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 is anchored to when you commit to the trade (counting from the day after, same as any purchase), 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 the day after the when-issued trade date, the same day-after-trade-date convention used for a regular purchase, counted from 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 the day AFTER 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.

What Should You Check on Exam Day?

• The holding period for a when-issued security starts the day after the when-issued trade date, not the issuance or settlement date
• When-issued trades settle on the security's issuance date, not the standard T+1 cycle
• Cost basis is locked in at the price agreed to in the when-issued transaction