SEBI has revised the block deal framework with effect from 1 January 2018 in a circular (CIR/MRD/DP/118/2017) issued on 26 October 2017 (SEBI Circular).
Block deals allow execution of large orders (viz., a minimum quantity of 500,000 shares or a minimum value of INR 50 million between two parties). Block deals are executed on a separate trading window on the stock exchange, which operates from 9:15 am to 9:50 am (Separate Window), prior to opening of the markets for continuous trading for the day. A block deal can be priced at (+/-) 1% of the ruling price or the previous days' closing price, as applicable.
The SEBI Circular has altered the size and trading windows for block deals with effect from 1 January 2018. Order with a minimum size of at least INR 100 million will qualify as block deals (Block Deals). The marker of quantity of shares involved to classify an order as a block deal has been removed. Order for Block Deals can be executed in two windows. The trading window and applicable reference price stands revised as below:
- Morning Window: Block Deals can be executed between 8:45 am and 9:00 am. The applicable pricing will be (+/-) 1% of the previous days' closing price.
- Afternoon Window: Block Deals can be executed between 2:05 pm to 2:20 pm. The price band for the afternoon window will be (+/-) 1% of the volume weighted average price of the trades executed for the relevant scrip between 1:45 pm and 2:00 pm on the same trading day in the cash segment (VWAP Price). The stock exchanges will announce the VWAP price for each scrip between 2:00 pm and 2:05 pm, prior to the commencement of trading in the Afternoon Window.
Certain other parameters will remain unchanged. Block Deals will be settled as per the settlement cycle, and cannot be squared off or reversed. The requirement for the stock exchanges to make automated disclosure regarding the Block Deals (name of the scrip, name of the client, quantity, traded price) will continue as is, i.e. details will be disseminated by the stock exchanges after the closing of markets on the same day.
The SEBI Circular has addressed the existing uncertainty in pricing of Block Deals, allowing investors more flexibility in executing large and negotiated deals during the Morning Window by removing the 'ruling price' parameter. The Afternoon Windows' effectiveness will need to be tested practically due to the interested parties having limited time to negotiate and execute a deal after the price notification by the stock exchanges.
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