What are bulk deals and block deals?
- The stock market comprises small as well as big players.
- The small players consist of retail investors as well as other regular individuals who take an active interest in the stock market.
- On the other hand, the big or major players are high-net-worth individuals and foreign institutional investors such as mutual funds, banks, hedge funds, etc.
- The major firms possess privileged information that makes them unique among small players, and hence they are engaged in high trade volumes.
What is a block deal?
- A block deal is defined as a trade where shares that are greater than 5 lakh in number or more than Rs. 10 crore in value are traded.
- Initially, the minimum value for block deals till 2017 was Rs. 5 crore.
- But in 2017, the Securities and Exchange Board of India (SEBI) hiked the same to Rs. 10 crore.
- These deals are executed in a special trading window known as the block deal window.
- These deals are also not visible to regular retail investors.
- Block deals are also not shown on the volume charts on the trading platforms.
Block deals are:
Main rules that govern block deals are as follows:
- Block deals are not executed during the regular trading session but only during special trading window that is known as block deal window. This window tends to operate in two shifts of 15 minutes each as follows:
- All the unmatched orders in the block deals are cancelled, and so they are not carried forward in the next trading window. For example, if a block deal order from the morning window cannot be matched, it will be cancelled and won’t be carried forward to the afternoon trading window.
- Block deals are accorded with a block reference price, which means that orders can be placed only with 1% (+ or -) of the block reference price.
Here, the block reference price is calculated differently for both trading windows:
What are bulk deals?
- Bulk deals refer to transactions that involve at least 0.5% of the total listed shares of the company.
- These deals happen during normal trading hours and are also visible to all the market participants.
- These trades also show up on the volume charts on the trading platforms and influence stock prices on a real-time basis.
- A bulk deal can also be executed on the block trading window only if it satisfies the condition of the block trading.
- For example, if a transaction in a particular stock is more than 0.5% of the total listed shares of the company as well as greater than Rs. 10 crore in value, then the parties involved in the transaction have the following options:
- If the parties want the deal to remain private, then they may opt for the bulk trading window option.
Differences between block deals and bulk deals:
The following are the major differences between block and bulk deals:
| Particulars | Block deal | Bulk deal |
| Definition | Sale and purchase of substantial number of shares in a single transaction | Sale and purchase of large quantity of shares |
| Transaction size | Larger compared to bulk deals | Smaller compared to block deals |
| Reporting requirements | Reported to the stock exchange within a shorter time frame than the bulk deals | Reported to the stock exchange within a specific time frame |
| Disclosure | Names of the buyers and sellers are disclosed to the public after the transaction is executed | Names of the buyers and sellers are disclosed to the public after the transaction is completed |
| Regulation | Regulated by stock exchanges and market regulators but is subject to stricter rules as well as reporting requirements | Regulated by stock exchanges and market regulators |
Impact of block deals and bulk deals on stock prices:
- Block and bulk deals can be indicative in the stock market, as they can be interest-building or waning for any stock.
- All the signals need to be processed very carefully and matched with the ongoing trends and indicators to arrive at any trading conclusion.
- It simply does not mean that more bulk orders tend to cause a particular stock to move in the direction of a bulk trade.
Conclusion:
- Block and bulk deals are two types of transactions that are used by institutional investors, HNIs, and large funds to transact large volumes in the stock market.
- Each trade deal has its own set of advantages and disadvantages.
Frequently Asked Questions (FAQ)
Yes, they can lead to sudden price fluctuations due to the significant volume involved.
Multiple bulk orders can have the potential to affect the share price.
Yes, but subject to certain specific reporting requirements.
Block trades are handled by a block house.
In bulk, manufacturers spend less time, use less labor, and utilize fewer materials per unit.
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