When-, As- and If-Issued Securities
Now that you understand standard settlement cycles, there's an important exception: securities that haven't been issued yet. These trade on a when-issued basis with no set settlement date.
When-Issued (WI) Trading
- Securities trade on a when-issued basis before the actual issuance date
- Common for:
- New municipal bond issues
- Stock splits
- New corporate offerings
- No accrued interest is calculated until the actual settlement date is established
- WI trades have no set settlement date until the securities are actually issued
- NYSE Rule 63 governs when-issued and when-distributed trading
Think of it this way: Buying a WI security is like pre-ordering a product that has not been manufactured yet. You agree on a price, but delivery (settlement) cannot happen until the product actually exists.
When-Issued Settlement Rules
- Settlement occurs on a date determined after the actual issuance
- If the issue is cancelled, all WI trades are cancelled
- WI trades carry the risk that the security may never be issued
- The settlement date is not known at the time of the trade; it is set only after the securities exist
Exam Tip: Gotchas
When-issued trades have NO settlement date at the time of the trade. Settlement is determined only after the securities are actually issued. If the exam asks "when does a when-issued municipal bond settle?" the answer is NOT T+1. It settles when the bonds are actually issued and a settlement date is established.
When-Distributed Securities
- Similar to when-issued, but applies to securities that will be distributed as part of a:
- Reorganization
- Stock split
- Spin-off
- Trading occurs before the actual distribution date
- Like when-issued securities, settlement happens after the distribution occurs
| Feature | When-Issued | When-Distributed |
|---|---|---|
| Trigger | New issuance (initial public offering, new muni bond) | Corporate action (split, spin-off, reorganization) |
| Settlement date | Set after issuance | Set after distribution |
| Cancellation risk | Yes; issue may be cancelled | Yes; action may not occur |
| Accrued interest | Not calculated until settlement date set | Not applicable (typically equity) |
Exam Tip: Gotchas
If a when-issued bond offering is cancelled, all WI trades are cancelled and no obligation remains. Accrued interest on WI municipal bonds is not calculated until the settlement date is established.