Two parties are required for a block deal to take place, while bulk deals are market driven
In stock market, we often come across terms such as bull deals and block deals. These terms are also mentioned in many business newspapers with the names of listed companies and their shares changing hands. Let us try to understand what are block and bulk deals and how they happen?
Block deal is a trade, with a minimum quantity of 5 lakh shares or minimum value of Rs. 5 crore, executed through a single transaction, on the special "Block Deal window". The window is opened for only 35 minutes in the morning trading hours.
Market regulator SEBI (Securities and Exchange Broad of India) has also made it mandatory for the stock brokers to disclose on a daily basis the block deals made through Data Upload Software (DUS).
Usually block deal happens when two parties agree to buy or sell securities at an agreed price between themselves and inform the stock exchange. The orders in a block deal are not shown to the people who trade from normal trade window.
Stock exchanges should disclose the information on block deals to the public on the same day after market hours. This should contain information bits like name of the scrip, name of the client, quantity of shares, traded price and so on.
Bulk deal is a trade, where total quantity bought or sold is more than 0.5% of the number of equity shares of a listed company.
Bulk deal can be transacted by the normal trading window provided by brokers throughout the trading hours in a day. Bulk deals are market driven and take place throughout the trading day.
The stock broker, who facilitates the trade, is required to reveal to the stock exchange about the bulk deals on a daily basis though DUS.
Bulk 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.
According to SEBI, to facilitate block deals, stock exchanges provide a separate trading window for only 35 minutes in the beginning of the trading hours.
The transaction price of a share ranges from +1% to -1% of the previous days closing or the current market price. These transactions take place on delivery basis.
According to SEBI guidelines, shares transacted under the window of block deal should not be squared off or reversed. Also, the stock exchanges are required to disclose the information on block deals.
While major participants in bulk and block deals are institutional players, there are super HNIs(high net worth individuals) also involved in such deals occasionally.
Mostly, mutual funds, financial institutions, insurance companies, banks, venture capitalists and foreign institutional investors trade in such deals. The window is also used by many promoters of the companies.
Interpretation of such deals
Many investors unnecessarily get excited seeing some big names in block/bulk deals and try to trade on the counter after the event.
However, a block or bulk deal in a particular stock doesn't necessarily mean that the stock price of that specific stock will increase. Investors should study the fundamentals of the stock and its performance over the years, among other things. Investors should also understand their risk appetite before investing.