When-Issued Securities Transactions

Transactions involving securities described as “when-issued” or “when-as-and-if-issued” are, by their nature, conditional, i.e., their completion is contingent upon the issuance of the securities. The accounting for contracts for the purchase or sale of when-issued securities or other securities that do not yet exist is addressed in ASC Topic 815, Derivatives and Hedging (formerly FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by FASB Statement No. 149). Such contracts are excluded from the requirements of ASC Topic 815 as a regular-way security trade only if:
(1) There is no other way to purchase or sell that security;
(2) Delivery of that security and settlement will occur within the shortest period possible for that type of security; and
(3) It is probable at inception and throughout the term of the individual contract that the contract will not settle net and will result in physical delivery of a security when it is issued.
A contract for the purchase or sale of when-issued securities may qualify for the regular-way security trade exclusion even though the contract permits net settlement or a market mechanism to facilitate net settlement of the contract exists (as described in ASC Topic 815). A bank should document the basis for concluding that it is probable that the contract will not settle net and will result in physical delivery.
If a when-issued securities contract does not meet the three criteria above, it should be accounted for as a derivative at fair value on the balance sheet (Schedule RC) and reported as a forward contract in Schedule RC-L, item 12.b. Such contracts should be reported on a gross basis on the balance sheet unless the criteria for netting in ASC Subtopic 210-20, Balance Sheet

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