Rights issues reform: providing more access for personal investors

The Share Centre has made a submission in response to the FSA's consultation paper 09/4 ("Rights Issue Subscription Period") which, while reluctantly accepting the proposals for a shorter time period for subscription (to 10 business days), also proposes a radically new approach to stop the dilution of personal investor participation.

Commenting on the rights issues process, Gavin Oldham, chief executive of The Share Centre, said: "It is our view that retail shareholders have historically lost out from rights issues due the fact that those who own the existing shares are not generally the same investors as those who have new money with which to pay the call: unlike institutional investors."

Oldham concludes, "As a result they have, as a genre, suffered substantial dilution each time a rights issue takes place. This is because personal investors' lapsed rights are simply bundled up and sold to institutions."

The Share Centre is proposing that new arrangements should be set in place for retail investors to bid for lapsed shares. Retail stockbrokers are able to set in place quick response facilities for this purpose, offering online access via the internet. Bids could be invited over a 48 hour period at prices equal to or above the call price, and shares bought would be free of stamp duty.

The stockbroker is confident that this proposal will enable personal investors to purchase the lapsed shares and that it will provide a reasonable counterbalance to the institutional bias implied in the current FSA proposals. This should go some way towards reducing personal investor dilution caused by Rights Issues generally.