If the regulated stock market is a bustling bazaar, the block deal window is the swanky VIP lounge. Here, massive trades happen away from the noise. But lately? The script’s gone off-plot.
Let’s rewind. FY24 saw a record number of block deals, with promoters and private equity funds offloading stock like there was no tomorrow, and mutual funds - flush with fund flows - were eager buyers. But in any market, if a buyer knows a seller is desperate, it’s only natural to negotiate hard. Read More
Here’s the catch: block deals must be executed within a ±1 percent price band of the previous day’s close. This deal window, open twice a day, is only for the two parties - the buyer and the seller - to execute their negotiated transaction within the prescribed price band through their broker’s terminals. So, if you’re trying to negotiate a meaty 5 percent discount, you can’t execute it on the exchange’s block deal window. What happens instead is a series of rapid phone calls between the buyer, seller, and brokers, negotiating over percentages until they agree. Then, during regular trading hours, the brokers from both sides hit 'execute' at a pre-decided time. That’s when things can get murky.
Sometimes, deal info leaks. Mystery bidders swoop in, offer a slightly better price, and steal the deal. The original buyer? Left in the lurch. In more notorious cases, portfolio managers running PMS or AIFs buy block deals in their personal accounts - often based on leaked details - and then flip the stock back to their own funds at a smaller discount (or even a higher price) once prices recover, pocketing the spread. It's like playing both sides of the trade - Bollywood villain style.
Mutual funds, expected to protect the retail investor, often end up not getting their well-deserved (well-negotiated) meat. Before, they get the stuff, someone else has paid pennies more and wiped the trading window clear.
To address this, Sebi is mulling a wider price band for block deals, relaxing the current ±1 percent cap. The idea is to let large buyers and sellers strike honest, negotiated trades without worrying about price leaks or disruptive gatecrashers.
But why was the 1 percent limit introduced in the first place? To protect retail investors. If institutions could waltz in and grab blocks at steep discounts, retail folks would be stuck holding overpriced shares. The tight band was Sebi’s way of levelling the playing field. Now, the regulator faces a balancing act: how to safeguard small investors while ensuring institutional players can transact meaningfully and benefit from good bargains in a market that everyone agreed is grappling with overvalued stocks?
Some institutional investors argue the block deal window itself is outdated. Globally, particularly in the US, markets thrive on multiple trading windows, negotiated deals, SPACs, and flexible pricing structures. India’s regulators, however, have consistently prioritised transparency, equity, and simple rules. Our market's resilience, they argue, comes from that very discipline.
Yet, the case for more flexibility is strong. When there’s a known seller, there's often an overhang on the stock - buyers retreat, prices stagnate. If that seller dumps shares in the open market, prices crash, hurting both retail and institutional investors. A negotiated block, in contrast, allows large trades to happen without triggering panic.
One could argue that leaked deals and opportunistic bids themselves make markets more efficient. But that efficiency is built on front-running and only exists because a primary buyer was ready to transact in the first place. It’s not organic demand, it’s arbitrage.
Allowing a wider pricing band could help deals go through smoothly. And if mutual funds - essentially custodians of retail money - can negotiate better discounts, that benefit eventually flows back to savers.
In the end, the question isn’t just about rules -it’s about trust, fairness, and whether the market’s VIP lounge can remain exclusive without being exploited. It’s also about enabling large transactions that were previously stuck due to the absence of a clean, negotiated window to secure a fair bargain for buyers. Sebi’s move certainly seems poised to help the big boys (mutual fund managers) land better deals, even as it brings an end to the quiet circus that has been playing out for a while.
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