Highly-dilutive rights issues: Consob adopts the rolling model to prevent price volatility
Consob has decided to proceed with the adoption of the so-called rolling model with reference to the highly-dilutive rights issues launched by listed companies
These are operations where a high number of new shares are issued at a heavily discounted price compared to the market price.
Learning from the experience accrued so far the issue of a high number of share leads to an extreme volatility of price which interferes with the regular price discovery process and generates distortion effects which could, in turn, be misleading for less-experienced investors.
To prevent this phenomenon, Consob has decided to adopt a technical solution called "rolling model". It consists in making the new shares available in the market more times during the rights issue and not only once a time at the end of it, as it occurs today. The aim is solving the main cause of the above-mentioned price anomalies which is the shortage of securities during the rights issue.
The technical activities necessary to implement the rolling model should be concluded within a few months. Consob will publish a special Communication close to the time the new model goes into effect. To this end, Consob has already asked Borsa Italiana to make the necessary changes to its Regulation of Organised and Managed Markets and to the relative Instructions.
The Commission's decision follows two public consultations and other activities on the subject and takes into account both the comments received during the last consultation (see document "Esiti delle Consultazioni" - available on the site www.consob.it insert link), and the experience accrued from 2009 to today, from which it has emerged that highly-dilutive rights issues are rather frequent in the Italian market. Examples of highly-dilutive rights issues are the operations launched by Saipem in January 2016, by Banca MPS in 2015 and 2014, by Fondiaria Sai in 2012, by Seat PG and Tiscali in 2009.
In greater detail, the rolling model will apply to rights issues characterised by a significant level of dilution (coefficient "conventional" K equal or less than the value by 0.3) and, therefore, more likely to be subject to the risk of generating significant price anomalies.