What Is a Block Deal in Share Market? Meaning and Rules

In stock market trading, the execution of large orders often requires a specialised mechanism to avoid disturbing the regular market flow. One such mechanism is a "block deal." These transactions are significant in size and are usually carried out by institutional investors, large corporations, or high-net-worth individuals.

A block deal refers to a single transaction involving a large quantity of shares or securities, executed between two parties through a separate trading window on stock exchanges like NSE or BSE. These trades are privately negotiated between buyers and sellers and are not carried out through the regular trading window. The intent is to ensure confidentiality and minimise market impact.

The Securities and Exchange Board of India (SEBI) has prescribed that block deals must involve a minimum quantity of 5 Lakh shares or a minimum value of ₹5 Crores, whichever is lower.

Block deals are commonly used by large market participants for specific reasons:

• Avoiding Market Impact: Large trades can lead to sharp price movements. Executing them through block deals minimises such distortions.
  

• Confidentiality: The terms and identity of parties are not immediately disclosed, which protects market-sensitive information.
  

• Strategic Transactions: Institutions may want to acquire or sell significant stakes without triggering speculative activity.
  

Block deals are executed during designated time slots known as the ‘block deal window’. Each stock exchange defines these windows to facilitate such trades:

• NSE Block Deal Timings:
  

  • Morning window: 08:45 AM to 09:00 AM
    

  • Afternoon window: 02:05 PM to 2:20 PM
    

• BSE Block Deal Timings:
  

  • Similar time slots apply, as notified by the exchange.
    

Execution Mechanism:

• The deal must be of a minimum value or quantity as per SEBI guidelines.
  

• Trades must be reported within 15 minutes of execution.
  

• Both buyer and seller must agree on the price and quantity beforehand.
  

SEBI and the stock exchanges have laid down strict criteria to regulate block deals:

• Minimum Order Size: The trade must involve shares worth at least ₹5 crore or 5 lakh shares.
  

• Price Band: The execution price should fall within a range of ±1% of the last traded price (LTP) of the stock.
  

• Reporting Time: The trades must be disclosed to the exchange within 15 minutes of execution.
  

• No Partial Execution: The order must be executed in full; partial trades are not allowed.
  

• Participants: Only institutional investors, mutual funds, foreign investors, or high-net-worth individuals generally participate.
  

Let us understand how block deals differ from other types of large trades through the table below:

This table highlights the differences in rules, disclosure, and execution between major large-trade mechanisms.

While block deals are designed to limit their effect on the market, they may still have an indirect influence:

• Premium or Discount: If a block deal is executed at a premium or discount to the market price, it may influence sentiment.
  

• Supply and Demand: Large buying may signal accumulation, while selling may trigger concerns of distribution.
  

• Liquidity Booster: A successful block trade can inject liquidity into an otherwise illiquid counter.

The SEBI plays a critical role in maintaining transparency and fairness in block transactions:

• Framing Guidelines: SEBI issues circulars that define the framework and update it periodically.
  

• Surveillance: Exchanges monitor unusual price movements and trading volumes around block deals.
  

• Penalties: Non-compliance with block deal norms may attract penalties and trading restrictions.
  

Let us look at some advantages and limitations of block deals:

Pros:

• Helps institutional investors to enter/exit without significant market impact
  

• Ensures better price discovery in negotiated trades
  

• Improves market depth for illiquid stocks
  

Cons:

• Can create asymmetry of information between participants
  

• May influence price trend unfairly if not reported timely
  

• Mostly inaccessible to retail investors
  

Retail investors may not directly participate in block deals, but understanding them is important for a few reasons:

• Market Signals: Large block buys or sells can offer insight into institutional sentiment.
  

• Volatility Awareness: Stocks with frequent block deals might experience short-term volatility.
  

• Transparency: SEBI-mandated disclosures help all participants assess market events equally.
  

Block deals serve as an essential mechanism for executing large-volume trades in a structured and transparent manner. By operating within a separate window and adhering to strict SEBI guidelines, they help maintain market stability and confidentiality. While typically reserved for institutional trades, understanding block deals is important for all market participants to interpret broader investor sentiment.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

• Securities and Exchange Board of India (SEBI): https://www.sebi.gov.in/
  

• National Stock Exchange (NSE): https://www.nseindia.com/
  

• Bombay Stock Exchange (BSE): https://www.bseindia.com/
  

• MoneyControl: https://www.moneycontrol.com/
  

• Economic Times Markets: https://economictimes.indiatimes.com/markets