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Definition

When a company decides to raise additional capital by offering its existing shareholders additional shares in proportion to the number of shares that they already hold, then those shareholders have the option to "follow their rights" and take up the new shares or alternatively sell their rights to someone else who is interested in them. The rights are represented by "renounceable nil-paid letters of allocation " or NPL's which are normally listed alongside the ordinary shares for a period of around six weeks until the take-up date of the rights offer. During that time they can be bought and sold by members of the public. NPL's usually entitle the holder to buy the underlying shares at a discount to the current market price so they are derivative instruments.

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