Bulk deals and block deals are very important for everyone dealing in the market. In fact, every investor in the market must have come across these terms. Thus, it becomes essential to know the true meaning of bulk and block deals. The stock markets are reaching new heights. Consequently, the stocks are also making anew high. When stocks are doing well or falling badly, we often come across the term bulk deals and block deals. In this article, we shall understand what are bulk and block deals.
Let us first learn about the term block deal.
Meaning of Block Deal
When two parties agree to transact between themselves for a minimum of 5,00,000 shares or for a minimum amount of Rs. 5 crores, it is termed asa block deal.
Now let us understand the mechanism of how block deals take place.
Mechanism of Block Deals
The block deal between two parties takes place as per the rules and guidelines laid by the Securities and Exchange Board of India (SEBI). As per the rules, the price of the block deal cannot be more or less than 1% of the closing price of the previous day. Furthermore, the block deals take place through a separate trading window. In addition, the trading window is open for 35 minutes only from 9.15 a.m. to 9.50 a.m. The block deal takes place at an agreed price and always results in delivery.
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Following the block deal, the disclosure about it is made on the stock exchange website on the same day after the market hours. The disclosure consists of important details like company’s name, the average price of the block deal, client name, number of shares, etc.
Next, we shall learn about the term bulk deal.
Meaning of Bulk Deal
When the total quantity of shares bought or sold is more than 0.5% of the total number of equity shares of the company, it is termed as a bulk deal.
Now let us understand the mechanism of how bulk deals take place.
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Mechanism of Bulk Deals
Unlike block deals, the mechanism for bulk deals is simpler. For instance, the bulk deal can take place at any time during normal trading hours. In addition, the broker who conducts the bulk deal has to inform the exchange whenever bulk deals happen.
The next important question that crosses our minds when we hear bulk or block deals is who participate in them. Let us learn about participants of bulk and block deals in this segment.
Participants of Block and Bulk Deals
Now, we know that both, bulk and blocks deals involve huge sums of money. Naturally, the parties to the trade must be big investors. In fact, the participants to bulk and blocks deals include foreign institutional investors (FII) and domestic institutional investors (DII). The DII and FII include insurance firms, banks, HNIs, fund houses, etc.
The next most important question is how bulk and block deals affect the price of a stock. In this segment, we shall understand the impact of bulk and block deals on stock prices.
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Impact of Block and Bulk Deals on Stock Price
The investors in the stock market are always attracted to the stocks where block or bulk deals happen. Following the path of big investors is often the rule of most of the small investors. Therefore, when a big fund buying takes place in any stock, the stock price rises. The bulk or block deals also gives the other investors a confidence to buy more or remain invested in such stocks. In fact, when the block deals are disclosed at the end of the day on the exchange, the retail investors indulge in heavy buying in such stocks on the next day. Thus, it will not be wrong to say that buying by big funds in bulk or block deals attract a huge number of buyers. However, if a fund sells its stake in a company, the retail investors follow the same leading to fall in the price of the stock.
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