Exchanges can create rules, but there's a limit to how far they can push it:
If Nasdaq makes too many rules that investors or companies dislike, they'll list respectively trade elsewhere.
Developments in the rest of the market make stock splitting less of an imperative than in the past. Eg Robinhood and many other retail brokerages allow you to own partial shares now.
If you follow the logic of these recent developments, individual shares might become a thing of the past, and we will just directly trade fractions of whole companies.
(On your computer, rational numbers are easy to implement: just represent them as a pair of arbitrary-length integers.
Operations will be a lot slower than on floats or ints, but the exchange doesn't need to do too many operations per second. And market makers and hedge funds etc can use whatever approximation scheme they want in their internal systems.)
The same way you can own part of a house, part of a business, or even part of a bottle of wine. Contracts can easily dictate who owns how much of a thing, they wouldn't have to literally rip a paper stock in two.
I'm not convinced. Can you go to the Berkshire shareholder meeting and vote for your 0.0001 shares?
I find it much more likely that it's actually your broker who truly owns the share and you have a contract with them. This is not at all like a house which can actually have two true owners.
That doesn't mean there's anything wrong with such an arrangement, of course.
> Cede technically owns substantially all of the publicly issued stock in the United States.[2] Thus, investors do not themselves hold direct property rights in stock, but rather have contractual rights that are part of a chain of contractual rights involving Cede.[3]
Modifying the last link in that chain isn't such a big deal.
> I still wonder what might happen if the broker went bust and owed X different people various fractions of a single Berkshire share.
Legal liabilities ultimately are generally settled in dollars, though if an entity “goes bust” they tend to be written off or resolved at a small fraction of their theoretical worth based on the liquidation value of the remaining assets.
If you "own" one share, or 100, there are a couple of layers of other people who "truly own" the share, and you have a contract with them. You can look up Cede & Co and the DTCC.
Your arrangement with your broker for fractional shares is similar, though not identical. They're not just selling you a derivative product that they may optionally hedge with BRK/A.
> I find it much more likely that it's actually your broker who truly owns the share and you have a contract with them. This is not at all like a house which can actually have two true owners.
Well, a share of stock can have two true owners, it's just that public stocks don't.
The legal ownership structure isn't hard to find out; it is actually mandated by law. All publicly traded stocks are owned by the company set up for that purpose. Doesn't matter whether you're the contractual owner of a tenth of a share or the "sole owner" of a full share; the share is owned by DTCC.
>Can you go to the Berkshire shareholder meeting and vote for your 0.0001 shares
You could form a contract with your co-share owners describing how you allocate that benefit, just like would be necessary with a house with co-owners.
I have no idea if that happens, but it's certainly just as possible.
A share is already just part of the company, a fraction of the company. Or more specifically, a fraction of the outstanding shares.
Suppose you buy one share of a company that has a thousand shares outstanding. You now own one thousandth of the company, or 1/1000 of the company.
Suppose instead you buy one thousandth of a share. Now you own a thousandth of a thousandth, 1/1000/1000. Or you can call it a millionth of the company, 1/1000000. It's the same number either way you write it.
The point is that a share is already a fraction, and it's no great leap to have a smaller fraction than that.
Ah, thank you for the clarification, that is a nuance I completely missed.
A follow-up question since you know more about this than I do: if some number of people each buy a fraction of a share, who gets to vote that share, nobody? Does it become effectively a non-voting share?
A fractional share is a new financial instrument operated by the seller of the fractional share.
If you take the example of Robinhood, here's the relevant section[1].
> "I understand that fractional shares within My Account (i) are unrecognized, unmarketable, and illiquid outside the Robinhood platform".
Robinhood remain the owner of the share and retain the voting rights. Robinhood's terms describe how they distribute dividends and voting "rights", but this is a commercial agreement between Robinhood and the fractional share buyers, and doesn't invoke the legislation surrounding share ownership.
When it comes to fractional shares as a consumer-facing product, I imagine it would be effectively a non-voting share, yes.
However the vote could be exercised by whatever entity actually owns the whole share. That would be entirely a decision for the people who chose to divide up the resource. Presumably BH will only accept a single binary vote per share, so it would be up to the owners of the fractional share to agree (or not).
I used to think the same. Recently, I was surprised to learn that many US retail brokerage firms now offer this service.
If you Google (or DuckDuck) "fractional share ownership", you will find a bunch of hits with a list of brokerages and an explanation about how it works.
I assume these products are "captive audience" -- you must buy or sell your fractions with the same broker. Thus, they cannot be transferred to other brokers. That said, I also assume it a very price competitive product so the margins would be thin and prices fair.
If Nasdaq makes too many rules that investors or companies dislike, they'll list respectively trade elsewhere.
Developments in the rest of the market make stock splitting less of an imperative than in the past. Eg Robinhood and many other retail brokerages allow you to own partial shares now.
If you follow the logic of these recent developments, individual shares might become a thing of the past, and we will just directly trade fractions of whole companies.
(On your computer, rational numbers are easy to implement: just represent them as a pair of arbitrary-length integers.
Operations will be a lot slower than on floats or ints, but the exchange doesn't need to do too many operations per second. And market makers and hedge funds etc can use whatever approximation scheme they want in their internal systems.)