When Issued (WI) Trading: How Conditional Trading Works

Core Description

• When Issued (WI) trading is a conditional buy or sell agreement made after a security is authorized but before it is officially issued and deliverable.
• A When Issued trade becomes a normal position only if issuance happens as planned, with final settlement typically on the issue date (or the market’s standard cycle starting from that date).
• WI markets are widely used in U.S. Treasury auctions, certain corporate actions (such as stock splits), and new stock or bond offerings, supporting early price discovery and early demand signaling.

Definition and Background

What “When Issued (WI)” means

When Issued (WI) refers to trading a security that is expected to exist soon, but is not yet deliveredinto the clearing and settlement system. The key phrase is “subject to issuance”: the trade is binding between counterparties, but it is contingent on the security being issued on stated terms.

Why WI trading exists

Markets tend to avoid “blank spaces” around important events. WI trading developed as a practical bridge between:

• the moment a security is announced or authorized (auction announced, corporate action declared, offering launched), and
• the moment it becomes deliverable (CUSIP or ISIN eligible for settlement, shares distributed, bonds issued).

During that gap, investors may still want to express views, hedge risk, and transfer exposure. A When Issued market creates a temporary venue where participants can trade expectations, with the understanding that operational completion (issuance) is required for settlement.

Where WI is most common

• U.S. Treasury “to-be-issued” (TBA or When Issued) trading: After a new note or bond is announced and into the auction and settlement window, dealers and investors trade the upcoming issue on a When Issued basis to manage duration and auction risk.
• Corporate actions in equities: Stock splits, spin-offs, and reorganizations may create a temporary WI line for the “new” shares or the post-action security.
• New stock or bond offerings: Certain markets support conditional trading or WI-style transactions around issuance, while underwriters and dealers also use demand indications (bookbuilding) as a related mechanism.

WI vs. similar terms

Calculation Methods and Applications

WI trading is mostly about pricing and risk comparison, not complex formulas. Still, investors commonly use a small set of verifiable, market-standard calculations to interpret When Issued quotes.

How WI pricing is formed (intuition first)

A When Issued price reflects:

• expected final terms (coupon, maturity, issue size; split ratio for equities),
• prevailing benchmark levels (yield curve or comparable “on-the-run” instruments),
• supply and demand for allocation (auction expectations, book strength),
• an extra premium or discount for conditionality (issuance timing, terms uncertainty, liquidity).

In practice, many participants treat WI as a forward-like price discovery process: it is tradable, but not fully “final” until issuance.

U.S. Treasury WI: yield and price linkage (core calculation)

For Treasuries, WI quotes are often discussed in yield terms. The relationship between price and yield follows standard bond math. One widely used measure is modified duration to estimate sensitivity:

\[\Delta P \approx -D_{\text{mod}} \cdot P \cdot \Delta y\]

Where \(P\) is price, \(\Delta y\) is the yield change, and \(D_{\text{mod}}\) is modified duration (a standard fixed income risk measure). This approximation helps investors translate “WI yield moved 5 bps” into an estimated price impact, which can be useful when managing auction-event risk.

Practical application

• If a portfolio manager expects short-term yields to rise before settlement, they may avoid locking a WI purchase too early, or hedge rate exposure elsewhere.
• A dealer making a When Issued market may manage inventory by hedging the WI position against futures or other Treasury issues, targeting a stable spread.

Corporate action WI: split-adjusted intuition (no unnecessary math)

For stock splits, the key point is that value does not mechanically increase from the split itself. The share count changes, and the price per share adjusts mechanically. WI trading can help the market converge on the post-split price before distribution is processed.

A split-adjusted reference is conceptually:

• Post-split reference price ≈ Pre-split price ÷ Split ratio
• Post-split share count ≈ Pre-split shares × Split ratio

Investors use this to sanity-check a When Issued quote. If the WI line is far from a reasonable split-adjusted level (after considering spreads and liquidity), it may reflect an imbalance, or simply thin trading.

Common WI applications (what people use it for)

Comparison, Advantages, and Common Misconceptions

Advantages of When Issued markets

• Early price discovery: When Issued quotes provide a tradable signal of where the new security might clear once it is issued.
• Better timing control: WI allows investors to position ahead of known event dates (auction, split effective date), reducing gap risk when regular-way trading begins.
• Smoother market transition: For corporate actions, WI trading can reduce confusion by letting a post-event price emerge before shares are delivered.

