FYIWhat are Cum RightsCum rights (or "with" rights) allows a...

FYI

What are Cum Rights

Cum rights (or "with" rights) allows a shareholder of record to subscribe to a rights offering declared by a company. Owners of shares that have cum rights are able to buy new shares, typically at a price lower than the current market price of the shares in question. Furthermore, the rights themselves have value apart from the value of the existing shares.

BREAKING DOWN Cum Rights

When a company offers rights to its shareholders to purchase new shares at a discount in order to maintain their proportionate ownership (i.e., no dilution), these securities are known as cum rights. The rights are short-term, typically 30-45 days, and can be traded. The value of one cum right is calculated by the following formula:

Value = (market price of the stock - subscription price) / (number of rights needed to purchase one share + 1)

The +1 in the denominator adjusts for the pending drop in the market price on ex-date, or the first day when the stock trades without rights.

Example of Cum Rights Calculation

XYZ Company has 10 million shares of common stock outstanding and is issuing 5 million additional shares through a rights offering. The stock is trading at $51 per share and the rights have a subscription price of $48 per share. Two rights are needed to purchase one share.

The value of the cum right = ($51 - $48) / (2 + 1) = $1

Regulations and Rules

Cum rights are subject to NYSE Rule 703.03 and NASDAQ Rules 4310(c) and 4320(e) regarding advance notification periods, proposed subscription prices, expiration dates and other pertinent information for a shareholder to make a decision. The SEC requires filing of Form S-1, a registration statement for the rights offering.

SPONSORED

Tips on Succeeding as a CFD Trader

The first step to succeeding as a trader is to understand the market. If you don't have a firm grasp on important concepts, it's difficult to read market moves and capitalize on volatility.City Index provides a solution with their trading academy - it includes a rich selection of resources designed to help you become a more profitable trader. From identifying opportunity to using their platform, City Index can teach you to succeed.

Cheers,E