What does the right of rescission allow a purchaser to do?

What does the right of rescission allow a purchaser to do?

• A. Rescind a purchase if the securities increase in value
• B. Withdraw from a purchase if the prospectus is misleading
• C. Claim additional shares at no cost
• D. Obtain a refund after the purchase is completed

Answer: (B)

The right of rescission is a legal provision that allows a purchaser to withdraw from a purchase if certain conditions are met, particularly in cases where the information provided to them—such as in a prospectus—is misleading or fraudulent. This right is designed to protect investors by ensuring they can back out of transactions that they might not have entered into had they been fully informed.

In the context of securities transactions, when a prospectus fails to provide accurate or complete information, allowing the investor to rescind the purchase helps maintain trust and integrity in the market. It empowers investors and serves as a safeguard against deceptive practices.

The other options do not accurately reflect the purpose or application of the right of rescission. For instance, rescinding a purchase due to an increase in value or obtaining additional shares at no cost does not align with the functions of this legal right. Additionally, while obtaining a refund after a purchase is completed might sound similar, it does not address the premise of misleading information, which is the core reason for invoking the right of rescission.