Disadvantages and risks

• Issuance and settlement uncertainty: The trade is conditional. If issuance is delayed, resized, repriced, or canceled, the contract may be adjusted or unwound by market convention.
• Wider bid-ask spreads and higher volatility: WI liquidity can be thinner than regular-way markets because not all participants can or will trade a conditional instrument.
• Operational complexity: Symbols, eligibility, corporate action processing, and margin treatment can differ from normal trading, increasing the chance of errors.
• Information asymmetry: Professional desks may receive updates faster (auction chatter, bookbuilding tone), while late-breaking term changes can move WI levels quickly.

Comparison: WI vs. regular-way vs. grey market (quick lens)

Common misconceptions to correct

“WI means I already own the security.”

Not necessarily. In When Issued trading, you have a contract that becomes a delivered position only after issuance and settlement. Until then, it is exposure with conditions.

“WI is a guaranteed arbitrage if it trades ‘cheap’.”

A WI discount can be compensation for real risks, including cancellation, repricing, allocation uncertainty, thin liquidity, or funding and margin constraints. Spreads are often compensation for bearing conditionality, rather than “free profit”.

“Settlement is always like a normal T+1 or T+2 trade.”

WI settlement typically occurs on the issue date (or the standard settlement cycle starting from that date). The key difference is that the starting point depends on issuance. A delay can shift settlement timing.

“If I place a WI order in a new issue, I will get fully allocated.”

In many offerings, allocations are discretionary and may be prorated. Treat WI participation (or any pre-issuance ordering process) as a request that can be partially filled or not filled.

Practical Guide

A step-by-step checklist before trading When Issued

Confirm instrument eligibility and trading rules

• Verify your broker supports When Issued (WI) trading for that product and venue.
• Check whether there are restrictions on order types, short selling, or leverage and margin for WI positions.

Read the official terms that can still change

Focus on items that may shift during the WI window:

• expected issue date and settlement date,
• coupon and maturity (for bonds) or final deal terms (for offerings),
• corporate action dates (record date, ex-date, distribution date),
• any language indicating “subject to change” or “subject to issuance”.

Use pricing guardrails to avoid poor execution

• Prefer limit orders over market orders, because WI spreads can be wider.
• Compare the WI quote to close substitutes:
  • For Treasuries: nearby maturities and current on-the-run issues.
  • For corporate actions: split-adjusted reference levels and post-action expectations.

Plan funding and margin around the issue date

• Ensure cash and margin availability for the actual settlement date, not just the trade date.
• Ask how your broker handles haircuts and margin for When Issued positions, because requirements can differ from regular-way.

Prepare for adjustments, delays, or cancellations

• Define in advance what you will do if terms change materially (replace the order, reduce size, wait for regular-way).
• Monitor official announcements (auction results, offering updates, corporate action notices).

Case Study: U.S. Treasury When Issued trading around an auction (educational example, not investment advice)

Context: U.S. Treasury securities commonly trade When Issued in the period leading into an auction and before the issue settles. The U.S. Treasury publishes auction schedules and results, including the high yield (stop-out yield) and issuance amounts. Source: U.S. Department of the Treasury auction announcements and results.

What happens in practice (simplified market workflow):

• Days before the auction, a new Treasury maturity is announced. Dealers begin quoting a When Issued yield for the to-be-issued security.
• Investors use the WI yield as a real-time indicator of where the auction might clear.
• After the auction, the official result can move the WI level quickly if it differs from expectations.
• On the issue date, WI positions convert into deliverable holdings and settle through the normal system.

A small numeric illustration (hypothetical numbers, not investment advice):

• Suppose a new Treasury note is quoted When Issued at 4.20% yield before auction.
• After the auction, the result prints at 4.25% (5 bps higher than the WI indication).
• If an investor bought WI exposure expecting 4.20%, the price impact can be approximated using modified duration. If the note’s modified duration is roughly 4.5 (typical order of magnitude for intermediate maturities), the price change estimate is:
  • \(\Delta y = +0.0005\)
  • \(\Delta P \approx -D_{\text{mod}} \cdot P \cdot \Delta y\)
  • Directionally, price declines versus the pre-auction WI level.

What the case illustrates:

• When Issued trading can support early price discovery, but it may reprice quickly when official event information (auction results) is released.
• Managing WI exposure typically requires a plan for event risk and liquidity and spread risk, not only a view on interest rates.

