Warren Buffett and Charlie Munger hold a press conference at the Berkshire Hathaway Annual General Meeting, April 30, 2022.
CNBC
Berkshire HathawayClass A stock is one of the most expensive stocks on the stock market priced at over $400k a share and as such it is often one of the least-traded well-known companies. So the increase in volume that started over a year ago left many scratching their heads.
Now, new research published Wednesday sheds light on this trading frenzy and concludes that the change in the way Robinhood and other online brokers report fractional trading data is culprit.
The authors – Robert Bartlett at the University of California at Berkeley, Justin McCrary at Columbia University and Maureen O’Hara wrote: “This volume is due to the interplay of FINRA’s erroneous but intentional reporting rule, trading Robinhood and fractional shares” at Cornell University.
In 2017, the Financial Industry Regulatory Authority began requiring brokers to report fractional transactions – sometimes as little as 1/100th of a share – as if they were for entire stocks, which the authors say. posed is the “Rounding” rule.
The effect of this rule change didn’t get much attention until spring 2021 when the pandemic-induced trading frenzy by retail investors spurred the use of fractional trading.
As many small trades were reported to be full of stocks, the trading volume of many stocks became massively high. In the case of Berkshire, the authors say this reported “ghost” volume now represents 80% of the daily trading volume of Class A shares.
Shares of the Omaha-based group hit a record high above half a million dollars in March and have since fallen more than 20% to about $430,000 each amid a broad market sell-off. bigger.
According to research, the trading volume of this expensive name has increased more than 10 times in March 2021 from an average daily volume of just 375 shares over the past decade. Volume is already at this high.
A FINRA spokesperson told CNBC: “FINRA is actively addressing this issue and is engaged in ongoing discussions with companies and regulators. “Current commercial reporting systems (besides the Consolidated Audit Trail) do not support entry of fractional stock counts. FINRA’s guidance on trade reporting should be understood in that context.”
The The Wall Street Journal was first reported on the new study earlier on Wednesday.
