When-Issued Securities

When-issued (WI) securities trade before they are actually issued and settled. This creates a unique holding period question: when does the clock start?

Think of it this way: You agree to buy a house before it is built. Your commitment date is when you signed the contract, not when you got the keys. The same logic applies to WI securities: your holding period starts when you commit to the trade, even though the security does not exist yet.

Holding Period and Cost Basis

• When-issued securities trade on a "when, as, and if issued" basis before the actual issuance/settlement date
• The holding period begins on the trade date: the date the investor commits to the purchase
• Cost basis is established at the price agreed upon in the when-issued transaction
• When-issued trades settle on the issuance date of the security (not on the standard T+1 cycle)

Why this matters: If the security is sold shortly after issuance, whether the gain is short-term or long-term depends on counting from the when-issued trade date, not the issuance/settlement date. This can make a difference of weeks or months.

Example:

• Investor agrees to buy a when-issued stock on June 1 at $25
• The stock is officially issued and settled on July 15
• Holding period began on June 2 (day after the June 1 trade date)
• If sold on June 3 of the following year, the investor has held for more than one year, qualifying for long-term treatment

Exam Tip: Gotchas

• Holding period starts at the trade date, NOT the issuance/settlement date. This can shift a gain from short-term to long-term if the security is sold shortly after issuance.
• When-issued settlement differs from standard settlement. When-issued trades settle on the issuance date, not the usual T+1 cycle.