Practical pitfalls to avoid (common operational errors)

• Treating WI as if it were already deliverable, then being surprised by corporate action processing or settlement timing.
• Selling WI without a realistic path to obtaining allocation and delivery, creating buy-in or closeout risk.
• Ignoring wider spreads and using market orders in thin WI liquidity.
• Overcommitting capital without understanding special margin treatment for When Issued positions.
• Missing key timestamps (pricing time, auction time, conversion to regular-way trading).

Resources for Learning and Improvement

Primary sources (rules and definitions)

• U.S. Treasury auction announcements, results, and settlement documentation (for Treasury When Issued conventions). Source: U.S. Department of the Treasury.
• SEC releases and guidance related to issuance, disclosure, and market structure. Source: U.S. Securities and Exchange Commission.
• FINRA rules and notices relevant to trading, confirmations, and fair dealing in fixed income and new issues. Source: FINRA.

Market infrastructure references

• DTCC and NSCC documentation on clearance, settlement, and corporate action processing. Source: DTCC.
• Exchange corporate action notices (for split or spin-off timing, symbols, and settlement nuances). Source: relevant exchanges.

Offering and deal documents

• Prospectuses, offering memoranda, and registration statements (for what can change before issuance). Source: issuer filings and offering documents.
• Underwriter and syndicate communications explaining allocation mechanics and timelines (where available).

Skill-building materials

• Fixed income primers from asset managers and banks explaining auction mechanics and yield and price behavior.
• Academic research on issuance effects, liquidity around events, and price discovery in pre-issuance markets.

Broker documentation

• Your broker’s WI trading disclosures, margin schedules, eligible products list, and corporate action handling notes (these determine operational treatment).

FAQs

What is When Issued (WI) trading in plain English?

When Issued trading is an agreement to buy or sell a security before it is officially delivered, based on the expectation that it will be issued as described. The trade is real, but settlement depends on issuance.

Which instruments most commonly trade When Issued?

Common examples include U.S. Treasury securities in the to-be-issued window, and equities affected by corporate actions such as stock splits or spin-offs. Some new stock and bond offerings also involve WI-style conditional transactions.

How does a When Issued price differ from the final price?

A WI price is an expectation-based price that updates with news, supply and demand, and event outcomes. The final regular-way price after issuance can differ due to auction results, final deal terms, or changes in market rates and risk appetite.

When does a When Issued trade settle?

Settlement typically occurs on the issue date (or following the market’s standard settlement cycle starting from the issue date). If issuance is delayed, settlement usually moves with it, and contracts may be adjusted or unwound according to applicable market rules.

What is the biggest risk unique to When Issued trading?

The defining risk is conditionality. If the security is delayed, repriced, resized, or canceled, the WI position may not settle as initially expected. Liquidity and operational risks (symbols, dates, eligibility) are also common.

Is When Issued trading the same as a grey market?

Not exactly. When Issued trading is generally a rule-based conditional market tied to a specific authorized issuance process. Grey markets are often more informal, with less transparency and potentially higher counterparty uncertainty.

Why do bid-ask spreads look wider in WI markets?

Because WI trading can have fewer participants, more uncertainty, and less depth. Dealers may widen spreads to compensate for event risk, hedging costs, and the possibility that terms or timing change.

How do investors use WI quotes without overreacting to them?

Treat WI as a signal, not a guarantee. Compare it to benchmarks (yield curve peers or split-adjusted references), monitor official updates, and focus on how prices move when confirmed information arrives (auction results, final terms).

What should I check before placing a When Issued order?

Confirm the issue timeline, the “subject to issuance” nature of the trade, symbol and eligibility, order type availability, margin rules, and how corporate actions or allocations will be processed. Plan funding for the actual settlement date.

Conclusion

When Issued (WI) trading is best understood as conditional price discovery before delivery. It allows markets to trade an authorized security before it is fully issued, helping investors and dealers express demand, hedge event timing, and support smoother transitions into regular-way trading. These benefits come with distinctive risks, including settlement dependence on issuance, potentially thinner liquidity, wider spreads, and sensitivity to late-breaking changes in terms or demand. Used with appropriate risk awareness and operational discipline, WI markets can provide additional information and flexibility, but outcomes are not certain and exposures can change as issuance details become final.