UK company law gives existing shareholders a pre-emption right: new equity is offered to them first, in proportion to what they already own. A 1-for-4 issue at £2 on a share trading at £4 has a theoretical ex-rights price (TERP) of £3.60 and a nil-paid right worth £1.60. The nil-paid line has its own ISIN and trades while the offer is open. That discount is the economic reason anyone bothers to elect.
Four choices sit on the form: take up (pay the call, receive fully paid), sell the nil-paid right, lapse, or tail-swallow — sell enough rights to fund the take-up of the rest. Oversubscription, if offered, is scaled back when demand exceeds the leftover stock. Each choice is a different cash and stock outcome, and each has to be booked as itself, not as a guess at what the manager "probably wanted".
Renounceable issues let the right be sold. Priority or non-renounceable issues generally do not, and there are normally no proceeds from lapsed rights to distribute. The label on the prospectus is the product. Treating a non-renounceable allotment as if it had a nil-paid market is how a desk invents a sale that the issuer never created.
Atlantic Horizon UCITS ICAV holds 400,000 Thames Industrial plc shares in CREST through State Street. On a 1-for-4 at £2, with the ordinary cum-rights at £4, the ICAV is offered 100,000 new shares. Take-up costs £200,000 and delivers 100,000 fully paid ordinaries. Selling the 100,000 nil-paid rights at £1.60 raises £160,000 and leaves the holding at 400,000. Lapsing throws the £1.60 away unless the company places the rump. A tail-swallow sells enough rights at £1.60 to pay the £2 call on the rest.
Dublin still has to release NAV on whichever of those four books is real. Irish UCITS administration cannot outsource that stamp, or the shareholder register, while the nil-paid line is live. Dealers in the ICAV are buying a fund that either owns a right, owns cash from selling it, or owns neither. Getting the TERP into the price file and the nil-paid ISIN into the position file is the same morning's work.
Nippon Industrials KK (Tokyo, ISIN JP3899200005) is the contrast. Japanese new-share allotments to existing holders are often non-renounceable: there is no nil-paid ISIN to sell, and lapse usually pays nothing. The Cayman sleeve of the same house can still be offered stock in proportion to what it owns. The four UK elections collapse to two — pay the call, or do not — and State Street's Japanese sub-custodian will not manufacture a London-style tail-swallow that the Tokyo terms never allowed.
Pre-emption is why a rights issue is not just "the company sold some stock". The register was offered the new shares first. Dilution is the cost of sitting out; the discount is the compensation for being asked. Asset servicing's job is to put a number on both, in time for someone who is allowed to decide.