So called because it offers existing shareholders the right to buy more shares before anyone else. It occurs when a company wishes to raise more capital relatively cheaply. The company will ask its existing shareholders if they wish to buy more shares at what might seem an advantageous price, i.e. lower than the price at which the shares are currently trading. However, because the rights issue has the effect of supplying more shares to the market, the share price will fall after the rights issue has taken place. For the original shareholders who do not wish to take up the rights issue, their share value is protected because they are able to sell their rights to make up the difference.