Preference rights will become the third biggest financial instrument to be traded on Bucharest Stock Exchange, where only stock and bonds are currently bought and sold.
Regulations pertaining to preference right trading on the Bucharest Stock Exchange have already been approved by the National Securities Commission (CNVM). For such transactions to be initiated, a single capital increase through cash contribution needs to be completed by a listed company, according to the stock exchange deputy chairman, Septimiu Stoica.
Should a company want to raise money from the market through stock issues, it first has to offer its shareholders the right to buy the new stock, in line with the stake held. Only then will it be able to offer new stock to other investors. Most companies that carried out such operations in recent years preferred to annul stock that hadn’t been bought by shareholders and therefore investors who weren’t already in possession of such stock could not buy into the new issue.
The novelty with rights trading is that existent shareholders will be able to sell the right to subscribe, without selling their owned stock, while other investors will be allowed to buy the subscription right without also buying stock. The purchase of preference rights can be a profitable tool, provided the price the company sells its stock at is smaller than the market price.
“With the launch of rights trading, the Bourse adds to the range of instruments in addition to stock. Rights trading volumes will not compete with those associated with stock trading, but investors will have a larger set of instruments at their disposal,” says Septimiu Stoica, Bourse deputy chairman.
According to CNVM regulations, share capital increase operations completed through cash contributions include several stages. In the first stage, the company’s management convenes the General Assembly to approve the raise and settles a reference date prior to that of the General Assembly meeting.
The reference date is the date when stock holding confers the right to participate in the capital raise. Thus, stocks traded up to the reference date also include in their price the value of the subscription right, and after the reference date the preference right can be separated from the stock.
Rights trading can start after shareholders approve the capital increase and after a trading period the share capital increase operation is effectively completed.
vlad.nicolaescu@zf.ro