What are block deals and bulk deals in the stock market?
There are two main groups of investors who move the stock market: institutional and retail. Both these groups of investors deal in a lot of shares in the market. Bulk and block deals refer to transactions that include a significant number of shares traded on the NSE or the BSE in a single block.
Such transactions typically include a massive number of shares.
An investor or trader actively involved in the stock market may frequently encounter these terms and may even choose to follow such deals, many of which may take months or even years to yield a profit.
What is a block deal in the stock market?
One definition of a block deal is the buying or selling of more than five lakh shares or more than Rs 5 crores in total business value.
The transaction is conducted during a special 35-minute trading window at the start of the trading day, between 9:15 am and 9:50 am.
According to a regulation established by the Securities and Exchange Board of India (SEBI), the price of a share purchased at the counter must be within 1% of the higher current market price or the lower of the previous day's closing price.
Since block trades occur discretely, they are hidden from the general public. It is the broker's responsibility to notify the exchange of both bulk and block deals.
Every transaction must conclude with a successful delivery. If both sides agree to buy or sell shares at the same price, a block deal is said to have taken place. The number of shares being traded and the price at which these are being traded must be identical to those of the countering block order deal for the block trade to go through.
The deal will be nullified if the entire block trade doesn’t go through. Due to technological advancements made possible by online share trading, a block deal is kept in the system for a maximum of 90 seconds before it expires.
What is a bulk deal in the share market?
To buy or sell more than 0.5% of a listed company's equity shares is considered a bulk trade. In keeping with free market ethics, transactions in large quantities typically take place during the broker's regular trading hours.
All participants in the stock market can see this transaction. It is the responsibility of the broker handling the bulk deal to report the terms of the trade to the relevant stock exchanges.
The broker must promptly notify the exchange if the deal is completed in a single transaction. Brokers must inform the exchanges via the Data Upload Trading Platform of any multi-transaction deals within one hour of close of trade.
Once the information has been provided to the exchange, it must be made public. This is done after the market closes on the same day a trade has occurred, but before the market opens the following day.
In the same trading session, a buy and a sell of 0.5% or more would be considered two different bulk trades and require two separate disclosures.
Impact of bulk deals and block deals on prices
The increased concentration of interest in the stock as a result of a bulk deal or a block deal should cause its price to rise in the near term. With consistent sales, however, the opposite is true.
By tracking these agreements over time, investors can gain insight into the factors that affect stock values following mergers and acquisitions (M&As). The quality of the institutional investors participating in the deals is also communicated to the investors.
Investors should treat intraday transactions and short-term trade data for Bulk Deals as two distinct entities since the former provides no insight into potential returns while the latter does. They should instead concentrate on bulk transfers among institutions and promoters, which can help them see the stock's performance over the long term.
Now you know the difference between block deals vs bulk deals. Immediately following a block deal or a bulk deal and pleased to see notable names involved, many investors try to trade on the counter. However, the price of the stock may not necessarily rise due to such a deal. Before buying a stock, investors should do their homework on the company's history and its performance. They should also need to know how much risk they can handle.
Q. Does the stock price react to a bulk deal?
Because these transactions take place during the regular trading window provided by the broker and are market-driven, the company's share price will be affected. All stock market traders will be able to see the transaction. The broker overseeing the bulk deal must report the trade's specifics to the relevant stock exchanges.
Q. Can only a portion of a Block Deal be traded?
No, partial trades are not possible with block deal orders. If the order isn't filled in its entirety, it is cancelled.
Q. What is the distinction between bulk and block purchases?
Block trades are conducted during a special 35-minute trading window at the start of the trading day, between 9:15 am and 9:50 am, and are more publicly apparent due to their size. In contrast, bulk deals take place during the broker's regular trading hours, and provide the parties involved with some anonymity.