The reason behind a mysterious trading surge in stocks like Berkshire Hathaway has been revealed

Warren Buffett and Charlie Munger hold a press conference at the Berkshire Hathaway Annual General Meeting, April 30, 2022.


Berkshire HathawayClass A stock is one of the most expensive stocks in the market priced above $400,000 per 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 a change in the way Robin Hood hero and other online brokers report fractional trading data as a culprit.

The authors – Robert Bartlett at the University of California, Berkeley, Justin McCrary at Columbia University and Maureen O’Hara write: “This volume is due to the interaction of FINRA’s intentional but erroneous reporting rule, which deals with Robinhood and fractional stocks” 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 Covid pandemicThe homogenous trading mania among retail investors has fueled the use of fractional trading.

With many small trades reported as full stocks, the trading volume of many stocks has become 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 Warren BuffettThe Omaha, Nebraska-based group hit a record high of over half a million dollars in March and has since fallen more than 20% to about $430,000 each amid a broad market sell-off. than.

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.

“FINRA has been actively working on this matter and is engaged in ongoing discussions with companies and regulators,” a FINRA spokesperson told CNBC on Wednesday. “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 Wall Street Journal was first reported on the new study earlier on Wednesday.

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