Block and bulk deals happen regularly on stock exchanges. You may have noticed that these transactions can cause the share price to increase or decrease.
However, did you know that there is a difference between the two, even though the terminology used may seem to mean the same?
In this article, let’s understand the difference between the block deal and the bulk deal.
What Is a Block Deal in the Share Market?
A block deal is defined as a single trade or transaction that transacts more than or equal to 5,00,000 shares in quantity or at least Rs.10 crores in value.
In a block deal, the buyer and seller are well known to each other, and the transaction is negotiated away from the regular trading platform. This means it doesn’t happen in the typical market where most individual investors trade shares.
Features of Block deals:
- Trades are of high value. They satisfy any of these two conditions regarding the quantity of shares or the value of the trade.
- The trades occur during a particular time called block deal windows.
- BSE window: 35 minutes from 9:15 a.m. to 9:50 a.m.
- NSE window: 2 sessions – 8:45 a.m. to 9:00 a.m. and 2:05 p.m. to 2:20 p.m.
- There is no transparency about block deals. These trades are not published on the regular sections of the stock exchange.
- If block deals aren’t completed within the block deal window, they are canceled. Traders must book fresh trades in the next window.
- Block reference price – Determines the share prices in block deals.
- Morning slot: Previous day’s closing price or the previous day’s closing price +/- 1% to adjust for any changes that may have happened.
- Afternoon slot: Volume-weighted average of the market price of shares from 1:45 p.m. to 2 p.m.
What Is Bulk Deal in Share Market?
A bulk deal occurs when a single investor, through one or multiple transactions, buys or sells more than 0.5% of a company’s equity shares.
These transactions are market-driven and can take place at any time during regular trading hours. The broker facilitating the deal is required to share the trade details with the stock exchanges quickly.
Features of bulk deals:
- In bulk deals, the quantity of shares involved should be equal to or exceed 0.5% of the total shares listed by the company on a specific stock exchange.
- Bulk deals occur during regular trading hours and do not have a dedicated trading window.
- If a bulk deal meets the criteria for a block deal, it can also be executed in the block deal window.
- Transactions associated with bulk deals take place on standard trading platforms and are visible to the public.
- Brokers facilitating bulk deals must ensure that all transactions are reported to the stock exchange daily.
- Immediate disclosure of all deal details to the stock exchange is mandatory upon execution of bulk deals.
- Bulk deals cannot be squared off; they must conclude with the delivery of shares to the buyer.
Difference between Block Deal and Bulk Deal
|Can involve individual or institutional entities.
|Predetermined between two individual parties.
|Involves transactions more than 0.5% of total shares.
|Requires a minimum of 5,00,000 shares or ₹5 crores.
|Anytime during regular trading hours
|Executed in a designated, short-duration window
|Mandatory disclosure on the same trading day
|Must be disclosed within 24 hours of completion
|Potential to significantly influence market prices.
|Limited impact on market prices during a designated window.
|Can involve individual or institutional entities.
|Usually carried out by major institutional investors or significant persons in the market.
|Reasons vary, ranging from speculation to long-term investment strategies.
|Provides insight into the important decisions and plans of key players in the market.
|Provides insights into general trading sentiment and market movements.
|Involves transactions of more than 0.5% of total shares.
|Anytime during regular trading hours.
|Designated short-duration trading window or throughout the trading period.
|No fixed or specific price range.
|The price range should not exceed +1% to -1% of the last traded price or the previous day’s closing price.
Find out the difference between Absolute Return and Annualized Return.
Advantages and Disadvantages of Block Deals
Discovering the contrast between the pros and cons of block deals – let’s unravel the differences and insights for smarter financial decisions.
Advantages of Block Deals
Privacy: Block deals take place off-market, enabling involved parties to keep their intentions confidential. prevent pre-trade speculation from influencing share prices. It is beneficial for both buyer and seller.
Price control: When buyers negotiate directly with the seller, they have a chance to get better prices than what regular market orders offer. This could involve bulk discounts or direct negotiation, helping avoid the influence of market changes on prices.
Efficiency in large transactions: Block deals help the quick execution of large transactions without placing many smaller orders. This could disrupt the market and impact the price. This can be particularly advantageous for institutions dealing with massive share volumes.
Disadvantages of Block Deals
Less transparency: The lack of present info about block deals can be hard for smaller investors who rely on market transparency to make informed decisions. This lack of public knowledge can also raise concerns about trading or unfair advantages for large players.
Limited access for smaller investors: Due to their size and small thresholds, block deals are inaccessible to retail investors. Who doesn’t have the same resources or capital as institutional participants? This can create an uneven playing field in the market.
Advantages and Disadvantages of Bulk Deals
Exploring the distinctions between the pros and cons of bulk deals uncovers insights to make informed decisions in the world of finance.
Advantages of Bulk Deals
Transparency: When it comes to bulk deals, everything happens out in the open through the standard market order book. This means that everyone can see the transaction volume right as it’s happening. This allows all market people, including retail investors, to access info about large trades.
Accessibility: Bulk deals are within reach of individual investors as they involve smaller quantities than block deals. It can be executed through regular trading platforms. This increased accessibility can democratize the market and provide more opportunities for participation.
Price discovery through market interaction: Bulk deals play a crucial role in determining prices by adding more information to the market order book. This interaction between buyers and sellers plays a key part in setting a fair market price. It depends on the current demands and supplies in real-time.
Disadvantages of Bulk Deals
- Potential market impact: Stock prices are influenced by large bulk deals for smaller companies with lower trading volumes. This variability can be hard for retail investors who may not have the resources to handle short-term price fluctuations.
- Less control over price and execution: Unlike block deals, which involve direct negotiation of price and execution. It relies on the prevailing market conditions when the order is placed. This means there is less control over the final execution price and an increased possibility for slippage.
To sum it up, large amounts of investments are happening with block deals and bulk deals. From the view of retail investors, these details give suggestions of how few stocks are in trend in the market.
But, don’t make this a primary source for making investment decisions. Smart investors, check out other signs in the market and make decisions with your judgment.
How do you identify a block deal?
A block deal is a large stock transaction involving many shares, usually at a price negotiated privately between two parties. It is identified by a single, unusually large trade size that differs from regular market transactions.
What happens to stock after the block deal?
After a block deal, the stock price may experience a significant impact due to the large volume of shares involved. In a block deal, if viewed positively by the market, the stock price may go up; if there’s a negative view, the stock price could go down. Investors always track block deals as they can make potential changes in a stock’s value.
Does bulk deal affect share price?
Yes, bulk deals can affect share prices. When large quantities of shares are bought or sold in a bulk deal, it can influence supply and demand dynamics. So it leads to price fluctuations. This impact is especially for smaller companies with lower trading volumes.
Which one should I be more aware of as an investor?
As an investor, you should be more aware of the market indicators and trends, not only focusing on block deals or bulk deals. While these deals provide insights into stock popularity, it is necessary to consider a broader range of factors. With this info make your investment decisions.