs on Rights Entitlement Trading
- Your trading account has a Unique Client Code (UCC), different from your demat account number. Do not allow anyone (including your own stock broker, their representatives and dealers) to trade in your trading account on their own without taking specific instruction from you for your trades. Do not share your internet/ mobile trading login credentials with anyone else.
- You are required to place collaterals as margins with the stock broker before you trade. The collateral can either be in the form of funds transfer into specified stock broker bank accounts or margin pledge of securities from your demat account. The bank accounts are listed on the stock broker website. Please do not transfer funds into any other account. The stock broker is not permitted to accept any cash from you.
- The stock brokers Risk Management Policy provides details about how the trading limits will be given to you, and the tariff sheet provides the charges that the stock broker will levy on you.
- All securities purchased by you will be transferred to your demat account within one working day of the payout. In case of securities purchased but not fully paid by you, the transfer of the same may be subject to limited period pledge i.e. seven trading days after the pay-out (CUSPA pledge) created in favor of the stock broker. You can view your demat account balances directly at the website of the Depositories after creating a login.
- The stock broker is obligated to deposit all funds received from you with any of the Clearing Corporations duly allocated in your name. The stock broker is further mandated to return excess funds as per applicable norms to you at the time of quarterly/ monthly settlement. You can view the amounts allocated to you directly at the website of the Clearing Corporation(s).
- The stock broker is obligated to deposit all funds received from you with any of the Clearing Corporations duly allocated in your name. The stock broker is further mandated to return excess funds as per applicable norms to you at the time of quarterly/ monthly settlement. You can view the amounts allocated to you directly at the website of the Clearing Corporation(s).
- You may give a one-time Demat Debit and Pledge Instruction (DDPI) authority to your stock broker for limited access to your demat account, including transferring securities, which are sold in your account for pay-in.
- The stock broker is expected to know your financial status and monitor your accounts accordingly. Do share all financial information (e.g. income, networth, etc.) with the stock broker as and when requested for. Kindly also keep your email Id and mobile phone details with the stock broker always updated.
- In case of disputes with the stock broker, you can raise a grievance on the dedicated investor grievance ID of the stock broker. You can also approach the stock exchanges and/or SEBI directly.
- Any assured/guaranteed/fixed returns schemes or any other schemes of similar nature are prohibited by law. You will not have any protection/recourse from SEBI/stock exchanges for participation in such schemes.
