What Is an Odd-Lot Buyback? Definition, How It Works, and Example

What Is an Odd-Lot Buyback?

An odd-lot buyback occurs when a company offers to repurchase shares of its stock back from people who hold less than 100 shares. Investors can wind up with odd-lot shares in a number of ways, often through dividend reinvestment plans (DRIPs) or a reverse split.

Odd lots shouldn't be confused with round lots, which are any lots that can be evenly divided by 100; or with mixed (blended) lots, which are lot sizes greater than 100 shares but which cannot be evenly divided by 100.

Key Takeaways

  • Odd-lot buybacks are done by a company to repurchase shares from investors owning 100 shares are less.
  • A round lot is considered 100 shares, while any amount of shares owned below that is an odd lot.  
  • Odd-lot buybacks help the company by eliminating the need to service small shareholder accounts, while investors can sell their odd-lot without paying brokerage fees. 

How an Odd-Lot Buyback Works 

A common method that companies use to buy back odd lots of stock is through what is called a Dutch auction. Shareholders who are interested in participating in the auction indicate a price range within which they would be willing to sell their stocks back. The company will buy back the shares from the lowest tendered offers, all at the same price. The price is the highest of the accepted offers.

This type of offer makes it less expensive both for the company (due to the reduced cost of servicing these small shareholder accounts) and for the shareholders (because they do not have to pay brokerage fees to sell their shares). A buyback also can increase a stock's price-to-earnings (P/E) ratio by decreasing the number of outstanding shares. 

The prevalence of odd-lot buybacks has been reduced over the years thanks to online trading and fractional shares becoming more ubiquitous.

Special Considerations 

Odd-lot buybacks are far less common than they used to be, primarily due to the extraordinary growth in online trading platforms and the growth of odd lot and fractional share trading. The competition among these platforms brought down the standard commission so that it is no longer prohibitively expensive for an investor to sell off odd numbers of shares. In the past, investors had to use brokerage houses to dispose of their shares, and commissions were higher for these odd-lot, smaller trades. 

Smaller investors, who tend to buy in odd lots, are the source of "odd-lot theory," which basically assumes that small investors are less experienced and driven by emotion, as opposed to technical theory and logic. The theory assumes that these small investors, therefore, are always wrong, so traders should do the opposite. The odd-lot theory was popular in the days before electronic trading platforms became the norm; it has since fallen out of favor, more or less, and hasn't been seriously used as a way to gauge the market since the 1980s.

Article Sources
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  1. Securities and Exchange Commission. "Odd-lot Tender Offers by Issuers."

  2. Malkiel, Burton. "A Random Walk Down Wall Street," W. W. Norton & Company, 2019.

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