MC EXCLUSIVE MC Exclusive: Block deals may get a makeover — SEBI mulls wider price bands, new windows

Block deals may get a makeover: SEBI mulls wider price bands, new windows

India’s market regulator is exploring a revamp of the block deal mechanism as the capital market matures and stakeholders call for greater flexibility in executing large transactions.

The Securities and Exchange Board of India (SEBI), along with stock exchanges, has initiated preliminary discussions to reassess the framework governing block deals, according to two people familiar with the matter. A working group has been tasked to examine key aspects and gather feedback from mutual funds, brokers, investment bankers, and other market participants.

The review, still in its early stages, focuses on five key areas:

1. Minimum deal size threshold:

The current minimum size for block deals is Rs 10 crore or 5 lakh shares. This threshold was set in 2017, and stakeholders have been asked whether it needs an upward revision to reflect the increased depth and size of the Indian equity market.

2. Price band flexibility:

Block deals are currently permitted within a narrow ±1 percent price band around the reference price. SEBI is considering relaxing this band to ±2 percent, particularly to ease execution in mid- and small-cap stocks, where tighter bands have caused liquidity constraints. Institutional investors find it difficult to get sufficient shares in these tight price bands; there have been concerns about manipulation due to leaks about such deals too.

3. VWAP time window adjustment:

For the afternoon session, the reference price is based on the 15-minute Volume Weighted Average Price (VWAP) from 1:45 to 2:00 PM. The block deal price is then set using the VWAP from 2:00 to 2:05 PM. The working group is evaluating if extending this window to 30 minutes would offer more stability and reduce volatility.

4. Differential price bands for morning and afternoon sessions:

SEBI is assessing the implications of introducing different price band limits for morning and afternoon sessions. Currently, both sessions use a uniform ±1 percent band, but market participants have highlighted the need for differentiated flexibility.

5. Review of block deal windows:

Presently, there are two block deal windows — 8:45 AM to 9:00 AM and 2:05 PM to 2:20 PM. A review is underway to assess whether the number and timing of these windows remain adequate, given evolving market needs.

Additionally, SEBI has already proposed a third large deal window during the Closing Auction Session (CAS) from 3:30 PM to 3:45 PM, primarily to aid passive funds reduce tracking error. This new window is expected to allow a wider ±5 percent price band, with trade settlement based on the equilibrium price — the level at which maximum volume can be executed.

“These discussions are preliminary, and no final decisions have been taken,” said the second source.

An email sent to SEBI seeking comments did not receive a response.

Why block deals matter

Block deals are used primarily by institutional investors such as mutual funds and insurance companies to execute large trades without disturbing the market price. The mechanism allows pre-negotiated deals between parties to be executed on the exchange within designated windows and under strict rules to prevent price manipulation.