Have you ever picked up a financial newspaper or scanned through a business news channel? You’ll see and hear jargons not used in your daily life. However, regular traders know most of these terms by heart. As a potential trader, you should also know about exchanges like BSE and NSE on which trades occur. On the exchanges, you will often hear the terms bulk deals and block deals. Let’s decode them in this article.
Block Deal Meaning
Block deals are large stock transactions executed between two parties at a pre-agreed price. Unlike regular stock market trades, block deals involve a significant volume of shares or a minimum value of ₹5 crore, as defined by the Securities and Exchange Board of India (SEBI).
These transactions are often carried out by institutional investors like mutual funds, insurance companies, or large financial institutions. Block deals are privately negotiated, usually with the assistance of brokers, and occur outside the regular market. This ensures minimal impact on the stock’s market price, as the details of the transaction are reported to the stock exchange shortly after execution. By enabling bulk trades in a structured manner, block deals provide liquidity to the market and help meet the specific needs of large investors.
Rules About Trading Block Deals
After covering the definition of what is a block deal in the share market, let’s understand the rules.
- Block deals may be done in the price range of +1 per cent to -1 per cent of either the current market price or the closing price of the previous day.
- Like with bulk deals, brokers entering into block deal trades must notify the exchange providing details such as the script name, volume and quantity of stocks bought or sold and the client’s name and the trade price.
- Such a deal can occur only when both parties agree upon buying or selling shares at a predetermined price.
- If the deal must be traded, the rate and quantity of shares must exactly match the opposite block order.
- Block deals must be fully traded mandatorily, failing which the trade is deemed cancelled.
- The deal remains in the trading system (on online trading platforms) for only 90 seconds after which it is cancelled for non-execution.
Impact of Block Deals on Retail Investors
- Market sentiment: Large block deals can signal investor confidence or concern about a stock. For example, a major shareholder selling a large quantity of shares might hint at reduced confidence in the company, which could shape retail investors’ perceptions.
- Price trends: While block deals occur off-market, they can influence the stock’s market price indirectly by affecting sentiment and subsequent trading activity, contributing to overall price discovery.
- Liquidity: By enabling large trades efficiently, block deals improve market liquidity. This ensures smoother trading conditions, indirectly benefiting retail investors by maintaining a more stable market environment.
- Short-term volatility: Unexpected or substantial block deals may cause temporary price fluctuations. Retail investors should remain cautious during such periods and consider adjusting their trading strategies to manage volatility.
Conclusion
Block deals play a crucial role in the stock market by enabling large transactions that provide liquidity and influence market sentiment. While these deals primarily involve institutional investors, they indirectly impact retail investors by affecting stock prices and market conditions. Understanding the rules governing block deals and their potential impact on market trends can help retail investors make informed decisions. As block deals continue to shape the market, staying aware of their influence can assist in navigating the complexities of stock trading. In the case of both bulk and block deals, the number of buyers are limited since not many investors choose to trade in large quantities. If you wish to trade in blocks or bulk, reach out to an Angel One advisor for the necessary guidance.
FAQs
What is a block deal in the stock market?
A block deal is a large stock transaction between two parties at a pre-agreed price. It involves a significant volume of shares or a value of ₹5 crore or more, often carried out by institutional investors.
How do block deals differ from regular stock trades?
Unlike regular trades, block deals occur off-market, involve large quantities of shares, and are privately negotiated. They have minimal immediate impact on stock prices as they are reported to exchanges later.
What are the rules for executing a block deal?
Block deals must be conducted within a price range of +1% to -1% of the market price, with both parties agreeing to the trade terms. The deal is cancelled if not fully executed within 90 seconds.
How do block deals impact retail investors?
Block deals can influence market sentiment, affect price trends, and improve market liquidity. While they may cause short-term volatility, they ensure smoother trading conditions and benefit retail investors in the long run.
Can retail investors participate in block deals?
Retail investors typically do not trade in block deals due to the large volume involved. However, they can gain insight into the market sentiment and trends shaped by these transactions.
