Not every investor in the stock market is the same—there are big fish and small fish in the pond. The small fish comprise the retail segment or the common persons who are regular investors. The big fish include promoters, high net-worth individuals (HNIs), large domestic investing institutions (DIIs), and foreign investing institutions (FIIs) like mutual funds, banks, hedge funds, insurance companies, etc. These institutions’ wealth exceeds several crores, and when deployed, it can have a significant impact on the markets. At the same time, these whales are often privy to special knowledge about the companies they wish to invest in, compared to retail investors. As a result, these institutional investors often trade in huge volumes, and either make block deals or bulk deals. In this article, we will learn the difference between bulk deals and block deals. They seem to mean the same thing, however, they are different in their own ways.
A block deal can be defined as a single trade or transaction in which more than or equal to 5,00,000 shares are transacted in terms of quantity or at least ₹10 crore in value. Prior to 2017, the minimum value for a trade to be considered a block deal was ₹5 crore. However, in 2017, SEBI (Securities and Exchange Board of India) hiked it to ₹10 crores.
Unlike regular trades, block deals are not transacted in the regular trading window for retail investors between 9:15 a.m. to 3:30 p.m. Instead, block deals occur during unique trading windows called block deal windows. Since they are not transacted in the regular trading session, retail investors cannot view block deals; the volume traded in a block deal does not show up on a price chart. That said, in the Indian share market, there are two block deal windows, a morning trading window and an afternoon window, of 15 minutes each.
- The morning block deal window is from 8:45 a.m. to 9:00 a.m.
- The afternoon block deal window is from 2:05 p.m. to 2:20 p.m.
Besides having unique trading windows, a block deal is transacted in accordance with the block reference price. Institutions and other investors participating in a block deal can place orders with a 1% (+ or -) premium or discount to the block reference price. This price varies for both trading windows. In the case of the morning trading window, the block reference price is the previous trading day’s closing price. The volume-weighted average price of the stock between 1:45 and 2:00 PM, on the other hand, is used to determine the block reference price for the afternoon block deal window.
Lastly, it is worth noting that unexecuted or unmatched block deal orders are cancelled and not carried forward to the next trading session. In other words, if a block deal order is placed in the morning trading window and is not executed, then it is cancelled. It is not carried forward to the afternoon session at 2:05 p.m.
Bulk deals are deals that involve at least 0.5% of the total listed shares of a company. Unlike block deals, bulk deals do not have a special trading window and are carried out during regular trading hours. Due to this, bulk deals are visible to all market participants, including retail investors. Hence, the volume traded in a bulk deal shows up on a price chart on trading platforms and websites. Furthermore, because bulk purchases have a real-time impact on market prices, The broker who facilitates bulk transactions between investors or institutions must notify the stock exchanges of the transaction’s details. That includes factors like the participants’ identities and the about and traded volume involved.
A bulk deal can be executed in the block deal trading windows if the value of the 0.5% of shares traded exceeds ₹10 crores In that case, the trader placing the deal can choose to place the order during normal trading hours on the stock exchange, or they can choose to place the order during the block deal window. Investors who wish to keep their identities private during trading hours may place their order during the block deal window.
Bulk deals influence the price of the stock in real-time, as they are out on the exchange’s trading system during regular trading windows. While a single bulk order may not be able to sway the price in a particular direction, multiple bulk orders have the potential to do so. In comparison, block deals are carried out in separate trading windows, resulting in no real-time change in the price.
However, both bulk and block deals are significantly large transactions placed by large institutional investors such as hedge funds and mutual fund houses. As mentioned in the introduction, these investors are often privileged to noteworthy business developments in the company. Therefore, once other investors learn about a bulk or block deal, the concrete stock may come under the spotlight. Market interest may grow or wane in that specific stock. However, this by no means indicates the stock’s price is certain to shoot in a particular direction.
While there are differences between bulk deals and block deals that make them unique, ultimately both deals are carried out by the whales or the institutions in the stock market. As a result, many retail investors track bulk and block deals to track institutional investor activity. However, a wise retail investor will not make investment decisions based solely on bulk and block deal data, but will instead conduct additional research on the stocks in question.
Frequently Asked Questions (FAQs)
The stock exchanges eventually disclose the details of block deal orders to the public daily after market hours. However, until then, block deals are kept private.
Investors can only place block deals in the cash segment.
To qualify as a bulk deal, the transaction needs to account for at least 0.5% of the total shares of the company, irrespective of the value of the trade. Block deals, on the other hand, require a minimum of 5,00,000 shares, or ₹10 crores in value.
Yes, both bulk and block deals are carried out on the exchange platforms like NSE and BSE. They do not take place over the counter.
The main difference is the size. Bulk deals involve the sale of relatively smaller chunks of shares compared to block deals.
In bulk deals, the exchanges do not disclose actual trade prices for bulk deals. Only the number of shares is revealed. In the block deal, prices are reported along with the parties involved after market trading hours.
Generally, block deals are carried out amongst institutional investors and HNIs. Retail participation is uncommon in block deals.
The minimum number of shares required for a bulk deal is 0.5% of the total shares issued by the company.