Summary: Nasdaq computers store stock prices as a 32-bit number representing the number of 1/100'ths of a penny, which means the highest dollar amount it can store is $429,496.7296 (2 ^ 32 / 10000).
It’s not like they haven’t seen this coming for literal years.
Maybe they were assuming he’d give in?
1. Many retail investors do not have the funds to buy a full share.
2. Anyone who makes a spreadsheet containing the share prices of largest companies has to make that column wide enough to accommodate 6 digit numbers.
If not having power, that seems upsetting. But...thats how power works, otherwise it isn't powerful.
Shares, whether in one class or many, are packages of claims against the company, not really ownership of the company in the simple sense. That’s fairly fundamental to the corporate form as distinct from, say, partnerships.
That is a feature, not a bug
This also leads to those dodgy partial share adverts targeting younger unexperienced investors which is not a good thing in the long run.
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.)
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.
They are all held by 'Depository Trust Company' in the name of 'Cede and Company'.
https://en.wikipedia.org/wiki/Depository_Trust_Company
https://en.wikipedia.org/wiki/Cede_and_Company says
> 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.
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.
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.
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.
I voted for part of a politician in my electorate.
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.
They also provide indivisable benefits: the right to vote, and the right to inspect company documents.
The solution to owning "a thousandth of a share" is a stock-split, where the smallest fraction is still one share.
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?
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".
[1] https://cdn.robinhood.com/assets/robinhood/legal/Robinhood%2... [Section 27]
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).
But: if there was demand, Robinhood could totally offer fractional shares with voting rights.
For each vote, there's typically only a finite number of possibilities.
So Robinhood could just pool the voting intentions for everyone with factional shares, and then vote the whole shares accordingly.
(To be really nice, Robinhood would just own a small handful of extra shares, so that they can round up those pooled votes to full integers.)
share (noun) 1) a part or portion of a larger amount which is divided among a number of people
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.
More like a deliberate plan to concentrate voting control.
You can perfectly well buy Berkshire Hathaway without plonking down a half million dollars--there are class B shares. It's just class B shares don't have anything like the voting power that class A shares have. Class A shares can be divided up into class B shares but you can't combine class B shares to make a class A share. The result is the owners of the class A shares have voting power far beyond their percentage of the company.
Warren Buffet has no need for a market in class A shares to even exist. The common man should buy class B.
Also, to give credit to your answer, >5K CHF is more than 5K USD! Looks like CHF->USD is about 1.09 right now.
But note: they’d also only trade once a month or so.
So his stock can’t be bought by small players.
I own B shares. It doesn’t bother me that I have fewer voting rights because I trust my fellow Berkshire owners. So there’s little barrier to entry in merely owning a small stake in Berkshire’s economic output.
Second, if you want to argue there’s a barrier to entry for voting purposes, that also doesn’t make sense: you need to have a ton of ownership in any stock to make a difference in ownership as an outside investor. It doesn’t matter if the share price is $1 million or $10 if I need $50 million in share value to make a dent in voting.
Third, Buffett has stated that he doesn’t want to split shares because he wants to encourage long-term owners. There’s a lack of liquidity in A shares; I’ve heard usually only about 1,200 trade a day. He, and I’m sure many other Berkshire shareholders, want their fellow shareholders to think like long-term owners of a private business, especially for shareholders with a lot of voting influence. A high share price and its corresponding low liquidity encourages that.
Samseong in Korea also had (has?) a huge stock price that used to cause issues.
* Until 2000, stocks were priced in fractions of a dollar (8ths, 16ths, etc) before moving to cents (https://www.sec.gov/hot/decimal.htm)
* These days, prices on exchanges must be in one cent increments, and not smaller (https://www.sec.gov/divisions/marketreg/subpenny612faq.htm)
Perhaps they're using the same software as for overseas markets, or its some future-proofing gone wrong or something.
For example one can submit a mid-point peg order which can be filled at a fractional penny:
https://www.nasdaqtrader.com/content/productsservices/tradin...
There are also auctions that take place on a daily basis, such as the opening auction and closing auction, where trades may execute at a fractional price.
Furthermore NASDAQ also operates as a reporting facility, and as such reports trades made through ADFs such as FINRA, dark pools, off-exchange block trades, and inside quotes which are quite often executed as fractional pennies.
https://www.nasdaqtrader.com/content/home/help/tsiqtxtkey.pd...
Anyways, all this to say that the situation is a lot more detailed that you make it seem from your two references. It's not just a simple matter of SEC says orders have to be to the penny, so NASDAQ must be doing something really bizarre here.
The rationale and effects of the sub-penny rule are quite complicated. And there's lots of lobbying done in either direction.
The bigger the smallest price increment, the more important speed becomes.
The original justification for minimum increments has gone: it was a workaround the limitations of human traders and human market makers.
But, alas, even with computers there are still some downsides to just allowing essentially arbitrary precision prices.
(I do find it somewhat strange that the SEC makes rules about this, though. Why don't they leave that to the individual exchanges?)
I think we had a discriminant for the denominator, so it wasn't a rational type, but we could also easily represent both fractional and decimal prices. We could handle fractions smaller than 1/16, though I don't know if any equities traded at such prices. What you suggest would also be reasonable, but would have had to be rewritten when decimalization happened.
But these things sometimes surprise me. A few years ago I paid a visit to my coworkers at the job I had in high school in the mid nineties. I had written some sort of email processing program in C; I don't even remember what it did any more. I was told they are still using it, 25 years later. Awesome or scary, I don't know which.
I think power (^) has higher precedence than subtract (-).
So (2^32-1)/10000 == ((2^32)-1)/10000
WolframAlpha agrees: https://www.wolframalpha.com/input/?i=%282%5E32-1%29%2F10000...
I have seen differences in the precedence of logical operators between languages (and > or but what happens when you have both math and logic in the same statement isn't entirely consistent) and always use parenthesis in those cases--although these days if Resharper says it's redundant I let it remove them.
I always assume the floor for equity is the first tick above zero, e.g., 1 US cent or 1 Euro cent or 1 Japanese yen. Honestly, I don't know if any traditional stock exchanges allow zero price or less for shares. If anyone knows an example, please post about it!
Another reason why this comment matters: Does anyone remember when oil futures went negative? (April 2020) I am sure more than a few computer systems were unprepared for that scenario. I remember when short-end Japanese rates were zero and negative after the 2008 Global Financial Crisis. It was a real monkey wrench in the machine!
The the intention of both comments was clear... To discuss signed vs unsigned integer.
Both are a bit slower than using ints built into the machine, but exchanges don't have to be particularly fast. (In contrast to HFT participants. But they just need to be faster than their competitors.)
When you say rational numbers, do you literally mean a fraction, or are you talking about a floating point representation? I'm not sure what a fraction would do over fixed point in this usage, and floating point is best avoided for anything finance related due to the fact that they're approximate.
They probably regret not just using 64-bit from the start, but on the other hand somebody likely saved a measurable amount of money on storage over the years. Potentially not worth the cost to figure out a workaround now, though.
Perhaps they could implement a rule where if the field equals MAX_UINT32, then the value must be looked up in an auxiliary database table. Depending on how much crufty code there is assuming 32-bit though, it may be their equivalent of y2k.
Yes, variable length fields are a bit annoying. But my argument is that the exchange itself doesn't need to be that fast. And the market makers just need to be faster than each other.
(For anyone else, exchanges just need to be fast enough.)
Yes, just using a 64 bit integers is probably the easiest here.
Floats would be worse than my suggestion to use variable length rational numbers, for exactly the reasons you know.
$429,496.7296 would overflow