What is Block Deal?

The month of May which is also famously known as the “Aam Ka Season!” is approaching. Let’s say there are 2 people - Santa and Banta. Santa goes to a mango seller to buy some delicious mangoes for his family. He gets one dozen mangoes. At the same time, Banta who operates the Aamras Puri stall nearby comes to the shop and gets 10 dozen mangoes.

Let’s correlate this with the Stock market. Replace Banta with big financial institutions and those 10 dozen mangoes with a huge quantity of shares worth Rs. 10 Crore. That’s exactly what a block deal is like. It’s buying/selling of shares with an order value being more than or equal to Rs. 10 Crore. Santa who bought a smaller quantity of mangoes is similar to retail investors like you and me whereas Banta who bought a huge quantity is similar to big players like institutional investors in the market. I am sure you are as excited to learn more about block deal as you’re when you are about to eat the seasons’ first mango. So, let’s dig in!

What is a Block Deal?

A block deal is basically a large trade with a minimum value of Rs. 10 Crore. This trade must happen in one go, meaning in a single transaction, and hence it is called a “Block” deal. These deals can only take place in the equity segment of the market.

I often get this question from my students that, “Ma’am, if I have 10 Crore can I also do this block deal?” Well, a block deal order can be entered by any client type. However, it has rarely seen participation from retail investors like you and me because we hardly enter into such huge trades. It is majorly conducted by big players or institutional investors in the markets like mutual funds, foreign institutional investors, insurance companies, HNIs, etc. The price, quantity and scrip are pre-decided by the involved parties.

When does the block deal take place?

The stock exchanges like NSE and BSE have a separate trading window for block deals on all the trading days. There are 2 windows when the block deal orders can be placed.

Morning Block Deal Window:
This window is open between 8:45 AM to 9:00 AM.
Afternoon Block Deal Window:
This window is open between 2:05 PM to 2:20 PM.

As per SEBI guidelines, the trade price of the orders placed should be between +1% and -1% of the Block Reference Price (BRP). “Now what’s this BRP?”. BRP is nothing but a base price that is calculated based on the prevailing market price. For example, if the BRP of a stock is Rs. 500, then the involved parties can place an order at a trade price anywhere between Rs. 495 (500 – 1% of 500) and Rs. 505 (500 + 1% of 500). This +1% and -1% cap makes sure that both the buyer and the seller gets a fair deal based on the market demand of the stock.

Let’s understand how this BRP is derived for both the block deal windows. For the morning window, the BRP will be the previous day’s closing price of the stock. For the afternoon window, the BRP will be the volume-weighted average price (VWAP) of the trades executed between 1:45 PM to 2:00 PM on the normal trading window in the equity segment. If no trades took place between 1:45 PM to 2:00 PM then, the VWAP of trades executed between 9:00 AM to 1:45 PM would be considered as BRP. Further, if no trades took place between 9:00 AM to 1:45 PM then the previous day’s closing price of the stock would be considered as BRP.

What is the purpose of the Block deal?
Big market players trade in huge volumes. Back in the days, operators used to execute block deals to manipulate the stock price or give signals to the market. Today to avoid this, there’s a separate trading window for Block deals with minimum order value being kept high at Rs.10 Crore and a tighter price range for the trade price.

Also, to avoid panic within retail investors, whenever the block deals are executed, they are not visible on the normal trading window of retail investors i.e., between 9:15 AM to 3:30 PM. Stockbrokers who execute these deals must report them to BSE or NSE on that day itself. The exchanges must disclose this information after the market hours on their websites. This information includes the name of the scrip, the name of the buyer and seller, the total number of shares traded by a client, traded price, etc.

An Interesting fact: India has the lowest price range for block deals amongst its Asia-Pacific peers. Have a look at it yourself, you can see that Australia does not even have these price limits for block trade.

Bottom line:

Block deals conducted by these big market players are usually for their businesses or portfolio management services being offered to a large number of retail investors. Sometimes we might not know their objective behind buying/selling a stock in the market. Hence, investors should not blindly make investment decisions based on them. If you want to learn more about Block deals, what happens behind the systems, how to interpret them, where to find Block deal data, etc. then stay tuned for the second part of this blog. See you soon!

Click here to check the Basics of Stock Market course

What is Block Deal?

You may also be interested in