Market Mechanics Made Clear: The Natural Rhythm of Stock Market Reporting

After spending nearly twenty-one years in the financial services industry as a commercial banker and as a trust officer, I can share with certainty a few truths I’ve witnessed around discrepancies in reporting—they’re unpleasant when discovered, many times invoke emotional responses, and, in the absence of fraud, are almost always easily explainable or simply related to timing. I’m betting that we’ve all discovered a perceived discrepancy on a statement or on a web-based platform. The most recent example I encountered with clients was the stock split of the iShares Core S&P Mid-Cap ETF, which trades under the ticker of IJH. The world of stock transactions, corporate actions and market mechanics can seem distant and complex, so it is essential for us to understand how these systems operate, the potential for intra-system timing lags due to posting dates and where reporting discrepancies may arise from time to time. The following aims to demystify the stock reporting process, showing how crucial entities like the Depository Trust and Clearing Corporation (DTC) play a vital role in ensuring accuracy.

The flow of information in the U.S. stock market involves a complex process of communication from investors to banks, registered investment advisors, custodians, and clearinghouses. Investors, like you, work with entities like Greenleaf Trust to initiate the process of buying or selling equities. Once a transaction is made, our institution works with a custodian to settle the trades, ensuring that the proper securities are delivered or sold from your account. Custodians are often large banks or trust companies that act as intermediaries between the investor and the clearinghouses, such as the DTC.

The DTC plays an essential role in the settlement and reporting of stock transactions. The DTC operates as the primary clearinghouse for securities in U.S. stock markets by maintaining a record of securities ownership and facilitating the transfer of securities between buyers and sellers. By electronically moving securities between accounts, the DTC reduces the need for physical paper certificates, thus speeding up the process and reducing risk. The DTC ensures that transactions are correctly processed, and investor records are updated in real-time. This central role in the flow of information makes the DTC vital to the stock market’s functioning, as it ensures accurate reporting of stock transactions, dividends, and corporate actions.

Despite the DTC’s central role, intra-day timing discrepancies in reporting can still occur. The recent 5-for-1 stock split of the iShares Core S&P Mid-Cap ETF (IJH) is a good example. A 5-for-1 stock split means that for each existing share, a shareholder receives 5 shares after the split. If you owned 100 shares of IJH trading at $250 per share for a pre-split market value of $25,000, after the 5-for-1 split:

• You would own 500 shares (100 × 5)
• The share price would become $50 ($250 ÷ 5)
• The total value of your investment remains the same: $25,000

The split doesn’t change the company’s market value or your investment value – it just divides the same pie into smaller pieces. So why would the fund company decide to execute a split via corporate action? Companies may decide to do this in an attempt to make shares more affordable for retail investors, increase trading liquidity, or in the case of an individual company like Tesla (as opposed to an Exchange Traded Fund company like iShares by BlackRock), to make it easier for employees to receive stock-based compensation.

In the above example, our online portal momentarily paired the real-time minute by minute price with the pre-split share amount from the previous day’s close as daily changes in share counts update nightly. The momentary reporting discrepancy self-corrected in the overnight reconciliation, but if you logged into MyWealth during this time, you might have seen the pre-split share count applied to the post-split share price. Although the duration of the reporting discrepancy only lasted a few hours, such brief discrepancies can be unnerving if not understood.

Lifecycle funds, which can be effective and efficient vehicles for many retirement plan participants, have historically created similar unnerving yet momentary reporting discrepancies. In certain years, these funds have paid sizable year-end capital gain distributions that are reinvested back into the fund. Similar to the stock-split example, the mechanics of the transaction see the share count increase while the price per share is reduced. In both cases, the total market value remains unchanged, however, given the nightly share-count reconciliation follows the change in price.

At Greenleaf Trust, we understand that transparent and accurate reporting is the cornerstone of maintaining our clients’ trust. Our team is dedicated to ensuring that all information regarding your accounts is handled with care and precision, from trade execution to the reporting of dividends or corporate actions. While momentary timing lags in intra-day reporting may be infrequent and self-reconcile nightly our dedicated client service team is always available to answer any questions and to provide assistance should questions arise.