Subscription
What is a subscription?
A subscription is a term that refers to the issue of new shares in a company. It can relate to either an Initial Public Offering (IPO) or to a rights issue. In both cases, the subscriber to the offering receives a given amount of the company’s stock.
Where have you heard about a subscription?
You’ll have heard of the huge – and often instant – profits that some investors make on IPOs (of course, if the stock price goes down, they lose money instead). These investors have succeeded with their subscription to the new stock. Your broker can make this application on your behalf.
What you need to know about a subscription.
Whilst subscriptions related to IPOs receive the most media coverage, most day-to-day subscriptions relate to existing stock. Shareholders in existing companies often hold ‘subscription rights’ to protect them from a dilution in their holdings due to rights issues. These subscription rights allow investors to subscribe to new stock issuances below the market price, protecting them from the financial risk of seeing the new shares issued at a price much lower than their initial investment. The rights offer the investor a ‘weighted-average’ price that accounts for the new and old offering prices. Your broker will secure these rights on your behalf.