Definition of Income Deposit Security (IDS)

first introduced in 2004 and also called an income participating security (IPS) and an enhanced income security (EIS), an IDS consists of two securities "clipped" together. One is common stock, the other a fixed-rate debt instrument, and the two together produce a blended yield. IDSs are exchangelisted, but the underlying securities cannot be unclipped and traded until a period of time has expired, typically 45 to 90 days after the closing of the offering. Such offerings are priced to reflect a yield based on expected cash flow, which is distributed similarly to a Real Estate Investment Trust or other income trust. To ensure that equity and debt are kept separate and interest remains tax-deductible, at least 10% of the equity and 10% of the debt are placed with holders who do not own any IDSs. Companies with predictable cash flows, limited capital expenditure needs, and moderate growth potential are likely issuers.