Subscription rights trading

When trading in subscription rights via the stock exchange or off-exchange will trade with the value of the subscription rights understood to be at a rights issue , ie a capital increase with subscription rights from the difference between the issue price of the New Shares and Theoretical ex-rights price is obtained.

backgrounds

While the German Stock Corporation Act does not provide any information regarding trading in subscription rights, the legal comments agree that this is possible without restriction both within existing shareholders and between previous shareholders and third parties. However, neither company law nor capital market law gives rise to an obligation for a company to provide a trading opportunity of a certain quality (e.g. stock exchange trading with subscription rights). Here and there is only a "factual exclusion of subscription rights" argued that occurs when no adequate trading platform is provided.

If subscription rights trading is set up on the stock exchange, shareholders who do not want to participate in the capital increase can sell their subscription rights on the stock exchange. The subscription rights are then usually traded on the stock exchange for at least two weeks, which corresponds to the statutory subscription period. This also gives new shareholders the opportunity to participate in the AG (costs of this participation: price of the new share (= issue price) + subscription ratio * value of a subscription right). On the last day of subscription rights trading, all subscription rights are automatically sold by shareholders who do not want to participate in the capital increase.

In the past it happened repeatedly that a quasi subscription rights trading took place even before the actual creation of the new shares by entry in the commercial register (e.g. with a capital increase of Fried. Krupp Hüttenwerke AG and Deutsche Lufthansa AG). However, this was a trade in contractual claims, with the seller then bearing the full risk for the later delivery of the shares. In the event of non-registration or non-admission to trading on the stock exchange, the seller would then have been obliged to purchase the shares on the market, possibly very expensive, in order to be able to deliver them.

Valuation of subscription rights

The value of a subscription right results from supply and demand on the stock exchange. However, as a guide, the value of the subscription right can be determined using the following formula:

${\ displaystyle BR = {\ frac {Ka-Emk} {(BV + 1)}}}$

The subscription ratio is calculated as follows:

${\ displaystyle BV = {\ frac {a} {n}}}$

BR: value of a subscription right
Ka: market price of the old shares
Emk: issue price of the new shares
BV: subscription ratio
a: number of old shares
n: number of new shares

Example: The 100,000 old shares of an AG are traded at € 24. In the event of a capital increase, 20,000 new shares at € 15 will be issued. For every five old shares there is one new share (subscription ratio 5: 1).

Ka = 24
Emk = 15
BV = 5: 1

${\ displaystyle BR = 1.5 = {\ frac {24-15} {(5 + 1)}}}$

In the Anglo-Saxon region (UK and USA), a separation ratio is used instead of a subscription ratio. Here, a subscription right is not booked for each entitled share, but for the right to purchase a new share. The calculation formula for the value of the subscription right changes accordingly.

Alternative calculation variant

${\ displaystyle BR = {\ frac {(Ka-Emk) \ cdot n} {(a + n)}}}$

BR: value of a subscription right
Ka: market price of the old shares
Emk: issue price of the new shares
a: number of old shares
n: number of new shares

${\ displaystyle BR = 1.5 = {\ frac {(24-15) \ cdot 20,000} {(100,000 + 20,000)}}}$

As a rule, the price of the subscription right on the stock exchange will level off at this value. New shares are usually issued at a lower price than the current stock exchange price of the old shares in order to give existing shareholders an incentive to participate in the capital increase.

example

There is a company called Test-AG, whose share capital is currently divided into a total of 100,000 shares. The shares of Test-AG are currently traded on the stock exchange at a price of EUR 24.00 per share.

Mr. Maier owns 10,000 shares in Test-AG and thus a share of ten percent of the total volume.

At the general meeting of Test-AG, a capital increase of 20% through the issue of new shares is decided. That is, 20,000 new shares will be issued ( issued ). So it is a capital increase in the ratio 5: 1. The issue price of the new shares is set at EUR 15.00 per share.

Anyone who wants to buy one of these new shares needs five subscription rights for the acquisition. The arithmetical value of a subscription right is therefore EUR 1.50.

Our Mr. Maier is the owner of 10,000 subscription rights due to his shareholding. He can sell these subscription rights on the stock exchange and thus, depending on the demand for the subscription rights and the price of the shares in Test-AG, earn around EUR 15,000 or he participates in the capital increase and invests EUR 30,000.00 in the acquisition of 2000 of the new ones Shares.

If Mr. Maier takes part in the capital increase in full, he will eventually own 12,000 shares in Test-AG, which in turn corresponds to ten percent of the total of 120,000 shares in Test-AG then available.

Development tendencies

While in the past an exchange trading platform was automatically made available by the issuer for most capital increases with subscription rights , in recent years these have increasingly been doing without it. This results from the fact that although the trading of subscription rights offers the existing shareholders only advantages, the issuing company incurs financial and organizational costs and thus disadvantages due to the necessary establishment of a trading system. In addition, in some cases, trading in subscription rights on the stock exchange triggers costs for the obligation to prepare a securities prospectus, unless this has already been triggered earlier.

Web links

Subscription rights trading on the Frankfurt Stock Exchange

Individual evidence

↑ Subscription rights, underpricing & IPO (PDF; 66 kB)
↑ Udo Terstege / Gunnar Stark (2006): Capital increases of listed companies without subscription rights trading, page 2 (PDF; 165 kB)
↑ Stahl, Hans, 1967, equipment and price development of old and new shares before and after capital increases, publication by the Institute for Banking and Banking Law at the University of Cologne, Economics Series Volume XX, Fritz Knapp Verlag, Frankfurt am Main (page 59)

[1] Subscription rights, underpricing & IPO (PDF; 66 kB)

[2] Udo Terstege / Gunnar Stark (2006): Capital increases of listed companies without subscription rights trading, page 2 (PDF; 165 kB)

[3] Stahl, Hans, 1967, equipment and price development of old and new shares before and after capital increases, publication by the Institute for Banking and Banking Law at the University of Cologne, Economics Series Volume XX, Fritz Knapp Verlag, Frankfurt am Main (page 59)