A block deal is a large transaction of shares or securities that takes place between two parties outside of the open market, typically through a negotiated deal. The transaction involves a large number of shares or securities, often exceeding 0.5% of the total number of shares outstanding in a company.
What is a block deal?
A block deal is a type of financial transaction that involves buying or selling a large number of securities, typically at least 5 lakh shares or shares worth at least Rs. 5 crores, in a single transaction. Block deals are executed off the exchange's central order book and are negotiated between two parties, typically institutional investors such as mutual funds, insurance companies, or banks.
Block deals are reported to the stock exchange where the shares are traded and are typically executed to achieve a specific investment objective, such as increasing or decreasing exposure to a particular stock or sector.
Rules about block deal trading
Now that you know “what is a block deal in the share market?”, let’s understand the rules. Both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) have rules and regulations regarding block deal trading. Here are some of the key rules:
● Block deals can be executed only in securities that are part of the F&O (Futures and Options) segment and have a market capitalization of at least Rs. 500 crore.
● Block deals can be executed in securities that are part of the BSE 500 index.
● The minimum order quantity for a block deal is 5 lakh shares or a minimum value of Rs. 5 crores.
● The block deal window is open for 35 minutes in the morning trading session from 9:15 am to 9:50 am and for 35 minutes in the afternoon trading session from 2:05 pm to 2:40 pm.
● The price of the block deal must be within a certain range of the prevailing market price, as determined by the exchange.
Both exchanges require the execution of block deals to be reported to the exchange and publicly disclosed within a certain timeframe. The exchanges also have penalties for any violation of block deal trading rules.
Difference between Block and Bulk Deal
Block and bulk deals are both types of large trades in the stock market, but there are some key differences between them. Here are the main differences:
1. Size: A block deal involves a large number of shares or securities, typically exceeding 0.5% of the total number of shares outstanding in a company, while a bulk deal is a trade involving a large number of shares but is smaller in size than a block deal.
2. Trading: A block deal is executed through a negotiated deal between two parties outside of the open market, while a bulk deal is executed through the normal trading process on the stock exchange.
3. Reporting: Block deals are required to be reported to the stock exchange within a certain timeframe, while bulk deals are reported at the end of the trading day.
4. Purpose: Block deals are typically executed to achieve a specific investment objective, such as increasing or decreasing exposure to a particular stock or sector, while bulk deals may be executed for a variety of reasons, including market-making, portfolio rebalancing, and institutional investing.
We hope that this article provided you with key insights on block deal meaning. Block deals are an essential part of the stock market as they allow for the efficient execution of large trades, reduce market volatility, and provide liquidity and price discovery for the securities being traded. They enable institutional investors to trade large quantities of shares or securities more cost-effectively, while also providing opportunities for companies to raise capital.
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Frequently Asked Questions
A block deal involves the purchase or sale of a large number of shares or securities negotiated outside of the open market between two parties, while a regular stock trade is executed through the normal trading process on the stock exchange.
Block deals are typically executed by institutional investors, such as mutual funds, banks, or hedge funds.
The minimum value of a block deal varies by exchange and is typically set at a minimum of Rs. 5 crores in the Indian stock market.
The impact of a block deal on the stock price depends on several factors, such as the size of the block deal, the prevailing market conditions, and the specific securities being traded. In some cases, a large block deal can cause significant price movements in the stock, while in other cases, the impact may be minimal.
The risks associated with block deals include liquidity risk, market risk, execution risk, and regulatory risk. Block deals can also pose risks for the parties involved, such as pricing risk and counterparty risk, which must be carefully managed/