What are Block Deals in Stock Market

Every day, millions of shares are traded in the stock market, but some transactions stand out due to their size and impact. One such transaction type is known as block deals. It involves substantial exchanges of shares, capable of exerting notable influence on the market.

So if you’re a part of the stock market and wish to gather insights on block deals, then you have come to the right place. In this blog, we will understand the block deals’ meaning, examining their mechanics, impacts on investors, and their broader effects on the market.

What are Block Deals?

Block deals are significant transactions in the stock market involving the purchase or sale of a large volume of shares, typically equal to or exceeding 5 lakh shares in a single transaction. These deals are mandated to have a minimum trade value of Rs. 10 crore, a limit that was increased by SEBI from Rs. 5 crore in 2017. Notably, these deals operate within specialised trading windows distinct from regular trading hours, aimed primarily at institutional investors. These windows, one in the morning and one in the afternoon, each last for 15 minutes. The morning window spans from 8:45 AM to 9:00 AM, while the afternoon window occurs between 2:05 PM and 2:20 PM.

Furthermore, block deals in NSE follow a unique pricing mechanism known as the Block Reference Price. Institutional investors are permitted to place orders within a 1% deviation (either higher or lower) from this reference price. The Block Reference Price varies for each trading window. In the morning window, it corresponds to the closing price of the previous trading day. Conversely, for the afternoon window, it is determined as the average price of the stock between 1:45 PM and 2:00 PM on the same trading day. This specialised framework ensures a structured and regulated environment for large-scale stock transactions, facilitating efficient execution for institutional participants while maintaining transparency and integrity within the market.

Additionally Read: What is Day Trading?

Rules About Block Deal Trading

When it comes to engaging in block deals within the stock market, certain rules and regulations govern these transactions. Understanding these guidelines is crucial for participants to ensure compliance and smooth execution. Here are the key rules:

  • Price Range Limitation: Block deals in NSE may be executed within a specified price range, typically between +1 per cent to -1 percent of either the prevailing market price or the closing price of the previous trading day. This limitation helps maintain fairness and stability in the market.

Additionally Read: What is NSE India?

  • Mandatory Exchange Notification: Brokers or entities facilitating these deals are required to promptly notify the respective stock exchange about the impending transaction. This notification includes comprehensive details such as the name of the stock, volume, quantity of shares involved, client information, and the agreed-upon trade price.

  • Predefined Price Agreement: Unlike regular market trades, these deals necessitate a predetermined agreement between involved parties regarding the buying or selling price of shares. This agreement ensures transparency and minimises potential discrepancies during the execution phase.

  • Matching Criteria: For a block deal to proceed successfully, the agreed-upon rate and quantity of shares must precisely align with the corresponding block order from the counterparty. This matching criterion eliminates ambiguity and ensures the accurate fulfilment of trade obligations.

  • Compulsory Execution: These deals are obligated to be fully executed upon initiation. Failing to fulfil the entire transaction within the designated time frame results in the cancellation of the trade. This stipulation underscores the commitment to completing block deals once initiated.

Understanding and following these rules surrounding block deal trading is essential for market participants to get through such transactions effectively and in compliance with regulatory standards. By following these rules, participants can contribute to the integrity and efficiency of block deal activities within the stock market ecosystem.

Difference Between a Block Deal and a Bulk Deal

Block deals and bulk deals are two significant types of transactions in the share market, each with its distinct characteristics and implications. Understanding the disparity between these deals is vital for investors and traders to get through the complexities of the stock market effectively.

Aspect Block Deal Bulk Deal
Definition

Involves a significant quantity or value of shares, exceeding 5 lakh shares or Rs. 5 crore in value in a single transaction.

Entails substantial buying or selling of shares, often surpassing a predefined threshold or a proportion of the company’s total outstanding shares.

Purpose

Primarily utilised by institutional investors like mutual funds to acquire or divest a substantial ownership interest in a company.

Frequently employed by both individual and institutional investors for managing portfolios or engaging in trading activities.

Influence on market

May employ a more substantial influence on the stock’s price, potentially causing price fluctuations, as they encompass a significant portion of the company’s shares.

Might exert a minimal influence on the stock’s price, as they don’t encompass a substantial proportion of the company’s shares.

Reporting requirement

Required to be reported to the stock exchange within a more expedited time frame compared to Bulk Deals.

Reporting a Bulk Deal to the stock exchange is required within a specified timeframe.

Regulatory oversight

Additionally overseen by stock exchanges and market regulators, held to more stringent rules and requirements for reporting.

Subject to control by stock exchanges and regulatory bodies in the market.

Size of transaction

Typically involves transactions of larger scales.

Typically involves transactions of smaller scales.

Block Deals involve significant quantities or values of shares, typically exceeding 5 lakh shares or Rs. 5 crore in value in a single transaction. They are commonly used by institutional investors such as mutual funds to acquire or divest a substantial ownership interest in a company. These transactions may exert a substantial influence on the stock’s price due to their significant portion of the company’s shares, potentially causing price fluctuations. These deals need to be reported to the stock exchange within an expedited time frame and are subject to stringent regulatory oversight.

Additionally Read: What is Market Capitalisation?

On the other hand, Bulk Deals entail substantial buying or selling of shares, often surpassing a predefined threshold or a proportion of the company’s total outstanding shares. They are frequently employed by both individual and institutional investors for managing portfolios or engaging in trading activities. Bulk Deals may have a minimal influence on the stock’s price since they don’t encompass a substantial proportion of the company’s shares. Reporting Bulk Deals to the stock exchange is required within a specified timeframe, and they are subject to control by stock exchanges and regulatory bodies. Compared to Block Deals, Bulk Deals involve transactions that are less extensive in size.

Conclusion

Block deals in the share market play a pivotal role, representing significant transactions that can sway market sentiments and influence prices. Understanding the mechanics, regulations, and implications of such deals is essential for investors and institutions alike.

By delving into the intricacies of block deal trading, participants can navigate these high-volume transactions with confidence and adherence to regulatory standards. As the stock market continues to evolve, staying informed about these deals ensures that market participants can leverage these transactions effectively while upholding transparency and integrity within the market ecosystem.



Open a Demat & Trading Account




Know More about Share Market

https://www.religareonline.com