Legal Definitions - board lot

A board lot refers to a standard number of shares or other securities that are typically traded as a single unit on a stock exchange. Historically and most commonly, a board lot consists of 100 shares. Trading in these standard units helps streamline transactions, reduce administrative complexities, and ensure efficient pricing on the market. Transactions involving fewer than the standard number of shares are often called "odd lots" and may sometimes be subject to different trading rules or fees.

Here are a few examples to illustrate the concept of a board lot:

• Individual Investor Purchase: Sarah, an individual investor, decides to buy shares in a publicly traded automotive company. She places an order to purchase 300 shares. Since the standard board lot for this stock is 100 shares, Sarah is buying three board lots. This is a typical transaction that is easily processed by the stock exchange.

  This example demonstrates that buying in multiples of 100 shares (the common board lot size) is a standard way for investors to trade securities.

• Mutual Fund Trading: A large mutual fund manager needs to adjust their portfolio by selling a portion of their holdings in a technology firm. They instruct their broker to sell 10,000 shares. This transaction involves selling 100 board lots (10,000 shares divided by 100 shares per lot). Trading in such large, standardized blocks makes it easier for institutional investors to execute significant trades efficiently.

  Here, the concept of a board lot facilitates large-scale trading by institutional players, ensuring their transactions conform to market standards.

• Company Stock Offering: When a company issues new shares to the public through an initial public offering (IPO), these shares are often made available in board lot increments. For instance, an investment bank might offer blocks of 500 shares to early investors, which would represent five board lots, making the distribution and subsequent trading more orderly.

  This illustrates how board lots are used even in the initial distribution of shares, setting a standard for how they will be traded on the secondary market.