A “When Issued” (WI) transaction refers to the conditional trading of securities that have been authorized but not yet issued. Such transactions are common in financial markets and are subject to specific regulatory processes and rules.
Definition of When Issued (WI)
“When Issued,” often abbreviated as WI, denotes a situation where a security has been formally authorized for issuance but has not yet been physically or electronically issued. This typically occurs in scenarios such as:
- Initial Public Offerings (IPOs)
- Secondary Offerings
- Government Bond Auctions
Investors engage in WI transactions with the understanding that the actual issuance and settlement of the security will occur at a future date once the issuance is completed.
The Process of When Issued Transactions
Authorization Phase
- Regulatory Approval: The issuing entity, whether a corporation or a government, secures regulatory approval for the issuance of new securities.
- Announcement: An official announcement is made about the forthcoming issuance, including details such as the issuance date, total amount, and terms.
Trading Phase
- Conditional Trading: Investors can start trading the authorized securities on a WI basis. These transactions are conditional, as they rely on the future issuance of the securities.
- Pricing: The price at which WI transactions are conducted is determined by market demand and supply during this phase.
Settlement Phase
- Issuance Completion: The securities are officially issued and become available for delivery.
- Transaction Settlement: The WI transactions are settled. It is at this point that the securities are delivered to the investors, and payment is completed.
Examples of When Issued Transactions
Example 1: Government Bonds
A country’s treasury may announce a new bond issue worth $10 billion, scheduled for issuance in two months. During the WI period, investors can trade these bonds, speculating on their eventual price based on interest rates, inflation expectations, and other economic factors.
Example 2: Corporate IPO
A tech company announces its IPO, with shares expected to be issued in three weeks. During this time, the shares may be traded on a WI basis, allowing investors to buy or sell shares before the official issuance date.
Key Considerations in When Issued Transactions
Benefits
- Price Discovery: Provides a mechanism for price discovery before the actual issuance.
- Market Liquidity: Enhances market liquidity by allowing trading activity before the issuance.
- Investment Opportunities: Offers early investment opportunities for investors looking to capitalize on new issues.
Risks
- Conditional Nature: The WI transactions are conditional and may be voided if the issuance does not go through as planned.
- Pricing Volatility: Prices can be volatile due to market speculation and changes in economic conditions.
- Regulatory Requirements: Must comply with specific regulatory requirements, adding complexity to WI transactions.
Related Terms and Definitions
- Initial Public Offering (IPO): The first time a company offers its shares to the public.
- Secondary Offering: An issuance of additional shares by a company that is already publicly traded.
- Bond Auction: A method used by governments to issue new bonds and raise capital from investors.
FAQs
Can WI transactions be canceled?
Are WI prices fixed during the trading phase?
Is WI trading available for all types of securities?
References
- U.S. Securities and Exchange Commission (SEC): “Guide to When Issued Transactions”
- Investopedia: “What Is a When Issued Market?”
Summary
When Issued (WI) transactions play a vital role in financial markets, providing a conditional trading mechanism for securities authorized but not yet issued. By understanding the processes, benefits, and risks associated with WI transactions, investors can make informed decisions and capitalize on early investment opportunities.
