Rights exercise is the action by which a shareholder uses the subscription rights received in a rights issue to buy new shares at the stated subscription price. Exercise is voluntary. A holder may take up all the rights, take up some, sell them in the market where they are tradable, or let them lapse. Some offers also allow a holder who exercises in full to apply for more shares under an oversubscription privilege.
To exercise, the holder sends an election instruction to its broker or custodian bank and makes sure cash for the subscription is available. The intermediary sets its own election deadline ahead of the issuer's, blocks the rights, and passes the instruction and payment up the chain to the issuer's agent. After the offer closes, the rights are removed and the new shares are credited. The full sequence is set out under rights issue processing.