Table of Contents
What is Block Deal
It is a single transaction, of a minimum quantity of five lakh shares or a minimum value of Rs 5 crore, between two parties which are mostly institutional players. The transaction happens through a separate trading window. The deals happen in the beginning of trading hours for a time span of 35 minutes.
It is a transaction of a minimum quantity of 500,000 shares or a minimum value of Rs 5 crore between two parties, wherein they agree to buy or sell shares at an agreed price among themselves. The deal takes place through a separate trading window and they happen at the beginning of trading hours for duration of 35 minutes i.e. from 9.15 am to 9.50 am. Every trade has to result in delivery .
Rules set by the Securities and Exchange Board of India state that the price of a share or dered at the window should range within +1% to -1% of the cur rent market price or the previous day’s closing price. Block deals are not visible to the regular market as they happen in a separate window.
Description: Block deal order consists of the following attributes:
1. An order may be placed for a minimum quantity of 5 lakh equity shares or minimum value of Rs 5 crore.
2. Every trade has to result in delivery and “Block Deal” orders cannot be squared off or reversed.
3. The price of a share ordered at the window should range within +1% to -1% of the current market price/previous day’s closing price, as applicable.
4. Transparent disclosure of trade transaction details such as the name of scrip, name of the clients (Buyer and Seller), quantity of shares bought/sold, and traded price have to be made by the broker to the exchange immediately. The exchange has to furnish all the transaction-related information to the public markets on the same day of the block deal transaction, after the closing of trading hours.
For example, two FIIs (foreign institutional investors) want to trade 10% of a company’s total number of shares. As this transaction involves trading of a large quantity of shares, the risk factors entailing to this transaction are immense. Thereby, the exchange on which trading will happen, allocates a separate trading window for these two investors to exhibit a block deal, with the prime focus of prohibiting risk.
Who are the participants in such deals?
Since percentages of shares and money involved in Block Deals and Bulk Deals are quite high, retail investors do not participate in such transactions.
It is Institutional investors like the foreign institutional investors, super HNIs (high net worth individuals), mutual fund houses, insurance companies, banks, venture capitalists, and other financial institutions are the major participants in these types of deals.
Sometimes, even promoters participate in bulk and block deals, especially to arrange the issues related to cross-holdings.
We can find the details about the regular bulk and block deals in both the BSE and NSE India exchanges
Rules about trading block deals
After covering the definition of what is block deal in the share market, let’s understand the rules.
1. Block deals may be done in the price range of +1 percent to -1 percent of either the current market price or the closing price of the previous day.
2. Like with bulk deals, brokers entering into block deal trades must notify the exchange by providing details such as the script name, volume, and quantity of stocks bought or sold and the client’s name, and the trade price.
3. Such a deal can occur only when both parties agree upon buying or selling shares at a predetermined price.
4. If the deal must be traded, the rate and quantity of shares must exactly match the opposite block order.
5. Block deals must be fully traded mandatorily, failing which the trade is deemed canceled.
6. The deal remains in the trading system (on online trading platforms) for only 90 seconds after which it is canceled for non-execution.
Impact of Block Deals:
This transaction led to an increase in the concentration of interest in such stock, resulting in price appreciation in the near future. The reverse holds true in the case of constant selling.
Studying these transactions over time gives the investor a clear idea about how the stock prices get influenced when such types of deals occur. Apart from this investors also get an idea of the quality of the institutional investors who have participated in the deals.