Block and bulk deals are something that an investor hears about every day. These are two types of transactions that are used by big investors like FIIs, HNIs, company promoters, etc. Even though these two sound similar, they differ in nature.
Investors keenly watch these deals to ascertain the interests of big investors and trade accordingly.
Let's understand clearly the difference between the two:
It is basically a single trade where the minimum transaction is for 5 lakh shares or worth ₹10 crore. It happens when 2 parties agree to buy and sell at least these many shares at an agreed-upon price.
Earlier the minimum block deal value was ₹5 crore, which was later increased to ₹10 crore by market regulator Sebi in 2017. These deals have a separate trading window and cannot happen anytime. Hence, retail investors may not get to know about the deal immediately as it happens.
- There are two 15 minute trading windows for block deals - morning and afternoon. The morning window is from 8:45 am to 9 am and the afternoon window is from 2:05 pm to 2:20 pm.
- For a block deal to be complete, it is important that every trade results in the delivery of shares. If it is not completed or the orders of the buyers and seller do not match, it gets canceled.
- The price that has to be agreed upon by the two parties must be in accordance with the block reference price. It can only be +1% or -1% of this block reference price.
- Block reference price differs for the two windows of trading. For the morning window, it is the last day's closing price while for the afternoon window it is the price of the stock between 1:45 pm and 2 pm. So for the morning window, the agreed-upon price by the buyer and seller can only be 1percent higher or lower than the stock's previous closing price. While for the afternoon window it can only be 1 percent higher or lower than the price the stock was trading on between 1:45 and 2 pm.
- Block deal orders have to be notified to exchanges and are also disclosed there. It has details like stock name, client, number of shares and the price.
This is a transaction where at least 0.5 percent of the total equity shares of a firm are traded in one go. Unlike block deals, these transactions can happen in the normal trading window. There is no special window that has to be opened for bulk deals to happen. It can also happen in the block deal window.
These deals are visible to retail investors as soon as they happen and influence the price of the stock in real-time.
The broker who is facilitating the blk deal has to provide details including stock name, participants name, shares traded to the exchanges by the end of the day.
If a buyer is buying more than 0.5 percent of the total equity shares of a firm and the total value of the deal is over ₹10 crore, the participants can choose if they want the transaction to be a bulk deal or a block deal. If the parties do not want the exchanges to know in advance, they can proceed as a bulk deal.
Generally, big investors like FIIs, fund houses, insurance firms, banks and HNIs used bulk and block deals for transactions since they buy and sell shares of that quantity. Retail investors do not opt for such deals.
What does it indicate?
Such deals often indicate the interest of a huge investor in a particular stock. If several such deals happen over time in one stock, it can be seen as a positive for the stock as many big investors are interested in buying substantial stakes in the firm. Similarly, if significant investors are selling stocks of a particular stock, it can be seen as a negative for the stock.
Now that we have understood the basics of bulk and block deals and how they suffer, it can help you to understand its implications in the future.