Trading Subscription Rights of New Shares
Background: A subscription right designates the right of
shareholders to be allocated new shares in the event of a capital
increase – namely in proportion to their share in the capital stock
at the time of the increase. If, for instance, the capital stock is
increased from €5 million to €6 million, existing shareholders can
be allocated one new share for five old shares at the specified
price. In that case, the subscription ratio is 5 to 1.
If existing shareholders do not wish to make use of this offer, they can sell their subscription rights via the exchange. The value of the subscription right compensates the existing shareholder for the price loss resulting from the issue of new shares. On the day of the issue, the calcuated value of the share price is deducted from the current price of the share. This subscription right reduction is justified with the allocation of the company’s value across a larger amount of shares. This results in a detraction of the yield return per share. Practically speaking, the share in the profits is watered down.
- By the following formula one calculates the subscription
(price of the old share – subscription price of the new share) : (subscription ratio + 1).
Usually, the trading of subscription rights is limited to a period of two weeks and is then followed directly by the issue of the new share.
A good example is the capital increase of KarstadtQuelle (ISIN DE0006275001). In 2004, the capital stock of the company was increased by €240 million – from around €300 million to almost €540 million. KarstadtQuelle shareholders were offered 93 million new shares at a ratio of 8 to 7. This means: shareholders could get 7 new shares in return for 8 old shares. The subscription price was €5.75.
For the price of the subscription right this means:
€9.77 (last price of the old share on 29 November) – €5.75 (subscription price of the new share) : €2.14 (subscription ratio + 1) = €1.88
Accordingly, the KarstadtQuelle share started trading at €7.77 at
the beginning of the subscription period.
On both platforms of Frankfurt Stock Exchange
The expansion by the open Xetra® order book makes the trading of subscription rights more transparent – as well as more international since all of the around 300 Xetra participants from 18 countries will be able to participate. This includes foreign banks and financial services providers that have no direct access to the trading floor. Designated Sponsors provide liquidity.
A minimum order size is introduced for the trading of subscription rights on Xetra: that’s 1,000 shares for subscription rights at a value of €1 or above and 5,000 shares for subscription rights with a value of less than €1. Each order size above the minimum is permitted.
All order types and restrictions of Xetra trading apply. Continuous
trading is offered from the first to the penultimate trading day.
The first trading day starts off with an IPO auction, which is
conducted at the same time as the auction on the trading floor.
From the second to the penultimate trading day, the trading process
corresponds with the trading schedule of the underlying, with
exception of the opening auction, which takes place a couple of
minutes after the stock’s auction.
At the end of the penultimate trading day, all existing open orders are deleted and, if required, must be entered anew on the last trading day. On this last trading day, only one auction takes place on Xetra – again, at the same time as the auction on the trading floor.