Block Trade

Key Highlights

• A Block Trade is a large, privately negotiated securities transaction that is executed outside of the open market to avoid significantly impacting the stock’s price.

• In India, block trades are regulated by SEBI and occur through a special trading window on stock exchanges.

What is a Block Trade?

A Block Trade is a large, privately negotiated securities transaction that is executed outside of the open market to avoid significantly impacting the stock’s price.

It typically involves:

• A large number of shares or bonds
• A buyer and a seller (often institutional investors like mutual funds, pension funds, or hedge funds)
• Minimal public visibility during the negotiation

Key Features of a Block Trade

Large Size

• Equity block trades usually involve 10,000 shares or more (excluding penny stocks), or trades with a market value above a certain threshold, often ₹5 crore or more in India.
• In bond markets, block trades can run into hundreds of crores or millions of dollars.

Off-Market Execution

• Trades are typically carried out through investment banks, brokers, or dark pools to prevent price swings.

Speed and Confidentiality

• Block trades are executed quickly and discreetly to prevent market speculation and price volatility.

Why Block Trades Happen?

• Avoid Market Impact: If a large investor sells in the open market, it could drive the price down sharply.

• Privacy: Institutions may not want to reveal their trading intentions.

• Custom Terms: Negotiated trades can include specific prices and conditions not available on public exchanges.

Example

Let’s say a mutual fund wants to sell 1 million shares of Company X. Selling them on a stock exchange might:

• Alert other traders
• Cause a price drop
• Attract arbitrageurs

Instead, they approach an investment bank to find a buyer. The bank negotiates a block deal between the fund and a buyer, often at a slight discount to the market price to compensate for the bulk size

Block Deals in India

In India, block trades are regulated by SEBI and occur through a special trading window on stock exchanges:

• Timings: Morning window (8:45 – 9:00 AM) and afternoon window (2:05 – 2:20 PM)

• Minimum order size: ₹5 crore

• Price range: Must be within ±1% of the previous day’s closing price

Risks and Challenges

1. Price Discount: Sellers may need to offer discounts to attract buyers for large volumes.

2. Information Leakage: Rumors about a block trade may still impact stock prices.

3. Counterparty Risk: Especially in over-the-counter (OTC) block deals.

Block Trade vs Bulk Deal vs Normal Trade

Feature	Block Trade	Bulk Deal	Normal Trade
Volume	Very high	Moderate to high (≥0.5% of shares)	Any size
Visibility	Not visible until reported later	Reported same day to exchange	Real-time market order book
Execution	Off-market or special window	On the open market	On the open market
Counterparties	Mostly institutional investors	Institutions or large investors	Anyone