A reverse stock split is a corporate action where a company reduces the number of outstanding shares, typically to increase the per-share price. Although reverse stock splits do not affect the overall value of an investor’s holdings, they can result in fractional shares. If you’re trading fractional shares on Tiger Trade, a trading fractional stock App from Tiger Brokers, it’s important to understand how these are handled after a reverse split.
What is a Reverse Stock Split?
In a reverse stock split, a company consolidates its shares to increase the stock price. For example, in a 2-for-1 reverse split, shareholders will exchange two shares for one new share. This means the total number of shares you own will decrease, but the value per share increases proportionally.
While a reverse split doesn’t change the total value of your investment, it can impact fractional shares. Here’s how Tiger Trade handles fractional shares after a reverse split.
Handling Fractional Shares After a Reverse Split
When a reverse stock split results in fractional shares, Tiger Trade will cash out the fractional share portion and credit the value to your account. This ensures that you don’t end up with incomplete shares post-split.
Let’s look at a couple of examples to understand this better.
Example 1: Holding 3.6 Shares Before the Reverse Split
Suppose you hold 3.6 shares of XYZ Limited, and the company decides to undergo a 2-for-1 reverse stock split. The reverse split will consolidate your shares into fewer, higher-value shares.
– Before the split: You held 3.6 shares of XYZ Limited.
– Reverse Split Action: For every 2 shares, you receive 1 new share. So, your 3.6 shares will be converted into 1.8 shares post-split.
– Fractional Shares: The fractional portion in this case is 0.8 shares.
– What Happens Next: The fractional share of 0.8 shares will be cashed out to your account. Therefore, your post-split holdings will be 1 share of XYZ Limited, as the fractional portion is converted into cash.
Example 2: Holding 1.6 Shares Before the Reverse Split
Now let’s assume you hold only 1.6 shares of XYZ Limited, and the company announces a 2-for-1 reverse stock split. In this case, your holdings will be impacted even further by the fractional shares.
– Before the split: You held 1.6 shares of XYZ Limited.
– Reverse Split Action: The reverse split reduces your holdings to 0.8 shares.
– Fractional Shares: The entire 0.8 share is a fractional share.
– What Happens Next: Since your fractional shareholding is 0.8 shares, it will be cashed out to your account. As a result, you no longer hold any shares of XYZ Limited after the reverse split.
Why Does Tiger Trade Cash Out Fractional Shares?
The rationale behind cashing out fractional shares is simple: after a reverse split, fractional shares cannot be rounded up or consolidated into a whole number of shares. Instead, the fractional portion is liquidated to ensure that investors don’t end up with incomplete or illiquid shares.
This process ensures that your holdings are managed efficiently on the Tiger Trade app, and you’re not left with unresolved fractional shares that could complicate your portfolio management.
Conclusion
In the case of a reverse stock split, Tiger Trade, offered by Tiger Brokers, ensures a smooth process by cashing out fractional shares to your account. Whether you’re holding 3.6 shares or 1.6 shares, any fractional shares generated post-split will be converted into cash and credited accordingly. This approach keeps your portfolio clean and ensures there are no fractional issues after a reverse stock split.
By using Tiger Trade, you can easily manage your investments in fractional shares and rest assured that the platform will handle corporate actions like reverse splits effectively, giving you a seamless experience.
