In 2008, when the stock
were bearish, many foreign institutional investors (FIIs)
and other big investors chose to keep away from the 'block
deals' in stocks plunging the trading volumes through such
deals by 30 per cent
However, things changed for good and when the Sensex
raised by over 47 per cent since March 2009 the long term
institutional investors and minority shareholders have
started showing interest to raise funds through block deals.
Between January 2009 and February 2009, there were six block
deals worth Rs 232 crore. Recently, several big companies
like Dish TV, UltraTech Cement, Ambuja Cements and Tata
Steel like have carried out block deals to name a few.
But what are these block deals? How does it happen? And why is it being talked about now? How is it different from bulk deal? Let us see
What is block deal?
According to Securities and Exchange Board of India a block deal is a single transaction of a minimum quantity of five lakh shares or a minimum value of Rs 5 crore and is done between two parties through a separate window of the stock exchange that is open for only 35 minutes in the beginning of the trading hours.
SEBI has also made it mandatory for the stock brokers to disclose on a daily basis the block deals made through DUS or Data Upload Software.
Difference between block deal and bulk deal.
Unlike a block deal that happens through a separate window that is open for only 35 minutes in the beginning of the trading hours at the stock exchange, bulk deals happen all through the trading day. Another major difference is that a bulk deal is said to have happened if under a single client code and in a single or multiple transactions more than 0.5 per cent of a company's number of equity shares is traded
Who can go for these deals?
Generally, only the institutional players including the foreign institutional investors are the major participants in this type of deals. This also includes mutual funds, the various financial institutions, and companies carrying out insurance business, banks, and venture capitalists. Sometimes, many promoters use this window to arrange the issues that are related to cross holdings.
Statutory requirements that must be followed for block
SEBI has rules in place certain rules for carrying out block deals. It is mandatory that block deals should happen only through a separate window and for a period of 35 minutes only in the beginning of the trading hours. Also SEBI rules state that block deal orders should be placed for a price not exceeding +1 per cent to -1 per cent of the previous day's closing or the current market price. Delivery must be made for every trade executed and cannot be squared off or reversed. All details like the name of the scrip, the client's name, number of shares and traded price should be disclosed to the public through the DUS every day after market hours.