Exchanges can't operate on a fractional reserve principle. Fractional reserve works for banks because:

Cash on hand + Money people owe the bank >= Cash bank owes its customers.

If an exchange is operating in such a manner, this means that:

Cash + BTC on hand < Cash + BTC exchange owes its customers.

We don't call that a fractional reserve. We call it insolvency (And knowingly accepting new deposits in such an exchange is called 'Fraud.')