Ex-Rights Date
The ex-rights date is the first trading day on which a stock trades without the right to participate in a company's current rights offering, meaning investors who purchase shares on or after this date do not receive the subscription rights being distributed to existing shareholders as part of the capital-raising transaction.
Rights offerings are a mechanism by which public companies raise equity capital by giving existing shareholders the right — but not the obligation — to purchase additional shares at a defined subscription price, typically set at a discount to the current market price. The ex-rights date is structurally analogous to an ex-dividend date: investors who own shares before this date receive the rights as a distribution, while purchasers on or after this date buy shares that no longer carry the rights entitlement.
When a stock begins trading ex-rights, its market price typically adjusts downward by approximately the value of the right, because the value that was embedded in the right is now separated from the share. This theoretical adjustment is captured in the formula for the theoretical ex-rights price (TERP): the weighted average of the pre-rights price and the subscription price, weighted by the number of existing shares and new shares respectively. In practice, the actual market price on the ex-rights date may deviate from TERP based on investor sentiment, volatility, and demand for the rights themselves.
Subscription rights distributed in a rights offering are typically transferable: shareholders who do not wish to exercise their rights can sell them in the secondary market during the subscription period. This transferability ensures that the economic value of the rights is captured by the original shareholder — either through exercise and participation in the offering at the discounted price, or through sale of the rights to another investor who wishes to participate.
The SEC regulates rights offerings under the Securities Act of 1933. Public company rights offerings require registration of the shares to be issued upon exercise of the rights, unless an exemption is available. The company must file a registration statement, deliver a prospectus to rights holders, and comply with the SEC's timing and disclosure requirements. The subscription period during which rights may be exercised must remain open for a minimum of 16 days, as required by the SEC.
Rights offerings are less common in U.S. equity markets than in European markets, partly because U.S. companies have traditionally raised equity capital through at-the-market offerings, underwritten public offerings, and private placements to institutional investors rather than through rights offerings to all existing shareholders. However, rights offerings are a more common capital-raising tool for smaller and financially stressed U.S. issuers that need to raise capital quickly while preserving shareholder preemptive rights.