ETF SELL Proceeds are 12 cents Less Than Expected??

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Topic Author
BespokeBiker
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ETF SELL Proceeds are 12 cents Less Than Expected??

Post by BespokeBiker »

Long-long time investor, but first time seller of an ETF.
I placed a LIMIT order to SELL 20 Shares @ 260 -- which just executed.
I expected to receive 20 x 260 ==> $ 5200. But what I received was $ 5199.88 -- 12 cents less.
Hmmm, interesting...why? And, is this typical behavior when selling ETFs at a set price?
Chip
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by Chip »

Mandatory SEC fees.
Topic Author
BespokeBiker
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by BespokeBiker »

Ahhh...and thanks for the reply. I guess I should read the fineprint again.
Topic Author
BespokeBiker
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by BespokeBiker »

The Fineprint from Wikipedia:
"sales of ETFs in the United States are subject to the Section 31 Transaction Fee payable to the SEC, currently 0.00221% of the net proceeds from the transaction" ["Mutual funds are not subject to .. SEC fees"]

Okay then -- answering my question about the "missing" 12 cents ?
20 x 260 = 5200
==> 5200 x 0.00221 ==> 11.492 cents (SEC fee)
lakpr
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by lakpr »

BespokeBiker wrote: Mon Aug 08, 2022 1:10 pm The Fineprint from Wikipedia:
"sales of ETFs in the United States are subject to the Section 31 Transaction Fee payable to the SEC, currently 0.00221% of the net proceeds from the transaction" ["Mutual funds are not subject to .. SEC fees"]

Okay then -- answering my question about the "missing" 12 cents ?
20 x 260 = 5200
==> 5200 x 0.00221 ==> 11.492 cents (SEC fee)
Rounded to the nearest cent. 11.492 gets rounded to 11.49, gets rounded to 11.5, gets rounded to 12.
Topic Author
BespokeBiker
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by BespokeBiker »

Yes, I saw that and laughed a bit. The SEC gets its pound of flesh. Hope they put that rounding-up differential to good use.
..Like, say, getting a better band for their yearly Holiday party :beer

But taken more seriously, the SEC's apparent license for such "rounding-up" will amount to some serious $$$$ when considered across the vastness of yearly ETF trades in the US. If I recall, didn't trader/brokers get busted back in the 80's-90's for such margin-of-a-cent-differentials hijinx ?
Flight Plan
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by Flight Plan »

lakpr wrote: Mon Aug 08, 2022 6:56 pm
BespokeBiker wrote: Mon Aug 08, 2022 1:10 pm The Fineprint from Wikipedia:
"sales of ETFs in the United States are subject to the Section 31 Transaction Fee payable to the SEC, currently 0.00221% of the net proceeds from the transaction" ["Mutual funds are not subject to .. SEC fees"]

Okay then -- answering my question about the "missing" 12 cents ?
20 x 260 = 5200
==> 5200 x 0.00221 ==> 11.492 cents (SEC fee)
Rounded to the nearest cent. 11.492 gets rounded to 11.49, gets rounded to 11.5, gets rounded to 12.
Hmmmm, that seems hinky to me. Even with half-round-up (common practice in banks, it's also called "Banker rounding"), it should not have rounded to 12 cents in this case. It would have to start out as .5 cents, which would round up from 11 cents to 12 because the next number "up" is an even number. .49 is no way a half-cent. It sounds like cheating to me.

"Half Round" is actually a rounding type built into some database management systems (you know, so that your SQL query would return the number formatted the way your application expects to receive it), thereby saving the app developers some time doing CPU intensive math for every row returned from a 500 billion row resultset. Because that's a thing and it's a lotta math! BTW, a Google search will unearth an interesting conversation in StackOverflow regarding half-rounding.

If you're curious and/or you have a little bit of a mean streak, you can always ask. If you ask a banking institution how they arrived at a final figure, they have to give you an answer, right? So ask 'em! Make 'em work for that 1/100th of a penny; that'll show 'em!

They'll have to assign it to some poor college intern, and he'll have to email you or call you and say polite things like "Good morning sir" or "do you have any other questions, ma'am", or "thank you for banking with and trusting us" before he ends the call. Maybe then he or she will decide that working the phones is soulless work after all, and maybe just go back to his metal country band, or maybe just go into cooking, veterinary, piercing, and tattoo school. Let's not mix those things up, especially when we're working on the customers' pets! :oops:

Doing the Lord's work by changing one young life at a time, I say! :mrgreen:
HootingSloth
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by HootingSloth »

I believe the rules for rounding on a per transaction basis are set by the particular brokers, and not by the SEC. The SEC charges these fees on an aggregate basis to SROs, who in turn charge fees on an aggregate basis to individual brokers or exchanges, who in turn charge fees on a per transaction basis to their customers.

In the past, certain exchanges, including the NYSE, required participating brokers to follow particular rounding rules. For the NYSE, the rule was to always round up. ("In calculating the new fee for a transaction, one should multiply the sale or principal amount of the transaction by the fee rate, which will be truncated at the seventh place after the decimal point. The resulting figure should then be truncated at the fifth place after the decimal point and rounded up to the next cent (if there is any remainder you should round up).") As far as I know, this top-down rule was eliminated in 2004, and rounding rules are now determined by individual brokers. I would be surprised, however, if brokers voluntarily decided to switch to a rule that was less favorable to them.

The rate charged by the SEC is changed periodically (at least once per year) so that the SEC's total collection of transaction fees in a given year is as close as possible to the amount of the regular appropriation to the SEC by Congress for that fiscal year. That amount appears to be, order of magnitude, a couple billion dollars per year, so the rounding differences probably do add up to a decent chunk of change.

You can read the SEC's explanation of this process on their website. Some history about the NYSE rounding rule can also be seen here.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
ruud
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by ruud »

When selling ETFs at Vanguard, I’ve noticed the initial amount is often off by a penny compared to when the transaction has fully settled. I wonder if this is due to rounding issues with the SEC fee, as discussed in this thread.
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Topic Author
BespokeBiker
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Re: ETF SELL Proceeds are 12 cents Less Than Expected??

Post by BespokeBiker »

@ HootingSloth
Nicely stated / thanks
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