What it means
Many securities are announced days or weeks before they are delivered. Government bonds, new share classes created by a stock split and shares of a company being spun off from its parent are common examples.
During that gap, dealers and investors can trade on a when-issued basis, often shown with the letters WI next to the quote. These trades are conditional.
If the security is never issued, because the deal is cancelled or the offer is withdrawn, the trades are cancelled too and nobody owes anything. Once the security is issued, the trades settle at the agreed prices in the usual way.
The practical value is price discovery (the market working out what something is worth). Before a new government bond auction, for instance, when-issued prices show where dealers expect the yield to land, which helps bidders decide how aggressively to bid.
For a spin-off, the when-issued price of the new shares gives the parent's investors an early read on how the market values the separated business. Finance teams should be aware of a few cautions.
When-issued prices can be volatile and thinly traded, so they are only a guide rather than a firm valuation. Brokers may also restrict how WI trades are done, for example by not allowing clients to borrow against positions in securities that do not yet exist.
For accounting and treasury staff, the key point is timing. A when-issued trade is a commitment that begins on the trade date, but cash and legal ownership only move on the settlement date.
Any exposure in between is a market risk that should be tracked like any other open position. It also helps to separate WI trading from the related idea of a forward contract.
A forward is a deal to buy or sell something that already exists at a future date, whereas a when-issued trade depends on a security that has not yet been created. That conditional nature is why the trade can simply fall away if the issue is cancelled.
In practice
Real-world examples.
Example
A government announces an auction of new ten-year bonds. In the days before the auction, dealers quote the bond on a when-issued basis, and a bond fund uses those quotes to decide the yield at which it will submit its bid.
Example
A conglomerate announces that it will spin off its shipping division as a separate listed company. Shares of the new company begin trading on a when-issued basis a few days before distribution, and shareholders of the parent see an early market price for the division.
Example
A retailer declares a stock split that will create new shares for existing holders. A broker's screen shows both the old and the when-issued shares trading, so an investor can see what the post-split price is expected to be before the shares are delivered. A shareholder who wants to avoid the confusion of the changeover can use that quote to decide whether to hold or sell.
Case study
Seen in the real world.
Ridgeline Energy is a fictional company that announced it would separate its pipeline business into a standalone listed company called Ridgeline Midstream. Several days before the distribution date, the new shares began trading on a when-issued basis. This is an illustrative scenario, and the numbers are invented.
The treasury team watched the when-issued price closely because it determined how the market was splitting value between the two businesses. When the price implied that the pipeline business was worth less than management expected, the board brought forward a planned investor presentation to explain its stable contracted earnings. By the settlement date, trading had steadied and the real opening price was close to the late when-issued quotes.
The finance director later noted two lessons. First, the early price had been a useful signal but had moved by 4% in a single day on thin volume, so it was never used for accounting valuations. Second, the team now schedules investor communications to land before when-issued trading begins, since that is when opinions about value are first formed.
Watch out
Common mistakes.
- Treating a when-issued price as a guaranteed final price, when it is only the market's early estimate and can move a lot before settlement.
- Assuming that a WI trade always settles, when the trade is cancelled if the security is never issued.
- Forgetting that no cash or ownership changes hands until the security is issued, so the position is a commitment and not a holding.
Questions
People also ask.
What does WI mean on a price quote?
It means the security is trading on a "when issued" basis, so the price is for delivery once the security has officially been created.
Which securities usually trade when issued?
Government bonds ahead of auctions, new shares from a spin-off or stock split, and some new corporate issues are the most common, because each is announced well before delivery.
Can individual investors buy WI securities?
Sometimes, but brokers set their own rules and many limit or restrict these trades because of the extra risk.
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