When Issued Securities
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When Issued (WI) securities are securities which have been authorized to be issued but have not yet been issued in the markets. The announcement is made prior to the securities being issued in the market. These securities are useful when the volatility in the market is high. If the volatility is high risk averse investors stay away from the market but WI securities attract such investors as there is certainty over the issue being made.
These securities can be issued by both the government as well as corporates. The process followed is same in both the cases. First the announcement for the securities is made which attracts investors. The second step is the auction where bidding for the securities takes place. The biding is of two types competitive and non-competitive. In competitive investors get to bid for the amount of securities they want and the discount rate acceptable to them. Bidders who bid for a discount rate less than the current rate have their orders filled. In case of non-competitive bids the discount rates are fixed and the bidders bid for lots of securities. Once the auction is completed the successful bidders are issued the security after a few days and payment is received for them.
Buyers of a WI security could be individuals, institutions, trusts, corporates even investment banks and other financial institutions. The securities are usually rated to give the investors an idea on the amount of risk being taken by them. This helps them in determining what discount rates they should expect. WI securities issued by the government are usually considered to be safe and hence offer low return than compared to corporates.