"Specify Lots" issue (after split)

[fmuser]

I recently sold about 50 lots of a mutual fund by specific identification. After downloading the transaction from the fund company (Vanguard), I used the "Specify Lots" function in FM identify the lots sold, but FM will not allow me to fully account for all the lots/shares sold.

I sold full lots, but when I try to select the last lot, FM only allows me to identify a number of shares that is 0.001 shares less than what was actually sold (actually 0.001308 shares, when I set FM to show 6 digits).

I have confirmed the "Buy" transactions for all lots sold show the exact/correct number of shares and total purchase amount (rounding the price), but most of the shares were purchased before the fund company converted the account to a different share class. When I set FM to show 6 digits for fractional shares, I see that split adjustment (legitimately) produces tons of fractional digits for lots opened before the conversion/split (of 863.439 for 2,747.172 shares).

Do you have a recommendation for closing the last open lot, which now shows 0.001 shares, without causing a reconciliation error? (FM investments currently match what the fund company reports for my account)

FWIW, I copied the FM split-adjusted "Open Lot" report with 3 digits for number of shares into a spreadsheet, and the sum of all lots sold is exactly correct, so the issue I see in FM is probably some combination of split-adjustment and FM internal calculations that I assume are done with binary floating point (which cannot exactly represent decimal arithmetic)

[Mark]

Hi fmuser,

Do I understand that you need 0.001 more shares? I would suggest turning up the share digits to 6, and verifying everything is correct out to 6 significant digits.

If you want to remove 0.001 shares, without generating a capital gain entry, use a "Transfer Out" transaction.

[fmuser]

All the transactions are accurate, with (only) 3 significant digits in the fraction part before split adjustment. With split adjustment, most are 6-digit fractions (or probably more) because of the "odd" split.

FM investments currently reconcile with the fund company. If I "Transfer Out" any shares, I expect a reconciliation error. I simply want to somehow close or remove 0.001308 shares (to 6 digits) to close the remaining residual/open lot in FM (without impacting reconciliation).

[Mark]

Hi fmuser,

You can't change the shares if you don't want to affect reconciliation. You can only specify lots for a transaction if you are "closing" a lot, or selling some shares that you owned. If you sold more than you owned, you would end up with a small "open" short position. To close an open short position you would need to buy some shares.

What do you think is "wrong" in that the number of shares aren't working out? If you add up all the number of shares to 6 significant digits, should you have this extra 0.001308 shares? Would it be helpful to email this one investment file to me, so I can see for myself?

[fmuser]

Here is what happened:

I purchased lots with share counts limited to 3 fractional digits (the fund company limit at the time of the purchase)

An "odd" split occurred, changing all FM lots to share counts with more than 3 fractional digits.

I extracted open lots from FM with 3 fractional digits (to match fund company limits) and copied them into a spreadsheet. I used that spreadsheet to identify and sum the lots. Because the shares are "noncovered" I could only tell the fund company to sell a total number of shares equal to the sum I computed in the spreadsheet (with 3 fractional digits), and send them my spreadsheet to identify the specific lots/shares.

When I went to identify specific lots in FM after internet retrieve of the transaction, the last lot selected leaves nonzero (approx 0.001) shares.

I can probably fudge one or two transactions to get the last lot closed without impacting reconciliation, but this exercise shows the difficulty in dealing with "odd" share splits.

FWIW, I could probably get the same answer as the spreadsheet if FM had an option to limit the precision of split-adjusted lots (makes some sense since the world doesn't do financial transactions with infinite-precision arithmetic).

[Mark]

Hi fmuser,

Thanks for the explanation. It sounds like in reality you didn't get the odd split exactly as published, and probably how you recorded it?

For example, if you have 1 share and record a 1 for 3 split, FM will show you have 0.333333 shares. If your fund company says you can only sell 0.333 shares because that is all they gave you, then you should record the split differently, so you end up with 0.333 and not 0.333333 shares.

You can record splits with any ratio you want. In the above example you could record it as a ratio of 0.333 for 1 instead of 1 for 3. Both these are very close in ratio, but the first one will give you the exact correct number of shares you ended up with in reality, instead of the ideal number.

So, figure out how many shares you want post-split, and figure out how many you had pre-split. Record the split with a ratio of <post-split shares> for <pre-split shares> such that you end up with exactly the correct number of shares you were able to actually sell.

[fmuser]

The "split" was entered exactly as it occurred: 863.439 for 2,747.172 shares. That kind of fraction makes it impossible to produce exact results for irregularly-sized lots with limited precision arithmetic (and the fund company didn't even try, because this was before the law changed with respect to covered shares, so they only tracked average cost).

I don't think there is any way to enter a split in FM that will "properly" handle (meaning in a way that matches fund company accounting with less than 6 fraction digits) such an "odd" split over an arbitrary set of irregular-sized lots.

It will be interesting to see what the fund company does for covered lots (under new US tax law). I think they may have added one more digit to their internal accounting, perhaps to better account for "odd" splits.

[Mark]

Hi fmuser,

One option would be to separate your lots into separate investments, and record the appropriate odd split in each investment, such that each lot ends up with shares to only 3 digits... That isn't a real elegant solution, but something you could consider.