The stock market is a place where shares are bought and sold by a number of participants. Besides the retail investor, there are large institutions such as investment banks, mutual funds, hedge funds, pension funds, foreign institutional investors (FIIs), high net worth individuals (HNIs), company promoters, etc. to name a few. These institutional investors and high net worth individuals come with deep pockets and detailed knowledge of companies and markets not always available to the retail investor. As a result, the trading patterns of these large investors are different from those of the retail investors. Two common types of transactions entered into by large and institutional investors are block deals and bulk deals. Though the two names sound similar, they are in fact very different in nature from each other.
Block deal
A block deal is defined as a single trade in which shares greater than 5,00,000 in number or more than Rs. 10 crores in value are traded. The minimum value for a block deal used to be Rs. 5 crores but in 2017 the Securities and Exchange Board of India (SEBI) hiked it to Rs. 10 crores. Block deals are executed during a special trading window called the block deal window. Since block deals in the share market happen during a separate trading window they are not visible to the retail investor. Block deals also do not show up on the volume charts in trading platforms. Some of the rules governing block deals are:
1. Block deals may not be executed during normal trading hours but only during a special trading window known as the block deal window. This trading window operates in two shifts of 15 minutes each:
– Morning trading window from 8:45 AM to 9:00 AM.
– Afternoon trading window from 2:05 PM to 2:20 PM
2. Block deals are transacted in accordance with a Block Reference Price. Orders can be placed only with 1% ( + or -) of the Block Reference Price. The Block Reference Price is calculated differently for each of the two trading windows. For the morning trading window, it is the previous day’s closing price. For the afternoon trading window, it is the volume-weighted average price of the stock concerned between 1:45 to 2:00 PM.
3. Unmatched orders in block deals are cancelled and not carried forward into the next trading window. This means that if a block deal order placed in the morning window could not be matched, it is cancelled, and is not carried forward into the afternoon trading window.
Bulk deals
Bulk deals are defined as a transaction involving at least 0.5% of the total listed shares of a company. Unlike block deals, bulk deals happen during normal trading hours and are visible to all market participants. They show up on the volume charts in trading platforms and dynamically influence stock prices in real-time. The broker affecting the bulk deal needs to inform the bourses about the details of the bulk deal such as the amount of the transaction, the identity participants, etc. A bulk deal can also be executed in the block trading window as long as it satisfies the conditions laid down for block trading. So for instance, if a transaction in a particular stock exceeds 0.5% of the total listed shares of the company, and is greater than Rs. 10 crores in value, the parties involved in the transaction have the option of either executing it in the block trading window or during the regular market hours as a bulk deal. In case the parties want the details of the deal to remain private until they are disclosed to the bourses, they may opt for the bulk trading window option.
Block Deals vs Bulk Deals: An Overview
| Feature | Block Deals | Bulk Deals |
| Minimum Size | 5,00,000 shares OR ₹10 crore | 0.5% of the total listed shares of a company |
| Trading Window | Special block deal window (8:45 AM – 9:00 AM & 2:05 PM – 2:20 PM) | Regular trading hours |
| Visibility | Not visible to retail investors | Visible to all market participants |
| Impact on Price | Limited impact as executed outside regular hours | May influence stock prices in real-time |
| Order Matching | Unmatched orders are cancelled | Orders remain in effect until filled |
| Disclosure | Details are not disclosed until after the execution | Details reported to exchanges at day’s end |
| Privacy | Offers more privacy to parties involved | Less privacy as details are publicly available |
| Block Window Execution | Mandatory | Optional (can also be executed during regular hours) |
The Impact of Bulk deals and Block deals on Prices
Bulk and block deals can be indicative of interest building up or waning in a particular stock. However, these signals need to be processed meticulously and matched with other trends and indicators to arrive at a trading decision. Mere execution of a bulk order does not necessarily mean that a particular stock is likely to move in the direction of the bulk trade. However, repeated bulk transactions in a particular direction – whether buy or sell – may be indicative of interest in the stock in the direction of the bulk trade.
Conclusion
Block deals and bulk deals are two kinds of market transactions used by institutional investors, large funds, and HNIs to transact large volumes in the stock market. Each has its own set of features and advantages. Whereas bulk deals are visible to everyone as they are transacted during regular market hours, block deals are transacted in a special trading window and afford a slightly greater degree of privacy to the parties concerned. However, bulk deals also need to be reported to the bourses at the end of the day and the information made available to the public. Investors can make use of data on bulk and block deals as one set of indicators in their trading strategy as they may indicate large cooperate interest in the direction of the trade. However, this data needs to be used with caution as it can often be misleading.
FAQs
What are Block Deals in the Stock Market?
Block deals refer to large transactions in which the number of shares traded exceeds 500,000 or ₹10 crores in value. These trades are executed in a special trading window and are not visible to retail investors.
Can retail investors participate in Block Deals?
Typically, retail investors do not participate in Block Deals as these transactions involve large volumes and are usually negotiated between institutional investors or high-net-worth individuals.
Are there any regulatory requirements for Block Deals?
Yes, Block Deals must adhere to the guidelines set by the stock exchanges, including minimum quantity or value thresholds, and must be reported to the exchanges immediately after execution.
Can Bulk Deals be executed in a Block Deal Window?
Yes, bulk deals can be executed during the block deal window if they meet the necessary criteria for block trades.
Why do companies and investors prefer Block Deals?
Companies and investors prefer Block Deals to execute large trades without causing significant price disruption and to keep their trading intentions more discreet compared to open market transactions.
