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Understanding Block deals and Bulk deals in stock market

Tony John 
on 18 February 2017

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I recently came across a news regarding a "Block deal" placed on a particular stock in the stock market involving huge volume of shares and whopping amount of money !! I dug deeper to find more details on block deals and came across another deal - "The Bulk deal". I thought I would share more insights about these deals to everyone !!

What exactly is a Block Deal?

It is a transaction of a minimum quantity of 500,000 shares or a minimum value of Rs 5 crore between two parties, wherein they agree to buy or sell shares at an agreed price among themselves. The deal takes place through a separate trading window in the stock market and they happen at the beginning of trading hours for duration of 35 minutes i.e. from 9.15 am to 9.50 am. Every trade has to result in delivery. 

Rules set by the Securities and Exchange Board of India (SEBI) state that the price of a share or dered at the window should range within +1% to -1% of the current market price or the previous day's closing price. Block deals are not visible to the regular market as they happen in a separate window. 

The block deal orders are notified to exchanges and are disclosed on the bourse's website with details such as name of the company, client, quantity of shares and the average price at this the deal took place. 

What is a Bulk Deal?

A bulk deal is a trade where total quantity of shares bought or sold is more than 0.5% of the number of shares of a listed company. Bulk deals happen during normal trading window provided by the broker. The broker who manages the bulk deal trade has to provide the details of the transaction to the stock exchanges whenever they happen.

Unlike block deals, bulk deal orders are visible to everyone. If the bulk deal happens through a single trade, it should be notified to the exchange immediately upon the execution of the order. If it happens through multiple trades, it should be notified to the exchange within one hour from the closure of the trading.

Participants

It is worthy to note that it is normally institutional investors who participate in these transactions. These include mutual funds, financial institutions, insurance companies, banks and foreign institutional investors. Promoters also use this window to deal with issues related to cross-holding.

Cues for retailers

Investors often look at bulk and block deals to judge interest of big investors in a stock. If several deals happen in a stock continuously over a period of time, it can be viewed as a sign of confidence and stock price may appreciate in the near future.

But a big institution or investor buying shares through such deals does not necessarily mean that the stock will rise. It is advised to understand the profiles of the institutions involved in the deal. A bulk or block deal can be used as just one of the parameters when investing in a stock. It is important to also look at other factors such as a company’s fundamentals, its performance compared with peers, and its future plans.


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