Originally published by Traders Magazine
By Martina Rejsjö, Vice President, Product Management, Eventus
The rise of fractional share trading marks a critical inflection point for market structure. By lowering the minimum effective ticket size, fractionalization has intensified retail participation, altered liquidity formation dynamics and introduced new layers of execution complexity, particularly in internalized order flow.
Traditional surveillance frameworks encompassing round-lot logic and fixed trading sessions were never designed to capture this level of granularity, velocity and structural nuance. As the industry embraces innovations like 24-hour trading, these operational gaps will only widen. Tempting as it may be to downplay the significance of these small sizes, doing so would be a mistake. FINRA guidance makes clear that firms executing fractional orders are held to the same standards of supervision, best execution and reporting as they are for whole shares.
Much like the algorithmic trading boom two decades ago, fractionals are redefining what effective trade surveillance requires. The core principles remain, but the parameters, scale and points of control are changing rapidly. It adds up to a stress test for the assumptions that have underpinned surveillance for decades.
Future-Proofing Surveillance for Fractionals
The core challenge in fractional trade surveillance is making the shift from viewing activity in terms of share quantities to evaluating transactions in terms of notional value. Built for a whole-share world, legacy surveillance systems assume fixed quantities and price increments. When investors can purchase $20 of Berkshire Hathaway or $5 of Tesla, however, order sizes lose their traditional meaning. A tiny fraction of a share can represent significant notional exposure – or, conversely, almost none. Without the ability to toggle seamlessly between notional and quantity-based views, firms risk missing manipulative behavior, underestimating its impact or failing to properly escalate alerts.
What makes this shift so difficult is the need for decimal precision. Proper surveillance of fractional trading depends on the ability to process trades down to multiple decimal places. Many legacy systems were not built for this level of detail because, until recently, there was little use case for it. Today, both fractional equities and crypto markets trade in sizes far more granular than traditional two-decimal equity pricing. If a surveillance engine cannot accurately ingest, process and visualize these tiny trade increments, critical activity can fall below its detection threshold.
Another challenge of surveilling fractional shares is that many transactions never reach the lit market. These are often retail orders internalized by broker-dealers, meaning that a larger share of surveillance responsibility sits inside the firm, elevating the importance of internal controls. It also places heavier reliance on data quality and auditability – two areas where legacy platforms often struggle.
Finally, the liquidity profile of fractional activity introduces new sensitivities. Many retail-driven fractional orders are routed during off-peak hours or thinly traded periods. In these environments, small sizes can have outsized price impact or distort signals in ways that would be negligible during normal market conditions. Surveillance models must be configurable enough to account for these shifting circumstances and dynamically recalibrate thresholds to avoid both gaps and false positives.
A Foundation for What’s Next: Overnight Trading, Crypto and Beyond
Surveilling fractionals isn’t a discrete priority – it’s an investment in the next frontier of trading. In time, the structural complexities of monitoring fractional activity will be exacerbated by the shift to 24/5 and eventually 24/7 trading, stretching the challenge across multiple time zones and more diverse liquidity environments. Thinner markets and wider spreads magnify the importance of small orders – and the impact of manipulation. Firms that lack flexible, notional-aware surveillance risk blind spots in precisely the areas where market abuse can flourish.
Digital assets already offer a preview of this future. In crypto markets, fractional shares, granular decimalization and continuous global trading are the norm, setting a practical benchmark for what equities may soon resemble. Surveillance capabilities that can effectively monitor fractional equities today will offer a natural bridge to monitoring digital assets tomorrow, and vice versa. As more broker-dealers expand into crypto or run hybrid desks, a unified, flexible surveillance layer will become an ever more pressing operational necessity.
Looking further ahead, innovations in tokenized assets and prediction markets will make these demands even more pronounced. These instruments combine fractionalization, digital execution and novel liquidity patterns that fall outside the assumptions embedded in many legacy systems. Firms that invest in fractional-ready surveillance will be positioned not only to meet today’s regulatory expectations but also to onboard future asset classes seamlessly, without being forced to rebuild their surveillance architecture from the ground up.
From Fractional Complexity to Competitive Advantage
Firms don’t need to reinvent surveillance entirely, but they do need to adapt their core frameworks to new liquidity realities, new execution patterns and new data requirements. Flexible, fractional-ready surveillance isn’t just a way to keep up; it’s how firms can stay ahead in an increasingly competitive market.
At Eventus, we’ve been preparing for this shift since its inception. Our platform is designed to support high decimal precision, flexible toggling between notional and quantity-based views and robust data integration capabilities. These capabilities enable compliance teams to detect and assess manipulative behavior at the smallest sizes, maintain complete oversight of internalized retail activity and adjust alerting logic in response to changing liquidity conditions – all without having to rebuild their workflows. By implementing these capabilities now, firms can address their fractional surveillance needs today while positioning themselves to support innovative new market models tomorrow.
Want to learn more about how Eventus can help your firm implement surveillance for fractional shares and prepare for next-gen markets? Contact us to schedule a demo.