What is a Bulk Deal in the Share Market?

For newcomers to finance and investing, certain terms and concepts may appear initially intimidating but are fundamental for operating in the markets effectively. Among these, the term “bulk deal” frequently arises in discussions among investors.

Understanding the bulk deals in NSE and BSE is crucial for anyone interested in trading. So, what does this term entail, and how does it impact investors? Let’s understand the meaning of bulk deals to gain a clearer view.

Understand Bulk Deal

A Bulk Deal in the share market refers to a transaction where a single entity, such as an institutional investor or a prominent trader, engages in significant buying or selling of a substantial quantity of a company’s shares within a single trade. While the precise definition may vary across stock exchanges and regulatory bodies, a bulk deal typically involves an exchange of shares exceeding a certain proportion of the company’s total outstanding shares.

Bulk deals adhere to the principle of transparency, requiring disclosure to the relevant stock exchange where the transaction occurs. This information becomes publicly available after the end of the trading day. Market observers closely monitor these transactions as they provide valuable insights into the trading behavior of institutional investors and other significant market participants, potentially impacting stock prices and overall market sentiment.

Recommended Read: What is National Stock Exchange

Rules About Bulk Deal Trading

Bulk deals in the share market play a significant role in the workings of the stock market, often involving substantial quantities of shares. Understanding the rules governing these deals is crucial for both investors and brokers. Here are the key rules regarding the same –

  • Notification Obligation: Brokers facilitating bulk deals are required to inform the respective exchange about the transaction. This notification must be made quickly within an hour of the trading day’s closure. This ensures transparency and regulatory compliance.

  • Public Disclosure Requirement: Apart from notifying the exchange, brokers must make the information about these deals public. This disclosure occurs after the close of trading hours on the same day the transaction is executed. This ensures that relevant stakeholders have timely access to accurate information.

  • Mandatory Delivery: These deals must result in the physical delivery of shares. This requirement ensures that transactions are settled efficiently, contributing to the overall integrity of the market.

  • Securities Transaction Tax (STT): Both buyers and sellers involved in the deal are subject to paying the Securities Transaction Tax (STT). This tax imposition is a standard practice aimed at generating revenue for the government and regulating market activities.

  • Regulatory Oversight: Regulatory bodies closely monitor these deals to ensure compliance with established rules and regulations. This oversight helps maintain market integrity and investor confidence.

  • Limited Participation: Bulk deals typically involve a restricted number of buyers and sellers due to the substantial volume of shares transacted. As a result, participation in these deals is often limited to institutional investors, high-net-worth individuals, and market makers.

  • Risk Management: Investors and brokers engaging in bulk deals must exercise caution and implement exceptional risk management strategies. Due diligence, thorough analysis, and adherence to regulatory guidelines are essential for mitigating risks associated with these deals.

Must Read: How to Trade in Share Market

Difference Between Bulk Deal and Block Deal

Bulk Deals and Block Deals are two significant transaction types in the stock market, differing in their criteria, impact, and regulatory requirements. Let’s examine their major differences:

Criteria Bulk Deal Block Deal
Definition

Involves substantial buying or selling of shares exceeding a predefined threshold, often 0.5% of total shares.

Involves significant buying or selling of shares, usually exceeding Rs. 5 lakh shares or having a total value surpassing Rs. 5 crore in a single transaction.

Purpose

Commonly used by both individual and institutional investors for portfolio management or trading.

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

Influence on the market

May exert minimal influence on stock price as they involve a relatively small proportion of the company’s shares.

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

Reporting requirements

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

Reporting to the stock exchange is required within a more expedited timeframe compared to Bulk Deals.

Regulatory oversight

Subject to control by stock exchanges and regulatory bodies.

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

Size of transaction

Less extensive compared to Block Deals.

More extensive compared to Bulk Deals.

Conclusion

Understanding bulk and block deals is crucial for investors to get through the stock market effectively. While both involve significant transactions, they differ in criteria, impact, and regulatory requirements.

Bulk deals present portfolio management and trading opportunities, whereas institutional investors commonly use block deals to acquire substantial ownership interests. Each type comes with reporting obligations and regulatory oversight, ensuring transparency and market integrity. By comprehending the distinctions between these transaction types, investors can confidently make informed decisions and get through the market, thereby contributing to a more efficient trading environment.



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