Difference Between Bulk Deals and Block Deals

The share market has different kinds of participants constantly buying and selling a large number of shares. There are retail, large and institutional investors too. The retail investors are small investors whereas large investors are high net worth individuals. The institutional investors include investment banks, pension, and hedge funds, mutual funds, etc. The way these different kinds of investors trade in the share market varies hugely. There are mostly two common types of patterns in the transactions shown by large and institutional investors. These are the block and bulk deals. In the dynamics of the share market, it is crucial to know what is a block deal and what is bulk deal.

What is Block Deal?

The volume of shares involved in the block and bulk deals is very high. Those who actively participate in the share market often find the terms quite relevant. Many investors also track the decisions of these institutional investors. A block deal is a transaction in which at least 5 lakh shares or shares worth Rs 10 crores sale and purchase take place. The two interested purchase traders agree to buy and sell the shares at prices fixed through mutual understanding.

The block deal trades happen via the special windows facilitated by stock exchanges. Thes trading by the window is called the block deal window. As these block deal transactions occur through these dedicated windows the retail investors remain unaware of them. The interesting part here is that these block deals do not even appear on the volume charts of trading platforms. The market regulator, the Securities and Exchange Board of India (SEBI) has proper guidelines regarding these block deal transactions. The SEBI also updates these rules from time to time. For instance, it raised the minimum amount of transactions from Rs.5 crore to Rs.10 crore in 2017.

What is Bulk Deal?

In bulk deals, the total number of shares involved in the transaction exceeds 0.5% of the company’s total listed shares. While block deals require a special trading window, there is no such requirement for bulk deals. They occur during the normal trading sessions of the stock exchanges. The bulk deals are market-driven trades. The deal can take place in only one transaction or in multiple transactions. The information regarding these trades is available on the charts of trading platforms. So everyone can view them quite easily. These deals play a role in determining the asset prices in live markets.

Rules regarding the block deal

The block deal trades include the following.

1. SEBI does not allow to carry out the block deals during regular hours of trading. The investors can only use the block deal window offered by the stock exchanges to execute these trades. There are two intervals at which the block deal window is open for the investors. Each of the intervals is 15 mins. The first one opens at 8:45 AM in the morning and closes at 9:00 AM. The second one starts at 2:05 p.m. in the afternoon, closing at 2:20 p.m.

2. The transactions in block deals need to be as per the Block deal Reference. The price of shares should lie in between the range of +1% to -1% of the Block deal Reference. It is the present market value or the previous day’s closing price. The present market value is the reference for the morning window. However, the price of the asset at the previous day’s close is the reference for the afternoon window.

3. The trading system cancels the orders for which it fails to find a suitable match. There is no provision to carry the order to the next trading window. For example, an unmatched order placed in the morning window will not go to the afternoon window.

Rules regarding the bulk deal trading

1. The broker facilitating the block deal transaction has the duty to inform the stock exchange regarding it. He needs to provide detailed information on the bulk deal daily. 

2. The broker must bring the high volume transaction to the attention of the concerned stock exchange. In case the trade happens in a single transaction, the broker has to immediately report it to the stock exchange. If the entire deal is split into multiple transactions the broker can inform about it one hour from the day’s close. The broker will give the details of the Scrip, the client, the number of shares transacted, and the trade value. Further, the stock exchange will put the details in the public domain. So everyone gets to know about the deal during regular trading sessions. 

3. In bulk deals it is mandatory to deliver the shares as the trade cannot be left for squaring off.

Participants in Bulk and Block Deals

Generally the high net worth individuals and institutional investors with large funds take part in the block and bulk deals. Buying a large number of shares is not possible for small investors because of huge fund requirements. So mutual fund houses foreign institutional investors, HNIs, banks, venture capitalists, and insurance companies that participate in block and bulk deals. Sometimes the promoters of the companies take advantage of these deals.

The dissimilarities of the Bulk Deal and the Block Deal

• Block and bulk deals have the following differences.
• The trade value in block deals is more than 10 crores or 5 lakh shares. A bulk deal, however, exceeds 0.5 % of a company’s shares.
• Block deals need a special trading window whereas bulk deals happen during normal trading hours.
• The trades can happen at any price in a  bulk deal. The previous day’s price for the current prevailing price is the reference for or block deals.
• It is not possible to execute a partial block deal. Though can execute a partial bulk deal.

Importance of block and bulk deals

The SEBI introduced block and bulk deals in order to bring more transparency and clarity. The deals will help in explaining why the price of a particular security may rise exponentially. The full information about the deals makes the investors aware of the causes leading to an asset’s price rise. When huge amounts of transactions increase and assets price it may spread false messages to the investors. Before the SEBI introduced these guidelines regarding bulk and block deals the transactions never used came to the knowledge of others. Only the buyers and sellers shared the details among themselves. This usually led to a sudden increase in asset prices. These details also show the performance of different sectors. Retail investors use the information to plan their upcoming trades.

Effect of block and bulk deals on stock prices

As the large and institutional investors carry the block and bulk deals other investors try to participate in the race. This can cause a trend change in the prices of an asset or security. Although it is not mandatory to have the same case always. So, the investors must take caution and use other indicators as well. Investors should not solely rely on the price indications from these deals. At times it is very hard to know the exact reason for the purchase or sale of such a huge number of shares. It is always advisable not to assume trend changes only on the basis of these deals. It may not prove to be such a good strategy while trading or making long-term Investments.

Conclusions

Both the two varieties of trades that large institutional investors usually take place with are similar in terms of the huge volumes, but there exist certain differences too. The block deal generally does not come with the light and many people don’t get to know about it. They take place through specialized trading windows. The bulk deals on the contrary do not require any kind of specialized windows and occur during regular trading hours. The information regarding the same goes to the respective stock exchange on the same day. The general public gets the information very soon. Many investors use the hints or signals from these deals to set their future course of investments. Yet certain verification of these signals is necessary as they may not always be very reliable.

Frequently Asked Questions (FAQs)