NSE automates rights trading and settlement

The Nigerian Stock Exchange (NSE) has announced the automation of Rights trading and settlement with effect from today, Monday, May 8. With this, shareholders can sell subscription rights both efficiently and at fair prices.

Executive Director, Market Operations and Technology, NSE, Mr Ade Bajomo, said, “the automation of Rights trading and settlement in the Nigerian capital market will enhance price discovery as rights can now be traded and re-traded without settlement complexities.

“It will help eliminate operational challenges resulting from manual trading and cash settlement between counterparties, whilst simplifying counterparty trade reconciliation between the brokers, registrars and the NSE.”

Explaining the Rights trading and settlement process, Bajomo remarked that “for an investor to be eligible to participate in rights trading, he/she must have a CSCS account set up through a licensed dealing member firm of the NSE.

In addition, the investor must fund his/her broker with the consideration value, premium and transaction fees, prior to execution of his/her mandate.”

Prior to this automation, trading and settlement of rights, where an investor decides to sell on the floor of the Exchange, was done manually.  A rights issue is an offer to existing shareholders to purchase additional shares in a company during the company’s issue of new shares.

The invitation to existing shareholders is usually made in proportion to their existing holdings, allowing them to buy the newly issued shares at a fixed price, usually at a discount to market value of the shares, within a specific subscription period.

A rights issue is therefore one of the ways by which a listed company can raise funds from its existing shareholders. A unique security code different from that of the underlying security, will be assigned to the right.