Fractional share treatment is the rule that decides what happens to a fractional entitlement created by a corporate action. The issuer sets it in the event terms, and depositories and custodians apply it. The usual options are to round down and disregard the fraction, to round up to the next whole share, to round to the nearest whole share, or to sell the aggregated fractions in the market and distribute the proceeds as a cash-in-lieu payment.
The level at which rounding is applied matters as much as the method. An issuer may round at the level of each registered holder, while a custodian holding an omnibus account must then divide the result among underlying clients, whose individual fractions will not add up to what was received. Custodians therefore publish their own policy, and the announced treatment is carried in the corporate action notification so that the entitlement calculation and later reconciliation agree.