Difference Between Bulk Deals and Block Deals in the Share Market
Different types of transactions take place in the share market everyday. While stock trading is an exciting activity for many investors, it must be backed with knowledge for investors to prosper. Hence, as an investor, you should know about some of the most crucial transactions in the stock market, namely, bulk deals and block deals. While investors use the terms interchangeably, they represent two different concepts. In this article, the differences between bulk and block deals are delved into so you can likely learn to make educated investment decisions.
What are bulk deals in the stock market?
Stock transactions that take place in large volumes are representative of bulk deals in stock trading. Such deals are carried out via the regular trading window in any exchange. Typically, bulk deals involve multiple investors engaged in purchasing and selling stock in significantly large volumes. Additionally, different stock exchanges employ different criteria for categorising bulk deals according to their respective regulations. To summarise, you could say that certain transactions must fulfil a minimum amount of shares in deals, or involve a particular threshold of value, to classify as bulk deals. Once such deals are completed, exchanges report them to the public and maintain transparency through their respective reporting systems.
Benefits of Bulk Deals
Specific transactions in the stock market have certain benefits for investors, and bulk deals can work to an investor’s advantage. Here are the key benefits that bulk deals pose for an investor:
- Public Disclosure: When bulk deals are conducted, the stock exchanges are deemed to inform the public of these deals through their reporting methods. Consequently, there is a full disclosure of the identities of both buyers and sellers, and this may give possible market insights to investors for further trading.
- Affordability: Bulk deals have lower transaction costs attached to them rather than purchasing or selling stock in small numbers. Hence, they tend to be cost-effective options for transacting in the stock market.
- Flexibility and Convenience: In the domain of stock trading, investors seek ease in trading whenever and wherever possible. Bulk deals can be executed at any point of time within regular trading hours. Therefore, there is versatility in their execution and timing.
What are block deals in the stock market?
While the term “block deals” may appear similar to bulk deals, it is very different in terms of its purpose and size. Block deals are transactions that are executed with a large number of stocks (either bought or sold) and typically occur in one transaction. The volume of these deals is larger relative to that of bulk deals and may involve amounts in the region of 5 lakh shares or shares having a value of ₹5 crore. Block deals are generally undertaken by institutional investors such as insurance companies, mutual funds, or banks that partake in negotiations for the execution of deals in the main order books of stock exchanges.
Both block and bulk deals are reported to the share market whenever they occur, and the exchanges disseminate information to the public as well. In general, the purpose of block deals is to fulfil particular investment objectives, such as generating exposure to a specific sector or company stock.
Benefits of Block Deals
Block deals have several benefits for those who wish to conduct them. They are as follows:
- Boosted Efficiency: Block deals facilitate large transactions without the possibility of major fluctuations in price.
- Signal of Confidence: Block deals give signs of confidence to investors if their results are on the positive trend. They may indicate potentially positive prospects of the company stocks in which they invest.
- Generation of Information: Block deals offer market insights into the thought processes of institutional investors.
Difference Between Bulk Deal vs Block Deal
The difference between bulk and block deals, according to various parameters, is explained in the table below:
Parameters | Bulk Deals | Block Deals |
| Purpose | Deals may be conducted for several reasons such as portfolio rebalancing, market-making, and institutional investing. | Deals take place to achieve specific investment objectives such as exposure to a particular sector or stock. |
| Regulations Required | If the trading deal crosses 0.5% of the company’s stock, it must be reported to the relevant stock exchange. | Traders have to mandatorily pre-plan these deals and implement them within a particular trading window, which is generally at the beginning of trading time. |
| Deal Size | Deals involve a large amount of stock, but they are smaller relative to block deals in stock trading. | Substantial amounts of stock are involved in block deals, typically above 0.5% of any company’s total outstanding stock. |
| Deal Participants | Individuals and institutional investors can partake in these deals. | Market players and significant institutional investors commonly engage in block deals. |
| Execution of Trades | Deals are conducted according to the usual process of trading on the stock exchange. | Deals are executed between two parties that negotiate and carry out the transaction outside the bounds of the open market. |
| Visibility | All details of the deal are made public through stock exchange reporting and filing. | Deals are conducted privately, but the public receives details concerning deals. |
| Reporting | The reporting of bulk deals is carried out by the close of the trading day, | A particular time frame is fixed for the reporting of block deals, as regulated by stock exchanges. |
| Effect on Stock Price | Public disclosure of bulk deals and potential speculation can influence the price of stocks. | As block deals are privately arranged and conducted behind closed doors, there is reduced probability for any immediate effect of such deals on the price of stocks. |
Bulk and Block Deals’ Impact on Price
In stock trading, investors constantly look for signals that tell them about stock price movements to potentially improve their chances of making gains. Bulk and block deals are useful ways by which investors gauge stock price trends, either moving upward or downward. Nonetheless, the signals that these deals generate must be scrutinised and aligned with other appropriate stock price trends and market indicators to make investing decisions. Investors look to bulk trades and may find that repeated bulk or block transactions are indicative of trends in stock prices, giving them the confidence to trade in a particular stock or sector based on such substantial deals. Nonetheless, stock prices may be affected more by bulk deals than block deals, as bulk deals have quicker public exposure than block deals entail.
Conclusion
Stock trading is not a simple and straightforward activity in that significant study and research goes into making trades. Nonetheless, if you are an investor and are depending on bulk and block deals to ascertain your trading decisions, you may end up with potential losses. While such deals give you an indication of what kinds of stock to invest in and the price movements of these stocks, they are not the sole indicators that you should rely on to make your trading potentially successful.
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FAQ
Can retail investors participate in block deals?
Generally, individual or retail investors do not participate in block deals as these have large thresholds for execution and are only conducted by market players and institutional investors.
Are there any regulatory requirements for block deals?
The regulatory requirements for block deals include trading during a pre-arranged trading window and execution within a fixed timeframe. The trading window is usually at the start of trading time. Other regulations include specifications while reporting to stock exchanges and value or minimum quantity thresholds as regulated by stock exchanges.
Why do companies and investors prefer block deals?
Investors and companies prefer block deals as they enable the execution of large transactions without resulting in substantial price fluctuation. Furthermore, block deals facilitate discretion in transactions compared to trades conducted on the open market.