Fractional trading of overseas stocks to expand soon

Fractional share trading of overseas stocks is expected to be in full swing by the end of the year, according to the Korea Securities Depository on Monday.

The KSD said it has completed a system that supports fractional share trading for 20 brokerages after it was designated by the Financial Services Commission, the country’s financial regulator, as an innovative financial service in a sandbox program last week.

In a fractional transaction, when an investor orders to buy less than one whole stock, the securities firm first collects the order and buys the remaining portion to manage them. For example, if an investor orders 2.7 shares of Google, the securities firm requests the KSD to pay a total of three shares, including 0.3 shares of its assets. The exercising of rights that requires investor decision-making, such as voting rights, will be decided by securities firms through investor terms and conditions.

With the KSD completing the relevant system, each brokerage will launch its service within this year or in the first half of next year, in line with each company’s circumstances.

Currently, two brokerages -- Shinhan Investment and Korea Investment and Securities -- have been granted permission to launch fractional trading of overseas stocks, in 2018 and 2020, respectively, and are providing the fractional transaction of foreign shares.

Since the launch of fractional transactions of foreign shares in October 2018 to August 2021, the accumulated trading value via the two brokerages reached $1.25 billion in value, according to data from FSC.

“The fractional transaction will lower entry barriers to expensive US blue chip stocks with high investor demand to create a healthy portfolio distributed investment culture,” the KDS said in a statement.

By Park Ga-young (gypark@heraldcorp.com)