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This should be easy for Nasdaq to solve: just force companies to split their shares before they reach certain limits. Markets can create rules that listed compa

This should be easy for Nasdaq to solve: just force companies to split their shares before they reach certain limits. Markets can create rules that listed companies need to follow, and this seems to be a useful one.

eru 6y ago
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.)
- berkes 6y ago
  But how can you own part of a share?
  - twic 6y ago
    Same way you can own part of a horse.
  - corin_ 6y ago
    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.
    - colonwqbang 6y ago
      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.
      - boomboomsubban 6y ago
        >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.
      - lostlogin 6y ago
        > Can you go to the Berkshire shareholder meeting and vote for your 0.0001 shares? I voted for part of a politician in my electorate.
      - eru 6y ago
        Almost no one in the US 'truly' owns any shares. 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/Depository_Trust_Company https://en.wikipedia.org/wiki/Cede_and_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.
        colonwqbang 6y ago
        Interesting, I didn't know that! I'm not a US person. This sort of thing varies a lot between countries, it seems. I still wonder what might happen if the broker went bust and owed X different people various fractions of a single Berkshire share.
  - eru 6y ago
    Your broker does all the plumbing.
  - kgwgk 6y ago
    It's shares all the way down. share (noun) 1) a part or portion of a larger amount which is divided among a number of people
  - Stratoscope 6y ago
    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.
    - manarth 6y ago
      Shares provide dividable benefits: fractional ownership and fractional dividend payments. 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.
      - Stratoscope 6y ago
        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?
        simondotau 6y ago
        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).
        eru 6y ago
        You are right that fractional shares typically don't come with voting rights. 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.)
  - throwaway2037 6y ago
    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.
  - grey-area 6y ago
    How can you own part of a company?
    - deleted 6y ago
      [deleted]
  - Denvercoder9 6y ago
    You really don't. You own a contract that gives the same returns as the share. You don't get any voting rights.
mulmen 6y ago
Or they could use a larger integer.
cturner 6y ago
Berkshire Hathaway is NYSE listed, so Nasdaq do not set those rules for them. If a primary market created rules to mitigate systems issues, they would be harshly judged for it, and likely lose business to competitors.
- wlll 6y ago
  I feel like the rule "you must stock split before the value of your shares reaches $429,496.7296 per share" isn't going to put too many people off :)

eru 6y ago

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.)

berkes 6y ago
But how can you own part of a share?
- twic 6y ago
  Same way you can own part of a horse.
- corin_ 6y ago
  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.
  - colonwqbang 6y ago
    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.
    - boomboomsubban 6y ago
      >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.
    - lostlogin 6y ago
      > Can you go to the Berkshire shareholder meeting and vote for your 0.0001 shares? I voted for part of a politician in my electorate.
    - eru 6y ago
      Almost no one in the US 'truly' owns any shares. 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/Depository_Trust_Company https://en.wikipedia.org/wiki/Cede_and_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.
      - colonwqbang 6y ago
        Interesting, I didn't know that! I'm not a US person. This sort of thing varies a lot between countries, it seems. I still wonder what might happen if the broker went bust and owed X different people various fractions of a single Berkshire share.
- eru 6y ago
  Your broker does all the plumbing.
- kgwgk 6y ago
  It's shares all the way down. share (noun) 1) a part or portion of a larger amount which is divided among a number of people
- Stratoscope 6y ago
  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.
  - manarth 6y ago
    Shares provide dividable benefits: fractional ownership and fractional dividend payments. 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.
    - Stratoscope 6y ago
      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?
      - simondotau 6y ago
        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).
        eru 6y ago
        You are right that fractional shares typically don't come with voting rights. 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.)
- throwaway2037 6y ago
  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.
- grey-area 6y ago
  How can you own part of a company?
  - deleted 6y ago
    [deleted]
- Denvercoder9 6y ago
  You really don't. You own a contract that gives the same returns as the share. You don't get any voting rights.

mulmen 6y ago

Or they could use a larger integer.

cturner 6y ago

Berkshire Hathaway is NYSE listed, so Nasdaq do not set those rules for them. If a primary market created rules to mitigate systems issues, they would be harshly judged for it, and likely lose business to competitors.

wlll 6y ago
I feel like the rule "you must stock split before the value of your shares reaches $429,496.7296 per share" isn't going to put too many people off :)