Dossier trading
Trading subscription rights on the stock exchange
When companies increase their capital and issue new shares, this reduces the share of existing shareholders in the company, "diluting" it. For this reason, they receive subscription rights that they can exchange for new shares or sell on the stock exchange. How trading in subscription rights works, using Bayer as an example in 2018.
A subscription right refers to the right of shareholders to be provided with new shares in the event of a capital increase, in proportion to their previous share of the capital stock at the time of the increase. If, for example, the capital is increased from €5 million to €6 million, the shareholders, called existing shareholders, can subscribe to one 'new/young' share for every five 'old' shares at the specified price. The subscription ratio in this case is 5 to 1.
If existing shareholders do not wish to make use of the offer, they can sell their subscription rights on the stock exchange. The value of the subscription rights compensates for the share price loss suffered by existing shareholders as a result of the issue of new shares. This is because the calculated value of the share price is deducted from the current share price on the day of issue. This so-called discount on subscription rights is justified by the distribution of the value of the company over a larger number of shares. This is accompanied by a reduction in the return on earnings per share; the share of earnings is virtually diluted.
The subscription right is calculated using the following formula: (price of the old share - subscription price of the new share): (subscription ratio + 1). Usually, trading in subscription rights is limited to two weeks and ends directly with the issue of the new shares.
An example
In Bayer AG's capital increase, the company's share capital of just under 858 million shares is increased by 74.6 million new shares. Bayer offers stockholders new shares at a ratio of 23 to 2. For two subscription rights, one new share can be purchased at 81 euros.
In concrete terms, this means for the value of the subscription right: 101.10 (closing price of the old share on June 5 on Xetra) - 81 (subscription price of the new share) : 23/2 +1 (subscription ratio) = 1.608 euros. Accordingly, Bayer shares started Xetra trading at 99.49 euros at the start of the subscription period. However, this is not necessarily the first price; this is determined on the basis of the order book situation in the first auction, as is usually the case.
The Bayer subscription right is tradable on Xetra and the Frankfurt trading floor. The discount on the day the subscription right is issued refers to the closing price as of the previous day of the respective trading venue. The day with the price markdown is also known as the ex-day - ex indicates a price markdown due to a corporate action, e.g. ex-dividend or ex-subscription right.
Order sizes 1 and 0.1
For trading in subscription rights on Xetra, the minimum order size for Bayer subscription rights is 1 share and 0.1 share on the Frankfurt Stock Exchange. Any order size above the minimum order size is permissible.
All order types and order restrictions of trading apply. Continuous trading is offered from the first to the penultimate day. The first trading day starts with an IPO auction, which is conducted simultaneously to the auction on the floor of the Frankfurt Stock Exchange. From the second trading day to the penultimate trading day, trading follows the trading hours of the underlying share, with the exception of the opening auction, which is scheduled a few minutes later than the share.
Special case last trading day
At the end of the penultimate trading day, all open orders are deleted both on Xetra and in the order book of the specialist on the floor. They must be re-entered on the last trading day if required.
The last trading day ends on Xetra with a closing auction from 11:45 a.m. and on the floor with an auction from 12 noon.
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