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Overview: Dollar Trades and Fractional Shares
The Service allows You to buy and sell Eligible Securities in dollar values, rather than in whole shares ("Dollar Trades"). For example, if You wanted to invest $1,000.00 in Vanguard's Total Stock Market Index Fund ETF (symbol: VTI) trading at $204.60 and could purchase only whole shares, You could acquire only four (4) whole shares of VTI, which would leave more than 18% of Your investable funds ($181 of $1,000) out of the market. By contrast, if You placed a Dollar Trade to buy $1,000.00 of VTI at the same price, You would own approximately 4.8875 shares of that Security, subject to the Terms below.
When You place Dollar Trades under the Service, You may end up owning a fraction of a single share ("Fractional Share"), or a number of whole shares and a Fractional Share for the Eligible Securities You purchase. As described below, Fractional Shares present unique risks, and have certain limitations; they also may have different rights from a whole share of the same Security.
Eligible Accounts. The Service is available only to self-directed clients that do not have margin on any VBS brokerage account. VBS reserves the right to add, delete, or amend the type of Accounts that are eligible for the Service at any time. To participate, You must respond to an invitation to use the Service that You received directly from VBS.
Eligible Securities. At this time, only exchange traded funds ("ETFs") issued by The Vanguard Group, Inc. ("VGI") are eligible for Dollar Trades ("Eligible Securities"). VBS reserves the right to add or delete a Security to the list of Eligible Securities at any time. The inclusion or removal of particular Security as an Eligible Security under the Service is not a recommendation related to any Security, nor is it advice. If VBS revokes a particular Security's status as an Eligible Security, You will no longer be able to place additional Dollar Trades to purchase or sell that Security. You may, however, continue to place whole share trades to buy and sell such Securities. If VBS no longer classifies a particular Security as an Eligible Security and You hold only a Fractional Share of that Security, it will be subject to VBS' Auto-Liquidation processes, described below.
Eligible Orders. At this time, the Service supports only market orders. VBS reserves the right to expand the order types supported by the Service (e.g., limit orders).
Dollar Value Order Conversion. VBS will convert Your Dollar Trade from dollars to shares on two separate occasions. In both cases, Your Dollar Trade will be converted into share quantities for execution to four decimal places, and the share quantities will be rounded down. This rounding process may result in the final purchase amount of an Eligible Security being one to several cents less than what You intended to invest (for example, an order for $999.98 instead of $1,000.00).
Estimated Share Quantity. Before you place Your Dollar Trade, VBS will provide You with an estimate of the share quantity impacted by Your proposed Dollar Trade, including any Fractional Share quantity you may buy or sell as a result of such trade ("Estimated Share Quantity"). VBS calculates this estimate to provide You with an approximation of the total quantity of shares impacted by Your Dollar Trade, and to meet its regulatory reporting obligations. For Dollar Trades placed during market hours, VBS performs this conversion by dividing the dollar amount You enter in the trade path by the then-current bid/ask price; if that data is unavailable for any reason, VBS will use the last traded price or (if neither current bid/ask or last traded price data is available) the previous closing price in that Eligible Security. For Dollar Trades placed outside market hours, VBS provides an Estimated Share Quantity using the previous closing price.
Final Fractional Share Quantity. Once You place a Dollar Trade, VBS recalculates the Fractional Share quantity impacted by Your order based on the then-current bid/ask price. For Dollar Trades placed after market hours, VBS will use the bid/ask price at market open. Any changes in the price of the Eligible Security in Your order will be reflected in the share quantity You receive for Your Dollar Trade. For example, if You entered a proposed Dollar Trade to buy $500.00 of VTI currently trading at $233.00, Your Estimated Share Quantity would be 2.1459 shares. If, after You place a Dollar Trade, the price of VTI increases to $234.50, then Your Final Fractional Share Quantity will be 2.1321, as the price increase results in a corresponding reduction in the Fractional Share quantity you will receive. Since the Final Fractional Share Quantity You receive may change based on the then-current price, in periods of heightened market volatility, significant price variations in Securities may result in corresponding variations between Your Estimated Share Quantity and Your Final Fractional Share Quantity.
