Retail shareholders will be allowed to trade their rights in HBOS’s £4 billion capital-raising for free by using a service offered by the bank.

However, the bank’s 2.1 million small investors will have to wait a fortnight for a detailed trading update from HBOS, when the owner of Halifax and Bank of Scotland releases the prospectus for its rights issue. Shares in the bank closed down 3.2 per cent at 340½p, in part because investors had hoped that they might hear sooner about trading conditions.

The capital-raising is being watched carefully after Bradford & Bingley scrapped its £300 million rights issue on Monday, replacing it with a £258 million issue and a £179 million capital injection from TPG, the American private equity firm. B&B cited unexpectedly high impairments on its mortgages as one of the reasons for dropping the original issue.

Halifax is Britain’s biggest mortgage lender, leading analysts to speculate that HBOS might also have suffered an increase in bad debts. HBOS issued a short statement on Monday in which it said that it was trading normally.

The bank will publish its prospectus during the week of June 16. An extraordinary meeting to approve the issue will be held on June 26 in Edinburgh. Between June 27, when the rights begin trading, and July 18, when trading in nil-paid rights closes, the bank will offer retail shareholders a free dealing service for the shares.

HBOS is raising extra money to boost its tier 1 ratio – a measure of financial strength – as banking regulators toughen their stance on banks’ capital cushions. Under the terms of the rights issue, it will cost the average investor – holding 374 shares – £409¾p to take up the 149 new shares they are entitled to.

More than a quarter of HBOS’s investors are small shareholders who acquired their shares when the former Halifax building society demutualised in 1997. Their backing for the rights issue will be crucial. Shares in a £12 billion rights issue by Royal Bank of Scotland will begin trading on Friday.

Meanwhile, the Financial Services Authority is looking into possible insider trading at Bradford and Bingley before the bank’s surprise profit warning on Monday. B&B’s shares dropped by as much as 8.5 per cent last week while emergency talks with TPG Capital – the US private equity firm which agreed to pay £179 million for a 23 per cent stake – were progressing.

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