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What are block deals
The term
‘block deal’ 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.
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 don’t 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.
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