======Ex-Rights Date======
The Ex-Rights Date is the first day a [[stock]] begins trading without the right to participate in a company's upcoming [[rights issue]]. Think of it as the "cut-off" day. If you buy shares of a company //on or after// its ex-rights date, you will not receive the "rights" being offered. If you owned the stock the day //before// the ex-rights date, you are entitled to the rights, even if you sell the stock on the ex-rights date itself. This critical date is set by the relevant [[stock exchange]] to ensure there is no confusion about who is entitled to what. The ex-rights date is part of a larger, carefully choreographed timeline designed to give existing [[shareholder]]s a chance to increase their stake in the company, usually at a discount. Understanding this date is crucial for investors, as it directly impacts both the price of their shares and their opportunity to participate in the company's capital-raising efforts.
===== Why Does the Ex-Rights Date Matter? =====
The ex-rights date is more than just a calendar entry; it has direct financial consequences for investors. Its primary function is to draw a clear line in the sand, determining who gets to participate in the rights issue.
On a more practical level, the ex-rights date triggers an adjustment in the company's share price. Because the "right" to buy new shares at a discount has value, that value is stripped out of the stock price on the morning the stock goes "ex-rights." The share price will typically drop by an amount roughly equal to the value of one right. Don't panic! This is not a sign of the company's sudden poor performance. You haven't actually lost money. The value has simply been transferred from your stock holding into a separate, tradable asset: the right itself. Your total wealth (the value of your stock plus the value of your newly received rights) should remain largely unchanged at the moment of the split.
===== The Rights Issue Timeline: A Simple Walkthrough =====
Navigating a rights issue can feel confusing, but it boils down to a few key dates. Getting the sequence right is everything.
==== Key Dates to Watch ====
  * **Announcement Date:** This is the day the company's board of directors officially announces its plan to raise capital via a rights issue. They will outline the terms, such as the ratio (e.g., one new share for every five you own) and the [[subscription price]].
  * **Record Date:** This is the date the company consults its shareholder register to determine which investors are officially on the books and therefore eligible to receive the rights.
  * **Ex-Rights Date:** Here's the crucial part. The ex-rights date is set //before// the record date (typically one [[business day]] before in the U.S. and U.K.). This is to account for the [[T+1]] or [[T+2 settlement]] cycle. Because it takes a day or two for a stock purchase to officially settle and for your name to appear on the company's register, you must buy the stock //before// the ex-rights date to be a shareholder by the record date.
  * **Subscription Period:** This is the window of time (usually a few weeks) during which eligible shareholders can choose to exercise their rights by sending in their money to buy the new, discounted shares.
===== A Value Investor's Perspective =====
For a [[value investor]], a rights issue is a moment for critical thinking, not automatic action. The discounted price might look tempting, but it's not "free money." You must ask the most important question: **Why** is the company raising money?
  * **Good Reasons:** The company might be raising funds to invest in a highly profitable project with a great [[return on invested capital]] (ROIC), to acquire a competitor at a bargain price, or to pay down expensive debt. These can be excellent uses of shareholder capital.
  * **Bad Reasons:** Conversely, the company could be desperate for cash just to stay afloat, patching up a weak [[balance sheet]], or funding a low-return pet project. This is a major red flag, suggesting deeper problems with the business.
A rights issue always presents three choices:
  - **Exercise the rights:** If you believe in the company's long-term prospects and the wisdom of its capital allocation, buying more shares at a discount can be a smart move.
  - **Sell the rights:** If you don't want to invest more cash but want to avoid having your ownership stake suffer from [[dilution]], you can usually sell your rights on the open market. They have value, so don't let them expire!
  - **Do nothing:** This is almost always the worst option. By letting the rights expire, you lose their value and your ownership percentage in the company shrinks.
===== A Practical Example =====
Let's imagine you own shares in "Value Co.," which is currently trading at $50 per share. The company announces a 1-for-5 rights issue, allowing you to buy 1 new share for every 5 you own, at a [[subscription price]] of $40 per share.
How does the market account for this on the ex-rights date? It calculates a "Theoretical Ex-Rights Price" (TERP).
  * **Step 1: Calculate the cost of the "package"**
    * Cost of 5 old shares: 5 x $50 = $250
    * Cost of 1 new share: 1 x $40 = $40
    * Total cost for 6 shares: $250 + $40 = $290
  * **Step 2: Calculate the new theoretical price per share**
    * New price = Total Cost / Total Shares = $290 / 6 shares = **$48.33**
On the morning of the ex-rights date, Value Co.'s share price should theoretically fall from $50 to $48.33. The difference, $1.67 ($50 - $48.33), represents the theoretical value of a single right that you, as an existing shareholder, have just received. No value was created or destroyed, just reallocated.