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What are block deals
What are block deals?
The term Ďblock dealí has been in the news with shares of several companies such as Dish TV, UltraTech Cement, Everest Kanto and Tata Steel changing hands under this window. Around 1.1 cr shares of Tata Steel changed hands under the block deals window on June 9, 2009. The buyer was Tata Sons, while the seller was Tata Motors. Also, around 6.5 cr shares of Dish TV were traded in the block deal category. A block deal is a deal where a minimum quantity of 5 lakh shares or shares with a minimum value of Rs 5 cr are transacted through a single transaction window of the stock exchange.
How is it different from bulk deals?
A block deal happen through a separate window provided by the stock exchange. This window is open for only 35 minutes but bulk deals take place throughout the trading day. There is always a need for two parties for a block deal to take place, however, bulk deals are market driven.
If more than 0.5% of the number of equity shares of a company gets traded in a single or multiple transactions under a single client code, it is called as bulk deal. The broker, who facilitates the trade, is required to reveal to the stock exchange about the bulk deals on a daily basis though data upload software (DUS).
What are the regulatory requirements?
In order to facilitate block deals, stock exchanges provide a separate trading window for a period of 35 minutes in the beginning of the trading hours. The transaction price of a share ranges from +1% to -1% of the previous days closing or the current market price. These transactions take place on delivery basis. According to Sebi guidelines, shares transacted under the window of block deal should not be squared off or reversed. Also, the stock exchanges are required to disclose the information on block deals.
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Who are the major participants in bulk & block deals?
Major participants in this segment are institutional players. Mostly, mutual funds, financial institutions, insurance companies, banks, venture capitalists and foreign institutional investors go for such deals. The window is also used by many of the promoters to sort out the issues related to cross holdings.
How should an investor go about it?
Many a time, block & bulk deals give trading cues to investors. But, such deals donít mean that the stock price of the specific stock will go up. To get a fair direction, one must check the details of the buyer and the seller. A continuous bulk deal in any share with high volume and high pending shares indicates price appreciation in future. However, one must be cautious, as many of these shares are operator driven.