Key Takeaways
- Trades securities before official issuance.
- Settlement occurs after formal issuance.
- Facilitates early price discovery.
- Used in bonds, spinoffs, mergers.
What is When Issued (WI)?
When Issued (WI) refers to the conditional trading of securities that have been authorized but not yet formally issued or delivered. This mechanism allows you to trade these securities before they officially exist, with settlement occurring only after the issuance date.
This process facilitates early price discovery and market activity on securities such as bonds and stocks prior to their official release, linking closely to bond market dynamics and issuance.
Key Characteristics
Understanding the core features of when-issued trading helps clarify its role in financial markets.
- Conditional Settlement: Trades are agreed upon but settled only after official issuance.
- Price Discovery: Enables the market to establish prices before securities exist.
- Risk of Cancellation: If issuance is canceled, when-issued trades are voided.
- Common With Bonds and Stocks: Applies often to government securities and new stock issues, including bond ETFs.
How It Works
When-issued trading starts after a company or government announces a new security but before the actual delivery date. Market participants enter into trades with the understanding that settlement will occur only once the securities are formally issued.
This conditional framework allows you to buy or sell the security in advance, effectively locking in prices. If the issuance proceeds as planned, trades settle normally; if not, all transactions are canceled. This process is particularly relevant in markets dealing with government bonds, where timing and price transparency are critical.
Examples and Use Cases
When-issued trading finds practical applications across various scenarios.
- Airlines: Shares of companies like Delta may trade on a when-issued basis during stock splits or spinoffs before final issuance.
- Government Bonds: Prior to auctions, treasury securities often trade WI, reflecting anticipated auction results and pricing.
- Corporate Merger Shares: In mergers, new shares to be issued by the acquiring company can trade when-issued, enabling investors to position ahead of deal closure.
Important Considerations
When dealing with when-issued securities, be aware that the conditional nature introduces settlement risk if issuance is canceled. You should monitor announcements closely and understand that price volatility can be higher during the when-issued period.
Incorporating when-issued trading insights into your strategy can improve timing and price discovery, especially if you are active in markets featuring bond or equity issuance events.
Final Words
When-issued trading lets you engage with securities before they are officially issued, offering a chance to lock in prices early but carrying settlement risks if issuance doesn’t occur. Monitor issuance announcements closely and consider how timing fits your strategy before committing to WI transactions.
Frequently Asked Questions
When Issued (WI) trading refers to the conditional buying and selling of securities that have been authorized and announced but not yet formally issued or delivered. Trades are agreed upon in advance, with settlement occurring only after the securities are officially issued.
When Issued trading operates on a conditional basis where transactions are recorded before the official issuance date. This allows market participants to establish prices and make trades prior to settlement, which happens only after the securities are formally issued.
When Issued trading commonly applies to treasury securities, government bonds, new stock and bond issues, stocks after splits, shares involved in mergers post-proxy approval, and spinoff shares.
When Issued trading enables the market to determine prices for securities before they officially exist, which helps investors gauge market sentiment and value ahead of formal issuance, enhancing liquidity and transparency.
If the anticipated issuance is unexpectedly canceled, all When Issued trades related to that security are voided, and no settlement occurs since the securities were never formally issued.
During a corporate spinoff, the parent company’s regular shares still include rights to spinoff shares, while the parent’s When Issued shares trade without those rights. Simultaneously, the spinoff’s When Issued shares trade independently until the spinoff is completed and shares begin regular trading.
Before a government bond auction, traders may buy and sell bonds on a When Issued basis, agreeing on prices in advance. These trades settle only after the auction concludes and the bonds are formally issued and delivered.
In mergers, shares that shareholders will receive post-merger may trade on a When Issued basis before the merger is finalized. This allows investors to buy or sell the right to receive new shares, with settlement occurring after the legal completion of the merger.
