Investors, big and small alike, engage in the buying and selling of securities in the stock market. Big investors such as mutual fund houses, hedge funds, investment banks, foreign institutional investors (FIIs), pension funds and high net-worth individuals (HNIs) engage in several different kinds of transactions.
However, two of the most common types of transactions which large and institutional investors undertake are ‘block deals’ and ‘bulk deals’.
While the terms block deal and bulk deal sound similar, they differ a lot from each other. Here’s a look at some key features of the two transactions and how they differ from each other:
Bulk Deal
The Securities Exchange Board of India (Sebi says that a bulk deal constitutes all transactions made on a scrip (on an exchange) where the total quantity of shares bought or sold is more than 0.5 per cent of the number of equity shares of the company listed on the exchange. Notably the 0.5 per cent limit can be met through multiple transactions executed during normal trading hours.
Block Deal
The Sebi states that a block deal is an execution of a large trade done through a single transaction. The minimum order size for the execution of trades in the Block deal window is Rs. 10 crore and every trade executed in the block deal window has to result in delivery and cannot be squared off or reversed.
As per the market regulator, the large trade happens without putting either the buyer or seller in a disadvantageous position. The regulator ensures this by allowing block deals to take place in separate trading windows in the morning and the afternoon. In the morning window, block deals take place between 08:45 AM to 09:00 AM based on the previous day’s closing price. On the other hand, the afternoon block deal window operates between 02:05 PM to 2:20 PM. The reference price for block deals in this window is the volume-weighted average market price (VWAP) of the trades executed in the stock in the cash segment between 01:45 PM to 02:00 PM.
Key Differences Between Block Deals And Bulk Deals
Objective Of The Transaction
Multiple investors may wish to conduct bulk deals to rebalance their portfolio by either reducing or increasing their exposure to a stock. Some other purposes of bulk deals include institutional investing and market-making. On the other hand ‘block deals’ are undertaken by a single large investor who either wishes to increase or decrease his or her exposure to a specific stock.
Trade Timing
Bulk deals can take place throughout normal day-trading hours, on the other hand, block deals can only take place in the block deal windows designated by the Sebi. Due to this rule, traders can undertake block deals only if they plan them in advance before the window opens. On the other hand a ‘bulk deal' can occur as and when 0.5 per cent of the company's shares are traded on the exchange.
Size of Transaction
The minimum order size for the execution of a trade in the block deal window is Rs 10 crore as per the Sebi. However, there’s no minimum transaction size for a bulk deal. Notably a large number of shares traded as a part of both block deals and bulk deals.
Participants In The Trade
Both large and small investors can undertake transactions which can collectively be termed as bulk deals. However, only large investors can undertake block deals. Additionally, the trade in a bulk deal occurs just like the regular buying and selling of a stock, however, a block deal is a negotiation between two parties outside the open market.
Disclosure Requirements
The Sebi has mandated that for block deals, stock exchanges need to disseminate information such as the name of the scrip, name of the client, quantity of shares bought or sold, traded price, etc., to the general public on the same day, after the market hours. On the other hand, the details of a bulk deal are immediately disclosed by the brokers upon execution of the trade.
Impact On Stock Price
Since the details of a bulk deal are disclosed when the trade takes place, investors can potentially use the details to speculate the movement of the stock on the same day. This speculation is likely to impact stock prices. On the other hand, since the details of a block deal are not immediately disclosed, they are less likely to immediately impact stock prices.
To conclude block deals and bulk deals differ significantly from each other. Knowing the difference between the two types of deals can help investors understand the market better and make more informed investment decisions.
