There are chances that you may have heard about the term block deal in the stock market while watching the finance news or reading newspapers. Block trading happens regularly on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). This trade is quite different from the normal trade carried out in the share market as it involves trading high volume of shares. It is generally carried out by the Foreign Institutional Investors (FIIs), banks, insurance companies, High Net worth Individual (HNI), venture capitalists, mutual funds and so on. Let us try to dig deep and know more about the block dealing in the share market in India. It is also known by the name block order.
What is Block Deal in BSE and NSE?
A block deal is essentially a trade in which minimum quantity of the 5 lakh shares or minimum value of Rs 5 crore is carried out between the two parties in a single transaction. The parties that carry out the trade are mostly the institutional players. The trade is executed through the special ‘Block Deal Window’ during the first 35 minutes of the morning trading hours i.e from 9.15 am to 9.50 am.
A very important point to be noted here is that while carrying out the block deal transaction there are certain prominent details that has to be made available by the trader to the stock exchanges, which are as follows:
- Name of the share
- Name of the clients (buyer and seller)
- Quantity of shares that are purchased or sold
- Price at which the shares are to be traded
When the desired information is provided by the trader, then it is duty of the stock exchange to provide the necessary information on the block deals to the general public on the same day after the closure of the trading hours.
Block Deal Example
There are two Foreign Institutional Investors (FIIs) who are interested in trading 15% of the total shares of the company. Since, it involves trading large volume of the shares; the risk factors associated with the trade can be quite considerable. In such a situation, the exchange provides a separate trading window to the institutional investors where they can carry out the block trading and eliminate the risk factor.
Block Deal Rules
There are certain block dealing rules that has to be taken into the consideration by the traders or investors. These are as follows:
- A block deal is only allowed only in the cash segment.
- According to the regulations of the Securities and Exchange Board of India (SEBI), the transaction share price of the shares under the block deal order must not exceed +1% to -1% of the previous day’s closing or the current market price.
- Only limit order is allowed in the block deal order.
- Every block deal must result in the delivery.
- The block deal orders cannot be squared off or reversed.
- The block deal orders cannot be traded partially. If it is not traded fully, then the order is termed as cancelled.
- Modification is allowed in the block deal but only for the rate, quantity and client code. If there is any pending block deal order, then the trader is allowed delete the order and re-submit fresh order.
- Securities Transactions Tax (STT) is charged on the block deal transactions.
- Stop loss is not allowed in block trading order.
- The block deals are settled on the trade-to-trade Every trade that is executed must result in the delivery.
Are Block Deals Good or Bad?
There is a tendency among some of the investors to get quite enthusiastic after finding out some of the well-known names in the block orders listed on the stock exchange. However, there is no need to get excited here. Now, you will question why? This is because there is no guarantee that by purchasing stocks of the big or reputed company under the block deal will help them to get the better returns. It is important that the investors must first understand the specific fundamentals of the shares, determine its performance over the years, take help from the SEBI certified financial advisors (if necessary) and then take an informed decision.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.