What is a Right Entitlement?
Rights Entitlements (REs) are temporary demat securities that represent eligibility to apply for the rights issue. These REs are not rights shares by themselves and need to be used to apply for the rights shares. If client do not sell the REs or use them to apply for rights, they will lapse worthless.
Exchanges have allowed trading in the REs and client may also sell the REs from their holdings. Exchange’s Rights Entitlement platform allows the rights holders to trade their entitlement shares on a trading window on exchanges where holders can sell and renounce their entitlement for a price. This process and platform gives shareholders an opportunity to gain some value of eligible RE shares. Until May 2020, shareholders, who didn’t wish to apply, had to let their RE lapse or had to transfer it for free. By introducing this platform shareholders can see value of right shares intrinsic value.
The REs are allowed to trade online and on stock exchanges, similar to equity shares. The trading of such RE will close at least three working days before the rights issue to ensure that shareholders and the renouncee have sufficient time to submit the renunciation form and the application form, respectively. Client will not be able to transact the REs intraday as they are settled on a trade-to-trade basis. STT at 0.05% of the value of RE is levied on the seller of the RE.