Selling Eligible Securities. You may sell Eligible Securities You bought through the Service in whole shares or in dollar amounts (sometimes referred to as notional trades). For example, if You own 4.88 shares of an Eligible Security trading at $205.00 (total value: approx. $1,000.00), You can enter a whole share trade to sell up to four shares of that Security, or You can enter a Dollar Trade to sell $500.00 in that Eligible Security. If You own one or more whole shares in an Eligible Security enabled by Dollar Trading, You may sell Your entire share quantity by entering a share-based trade (as opposed to a Dollar Trade) to sell all Your whole shares, which will also result in the Auto-Liquidation (described below) of any Fractional Share you own in that Security. If You own a Fractional Share only for an Eligible Security, You may sell Your entire Fractional Share by electing to sell all shares in the trade path. VBS does not guarantee that there will be a market for Fractional Shares in any Security, including Eligible Securities.
Avoiding "Overselling". As described above, Your Final Share Quantity reflects the then-current price for that Eligible Security, and that price may change between then You enter Your order and when it is executed. This means that if You were to place a Dollar Trade to sell nearly all of Your entire position in an Eligible Security, You would risk "overselling" Your position, that is, selling more shares than you own. For example, if You own 4.25 shares of VTI valued at $231, the total value of Your position in VTI is approximately $1000.00. If You were to place a Dollar Trade to sell $1000.00 of VTI and its price decreases to $229, You would need to sell a greater share quantity of VTI than you own (4.3668 shares vs. 4.25 shares) to execute that trade. As a control to help prevent overselling, if Your proposed Dollar Trade exceeds a certain threshold of your entire position in that Eligible Security ("Position Threshold"), then prior to placing Your Dollar Trade, VBS will prompt You either to lower the dollar amount of Your Dollar Trade so that it no longer Exceeds the Position Threshold, or indicate that you want to sell Your entire position, including all Fractional Shares in that Eligible Security. The Position Threshold is current 98% or more of Your total position in an Eligible Security in an Eligible Account. VBS reserves the right to amend or modify the Position Threshold in its sole discretion.
Trades "Not Held". All Dollar Trades will be "not held" orders. A "not held" order means that You grant VBS time and price discretion to transact Your orders on a best-efforts basis. You will not be permitted to enter limit or other conditional orders under the Service. There may be a significant difference in the quoted price for a stock between the time You enter Your order and the time the order is executed. You agree that VBS is not responsible for any potential market fluctuations, or alleged trading losses, during this time period. If You do not want Your order to be worked on a "not held" basis, do not use the Service.
Order Duration. Orders placed using the Service during market hours are good for that day's trading session. Orders entered outside of market hours are good until the close of the next trading session.
Order Aggregation. VBS may, in its discretion, aggregate all Dollar Trade orders for the same Eligible Security placed outside market hours. Under these circumstances, the aggregated orders will each receive the same order execution price as similarly-aggregated Dollar Trades in the same Eligible Security, and will not receive the "opening print" for such Eligible Security.
Extended Hours Trading. Dollar Trades are not eligible for Extended Hours Trading Sessions.
Trading Halts. In the event of a market trading halt, the Service will also be halted for all Securities, and Your order will be held until trading resumes. However, Your order is good only for that day's trading session, or in the case of an order entered outside of market hours, good until the close of the next trading session. If trading does not resume or Your order is not executed within that timeframe, it will be cancelled.
Order Fulfillment: Capacity, Pricing, and Trade Confirmations. There are two types of Dollar Trades: (1) "Combined Dollar Trades," which are Dollar Trades involving both whole shares and Fractional Shares, and (2) "Fractional Dollar Trades," which involve the purchase or sale of only a Fractional Share (e.g., the purchase of .7 share of VTI). In both cases, You will receive a trade confirmation for all Dollar Trades You place when You use the Service.
When trading as principal for its own account, VBS may make a profit or incur a loss on each trade. For example, if You place a Combined Dollar trade to buy an Eligible Security and VBS is required to acquire a whole share to fulfill the Fractional Share portion of that trade, that Fractional Share will receive the execution price of the corresponding whole shares for Your order, but VBS may receive a more favorable price for that whole share based on then-current market data (e.g., NBBO).
Limited Trade Channels for Dollar Trades. The Service is only available on VBS' website and mobile app. As a result, You cannot place Dollar Trades with a live VBS representative, or through any other Alternative Channels (defined below) that VBS may make available to You. You may, however, place whole share trades with a live VBS representative or via any Alternative Channels that VBS may make available to You.
Cost Basis Method Restrictions and Limitations. VBS' default cost basis method for Securities You acquire via Dollar Trades is "First In, First Out" ("FIFO"). You may select an alternative cost basis method for each Security under the "Profile and Account Settings" page on vanguard.com, but one cost basis method, Specific Identification ("SpecID"), may not be used for Dollar Trades. If You previously selected SpecID as Your preferred cost basis method and place a Dollar Trade to sell that Security, VBS will use FIFO as the cost basis method for that trade. If You want to place a Dollar Trade using an alternative available cost basis method (e.g., "Highest in, First Out" ("HIFO")), You can select it under the "Profile and Account Settings" link before You place Your sell order. If You wish to use SpecID as Your cost basis method for a sell order, You should place Your order in whole shares, rather than as a Dollar Trade.
