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Have you ever picked up a financial newspaper or scanned through a business news channel? You’ll see and hear jargon not used in your daily life. However, regular traders know most of these terms by heart. As a potential trader, you should also know about exchanges like BSE and NSE on which trades occur. On the exchanges, you will often hear the terms bulk deals and block deals. Let’s decode them in this article.
Also, read more about National Stock Exchange of India here
Key Takeaways
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Block deals involve buying or selling a large quantity of shares in a single transaction between two parties on a separate trading window.
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These deals are mainly executed by institutional investors such as mutual funds, insurance firms, foreign investors, and high-net-worth individuals.
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Block deals allow large transactions without disrupting market prices while maintaining transparency through exchange reporting rules.
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Investors must be aware of risks such as price volatility, lack of liquidity, and the possibility of sharp post-deal movements.
Block Deal Meaning
Block deals are large stock transactions executed between two parties at a pre-agreed price. Unlike regular stock market trades, block deals involve a significant volume of shares or a minimum value of ₹25 crore, as defined by the latest Securities and Exchange Board of India (SEBI) guidelines.
These transactions are often carried out by institutional investors like mutual funds, insurance companies, or large financial institutions. Block deals are privately negotiated and occur during specific trading windows. This ensures minimal impact on the stock's market price, as the details of the transaction are reported to the stock exchange shortly after execution.
How Do Block Deals Work in the Stock Market?
A block deal is executed when two parties agree to buy or sell a large quantity of shares at a pre-determined price. These transactions typically involve high-value trades, often amounting to ₹10 crore or more, and are carried out during a special trading window known as the block deal window. The buyer and seller must match both the price and quantity exactly; otherwise, the transaction is cancelled automatically.
Institutional investors, such as mutual funds, pension funds, or insurance companies, usually conduct these trades to avoid influencing the stock’s market price. Since the order does not pass through the regular order book, it helps maintain price stability while allowing large volumes to be transferred efficiently. Once the trade is completed, the exchange must be notified promptly.
Although retail investors cannot participate directly, these transactions often influence broader market sentiment and provide insight into institutional activity.
Advantages and Disadvantages of Block Deals
Advantages
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Smooth handling of large orders: Block deals allow substantial quantities of shares to change hands in a controlled manner, ensuring the transaction is completed without disturbing regular market flow.
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Protection against sharp price swings: Since these trades are placed in a separate window, they help shield the stock from abrupt price movements that usually accompany large orders.
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Useful market cues: A well-timed block deal can reveal how major institutions are positioning themselves, offering broader signals about confidence or caution in a stock.
Disadvantages
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Not accessible to small investors: Retail participants are generally excluded, limiting the broader market’s ability to engage in sizeable negotiated trades.
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Possibility of short-lived distortions: Occasionally, a large block can trigger temporary price reactions or unsettle sentiment.
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Uneven information flow: Institutions involved may have deeper research insights, creating an information gap for smaller investors.
Rules About Trading Block Deals
After covering the definition of a block deal, let’s understand the mandatory rules set by SEBI:
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Time Windows: Block deals cannot be executed at random times. They must occur during two specific sessions:
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Morning Window: 8:45 AM – 9:00 AM.
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Afternoon Window: 2:05 PM – 2:20 PM.
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Price Range:
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Morning: Orders must be within ±3% of the previous day’s closing price.
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Afternoon: Orders must be within ±3% of the Volume Weighted Average Price (VWAP) of the stock between 1:45 PM and 2:00 PM.
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Matching: The rate and quantity of shares must exactly match the opposite block order.
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Mandatory Delivery: All block deals must result in delivery. Squaring off or reversing the trade within the same day is not permitted.
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Cancellation: If the order is not matched within the specific window, it is automatically cancelled.
Impact of Block Deals on Retail Investors
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Market sentiment: Large block deals can signal investor confidence or concern about a stock. For example, a major shareholder selling a large quantity of shares might hint at reduced confidence in the company, which could shape retail investors' perceptions.
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Price trends: While block deals occur off-market, they can influence the stock’s market price indirectly by affecting sentiment and subsequent trading activity, contributing to overall price discovery.
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Liquidity: By enabling large trades efficiently, block deals improve market liquidity. This ensures smoother trading conditions, indirectly benefiting retail investors by maintaining a more stable market environment.
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Short-term volatility: Unexpected or substantial block deals may cause temporary price fluctuations. Retail investors should remain cautious during such periods and consider adjusting their trading strategies to manage volatility.
Difference between Block and Bulk Deal
Understanding bulk deal vs block deal transactions helps clarify how large trades are handled in the market. Although both involve high-volume activity, they differ in structure and execution:
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Trade size: A block deal involves a pre-defined minimum value executed in one transaction, while a bulk deal refers to large on-market trades that meet the exchange’s disclosure threshold.
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Method of execution: Block deals are privately negotiated between two parties and carried out in a separate trading window. In contrast, bulk deals take place on the regular exchange platform through the normal order book.
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Reporting: Block deals must be reported almost immediately after execution, whereas bulk deals are disclosed at the end of the trading session.
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Intent: Block deals often reflect strategic moves by institutional investors, while bulk deals may arise from routine rebalancing or broader market activity.
This distinction between bulk deal vs block deal helps investors interpret market signals with greater clarity.
Why Do Companies and Investors Use Block Deals?
Companies and large investors rely on block deals to manage significant share transactions without causing disruption in the open market. These trades offer an organised way to transfer sizeable holdings while keeping price movements stable.
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Efficient portfolio adjustment: Institutional investors use block deals to increase or reduce exposure to specific stocks in a single, smooth transaction.
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Strategic ownership changes: Companies may use them to introduce strategic investors or streamline promoter holdings.
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Reduced market impact: Since block deals occur in a separate window, they prevent sudden price swings.
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Greater confidentiality: Pre-arranged trades allow sensitive movements to be carried out with discretion.
Conclusion
In the case of both bulk and block deals, the buyers are usually large institutions. While retail investors generally do not trade these huge volumes, monitoring this data is a powerful tool for gauging market sentiment. Open a Demat Account with Angel One today to access real-time market data and track these institutional moves.