What is a rights issue?

A rights issue is when a company issues stock in return for cash. The stock is usually issued at a discount to the prevailing market price. They are usually issued on a pre-emptive basis. This means that existing holders of the stock have the first opportunity to take up the rights. After the issue has been quantified and the price of the new stock has been set, the market will set a theoretical ex-rights price. The rights themselves are traded as well as the stock trading cum rights.