If a company wishes to raise new capital and increase its share capital by issuing new shares, existing shareholders have the right to new shares because their existing stake in the company is diluted.
A subscription right is the right of shareholders to acquire a certain number of new shares in the course of a capital increase of their stock corporation. This allows existing shareholders to retain their share in the share capital unchanged.
The number of new shares to which each shareholder is entitled results from the so-called subscription ratio, i.e. the ratio of old shares to new shares.
Shareholders can exercise their subscription rights within the subscription period (at least two weeks) or sell them on the stock exchange. The value of the subscription right can be calculated mathematically, but is subject to the laws of supply and demand after it has commenced trading on a stock exchange.
As part of the deregulation of stock rights, the possibility of excluding subscription rights was created for the so-called "small AG": In this case, the subscription right in the event of capital increases is excluded if the capital increase does not exceed 10 percent of the share capital or if the issue price of the new shares is not significantly lower than that of the old shares. This ensures that existing shareholders will at least approximately hold their share of the Company's share capital even after the capital increase; capital dilution is therefore practically excluded.
Two market places
Subscription rights are offered on the fully electronic Xetra platform in continuous trading. This is made possible by a so-called 'Designated Sponsor', who continuously sets binding purchase and sale prices during trading hours. Approximately 20 subscription rights are traded annually.
Trading subscription rights - using Bayer AG as an example
© May 2019, Deutsche Börse AG.