The thin line amid bulk and block deals

The thin line amid bulk and block deals

Stock Markets mainly have 2 categories of players in it, viz., Institutional Participants and Retail Participants. These 2 categories are known for trading in a large number of shares after conducting a thorough study and valuation of the market. Those in the field of finance shall be familiar with the term Bulk and Block deals and how they occur. For those of you who are not familiar with the concept, Bulk and Block deals occur when large numbers of shares are traded on NSE or BSE in one tranche. They indicate the interest of big investors in stock and such deals done on exchanges are keenly watched by the market participants daily. Even though the terms bulk deal and block deals look similar, they are not the same. Read on to know what they mean and how investors should be interpreting them.

BLOCK DEALS

Block Deals can be defined as those transactions containing a minimum quantity of 500,000 shares or a minimum value of Rs 5 crore between two parties, in which they agree to buy or sell shares at a price set amongst them. Conducted via a separate trading window Block Deals occur towards the start of trading hours for 35 minutes, from 9.15- 9.50 am. The fact that these deals happen over a separate trading window keeps them invisible to the regular market. The orders for such deals are notified to exchanges and disclosed via the bourse’s website with whereabouts of the company such as the company name, client, quantity of shares, and the average price at which the deal took place.

RULES FOR CONDUCTING BLOCK DEALS

i. Block deals should result in delivery. It will happen only when both the parties involved agree to trade at the agreed rate. Say, if Mr. A wants to trade the block deal then the quantity and the rate of the shares should be the same as that of the opposite block order deal.

ii. According to the Securities and Exchange Board of India (SEBI) the price of a share ordered at the window should fall within the range of +1% to -1% of the current market price or the previous day’s closing price.

iii. Since block deals happen in a separate window they are not visible to the regular market players. Brokers are required to inform the exchange regarding the deals.

iv. Traders engaging in block-trade need to trade it fully to prevent it from getting canceled. As an impact of some of the technological advancements, block deals don’t stay in beyond 90 seconds, post which gets canceled thereby remaining unexecuted.

BULK DEALS

Bulk Deals can be defined as the one in which the total quantity of shares bought or sold exceeds 0.5% of the number of equity shares of the listed company. It happens during the normal trading window provided by the broker. The broker who manages the bulk deal trade has to provide the transaction details to the stock exchanges as and when they happen. One of the major distinguishing factors of the bulk deal is the common visibility factor, i.e., the orders are visible to every single person trading on the exchange.

RULES FOR CONDUCTING BULK DEALS

i. Exchanges need to be informed of deals done through single transactions. In case of deals that have gone through multiple transactions, brokers are required to inform exchanges within an hour from the close of the trading day via DUS (Data Upload Trading Platform).

ii. Following the disclosure of the information to the exchange, one has to make this information public. This has to be done on the same day after the closure of trading hours.

iii. Buying and selling more than 0.5% during a single session shall be considered as two separate bulk deals that call for 2 separate disclosures.

PARTICIPANTS

The percentage of shares and money involved in Block and Bulk deals are somewhat high Institutional investors like the foreign institutional investors, super HNIs (high net worth individuals), mutual fund houses, insurance companies, banks, venture capitalists, and other financial institutions turn out to be the major participants in these types of deals.

At times even promoters participate in these deals, especially to arrange the issues related to cross-holdings.

IMPORTANCE OF BULK AND BLOCK DEALS

Bulk and Block deals were introduced by the Securities and Exchange Board of India (SEBI), the statutory regulatory body responsible for regulating the Indian capital markets to bring in transparency and clarifying the reason for the increase in the volumes in a particular stock. The disclosures help investors understand the reason for the increases in the price of stocks.

IMPACT OF BULK AND BLOCK DEALS

  • These transactions lead to increased interest in such stocks, results in price appreciation in near future.
  • A thorough study of such transactions over time helps investors understand how the stock prices get influenced when such deals occur.
  • As far as the case of bulk deals are concerned, investors should make it a point to study intra-day trade data and short-term trade data separately, as they do not have any implications on investment most of the time. Focusing on bulk transfers among institutions and promotions shall help investors get a long-term perspective on the stock.

Thus, we can say that traders must develop an understanding of Bulk and Block deals as it enables become adept at their work by identifying those who are interested in various companies and how stock prices get influenced by such deals.

Idea &Concept: Mr. Ajith, Research Analyst (Technical & Derivatives)/Faculty

Content Development: Aswathi Satish, Niyog Consultancy Services Pvt Ltd