VBS also makes certain alternative cost basis methods available in the trade path as you place Your sell order. Your cost basis method options in the trade path for Dollar Trades, however, are more limited than those available under the "Profile and Account Settings" link on vanguard.com. In particular, if You previously selected "Average Cost" as the cost basis method for a Security and place a Dollar Trade sell order, You will not be able to select an alternative cost basis method in the trade path. Instead, You will need to select an alternative cost basis method under the "Profile and Account Settings" link prior to placing Your sell order.
Service Limitations/Unavailability. VBS provides the Service "as is": it does not guarantee that the Service will be available to You at a particular time, and reserves the right to suspend or terminate the Service at any time without prior notice. Access to the Service may be limited or unavailable during periods of peak demand, market volatility, systems upgrades or maintenance, or for other reasons. If the Service is unavailable or delayed at any time, You agree to use alternative channels to place Your orders, such as calling Vanguard, or using an alternative trade path identified by VBS ("Alternative Channels"). You also acknowledge and agree that the Service may not be available in some or all of these Alternative Channels. As a result, You will not be able to place Dollar Trades, and may only execute trades in these Alternative Channels in whole shares only.
Fractional Share Ownership
Dividends. You will receive dividends on Fractional Shares unless the prorated amount of the dividend is less than one half of one cent ($0.005). Fractional Shares are eligible for automatic reinvestment of cash dividends received, at Your election, subject to the terms of VBS' Dividend Reinvestment Program. If You participate in VBS' dividend reinvestment program and Your dividend would equate to less than .0005 share of that Security, then You will receive Your dividend in cash.
Corporate Actions. The eligibility of Fractional Shares to participate in corporate actions may be different than whole shares. For mandatory reorganizations, such as mergers and acquisitions, stock splits, or spin-offs, typically VBS will distribute Your interest in proportion to Your ownership interest, inclusive of any Fractional Shares. However, only whole shares, and not Fractional Shares, are eligible to participate in voluntary corporate actions, including tender offers and certain rights offerings.
Voting Rights in Vanguard ETFs. If You hold a Fractional Share in a Vanguard exchange traded fund ("ETF"), You will receive a fractional vote for each fractional dollar amount of net asset value ("NAV") owned on the record date. For voting purposes, Your Fractional Share ownership interest will be rounded to the third decimal; for example, if You own .7757 share of VTI, then VBS will round Your voting interest for that Vanguard ETF to .776 share.
Stock Certificates. Stock certificates cannot be issued for Fractional Shares.
Account Transfer. Fractional Shares are not currently transferrable to another brokerage firm. If, for example, You own 10.5 shares of a Security and instruct VBS to transfer Your Account to another firm, 10 shares will be transferred. Your 0.5 Fractional Share will be acquired and liquidated by VBS, and will receive the closing price from the trading day immediately preceding the transfer of Your whole share(s) to the other firm. VBS will distribute these proceeds in Your Account, and will provide confirmation of the Fractional Share liquidation on Your periodic statement. Since Your Fractional Shares cannot be transferred, Your overall SIPC coverage may be affected.
Suspending Auto-Liquidation. Prior to offering the Service, if You acquired a Fractional Share in Your Account (e.g., via participation in VBS' dividend reinvestment program), it had been VBS's practice to automatically sell ("Auto-Liquidate") Your Fractional Share holdings when You place an order to sell Your entire whole share position in that Security. For example, if You owned 10.2 shares in a Security and sold all 10 shares, VBS would Auto-Liquidate the remaining .2 Fractional Share and place the proceeds of that sale into Your Account. VBS also Auto-Liquidated "orphaned Fractional Shares," that is, Fractional Shares You may receive without a corresponding whole share position in that Security. The first time You use the Service, VBS will turn off the Auto-Liquidate feature for each Eligible Security in which You place a Dollar Trade for the Account in which You placed such Dollar Trade. As a result, if You acquired a Fractional Share in an Eligible Security using the Service and own only a Fractional Share, You will need to affirmatively sell that Fractional Share if You wish to sell Your entire position. Conversely, if You own only a Fractional Share that is no longer classified by VBS as an Eligible Security, it will be subject to VBS's Auto-Liquidation processes.