Understanding block deals and bulk deals in the stock market
Despite their somewhat similar names these transactions represent distinct mechanisms and carrying its own set of implications.
In the dynamic world of stock trading, a wide array of transaction types occurs daily. Among them, block deals and bulk deals stand out as unique transactions often conducted by institutional investors, high-net-worth individuals (HNIs), and large funds. Despite their somewhat similar names, these transactions represent distinct mechanisms, each governed by specific rules and carrying its own set of implications.
A block deal is characterized by a single trade involving shares exceeding 5,00,000 in quantity or worth more than Rs 10 crore in value.
Block deals transpire within a specific trading window known as the "block deal window." These transactions remain hidden from retail investors and do not appear on volume charts in trading platforms. Key rules governing block deals include:
1. Special Trading Window: Block deals are not executed during regular trading hours. Instead, they occur within a dedicated trading window divided into two shifts:
- Morning trading window: 8:45 AM to 9:00 AM.
- Afternoon trading window: 2:05 PM to 2:20 PM.
2. Block Reference Price: Block deals are executed based on a Block Reference Price. Orders can only be placed within 1% (±) of this price. The Block Reference Price differs for the two trading windows. For the morning window, it's the previous day's closing price, while for the afternoon window, it's the volume-weighted average price of the stock from 1:45 to 2:00 PM.
3. Cancellation of Unmatched Orders: Unmatched block deal orders are canceled and not carried forward to the next trading window. This means that if an order placed during the morning window is not matched, it is canceled and does not transfer to the afternoon window.
Bulk deals entail transactions involving at least 0.5 per cent of a company's total listed shares. Unlike block deals, they occur during regular trading hours and are visible to all market participants. These deals are displayed on volume charts in real-time and can influence stock prices dynamically.
Brokers responsible for executing bulk deals must inform the stock exchanges about the transaction's details, including participant identities. Parties involved in a bulk deal also have the option to execute it in the block trading window if it meets the specified conditions.
Conclusion: Aiding Investment Decisions
Block deals and bulk deals serve as tools for institutional investors, large funds, and HNIs to navigate the stock market efficiently. While bulk deals are transparent and occur during regular trading hours, block deals offer a degree of privacy due to their dedicated trading window. Investors can use data on these deals as part of their trading strategy, but it should be supplemented with additional analysis since such data can sometimes be misleading. Understanding these market mechanisms is essential for a well-rounded investment approach.
Disclaimer: The article is for informational purposes only and not investment advice.