The Securities and Exchange Board of India on Thursday proposed to introduce e-trading in rights issues. The move will enable demat account holders to buy and renounce the rights entitlements on the stock exchanges.

The proposed procedure was laid out on the Sebi website on September 11 and the regulator has invited public comments till September 25.

According to the Sebi format, shareholders who do not want to subscribe to the rights issue can sell their REs on the electronic trading platform of the stocks exchanges. REs would be given a different International Securities Identification Number to separate them from the ordinary shares of a particular company.

However, trading in REs would close three working days prior to the closure of rights issues, in order to avoid last minute rush in submitting applications and to ensure that the owners have sufficient time to submit an application form, said Sebi in its proposal.

Prior to this, REs were traded in the physical form and could not be regulated. Prithvi Haldea, MD, Prime Database, a firm tracking primary markets and rights issues, said: "There is hardly any market for entitlements. Once the e-trading gets activated, it will add liquidity to the entitlements as many buyers would come forward."

This would mean additional income for stock exchanges and stock brokers, say market players.

ON THE FAST TRACK Issuer despatches letter of offer and composite application forms to eligible shareholders on the record date Rights entitlements start trading with the commencement of the issue REs stop trading three days prior to the issue closure The final holder of the REs sends his subscription for shares