SEBI proposes to revamp block deal norms, increase order size and price range

Securities and Exchange Board of India (SEBI) logo seen on its headquarters in Mumbai. (Courtesy: Reuters photo)

Securities and Exchange Board of India (SEBI) has proposed tweaking the reference price range and increasing the minimum order size for block deals. The block deal mechanism allows pre-negotiated deals between parties to be executed on the exchange within designated windows and under strict rules to prevent price manipulation. Moneycontrol had reported on Thursday that SEBI is considering higher price range and order size for block deals.

SEBI, in a draft circular issued on Friday, proposed that stocks which are available for trading in the Futures & Options (F&O) segment will remain within the plus and minus 1 percent price range of the applicable reference price. Non-F&O segment stocks will be placed under the plus and minus 3 percent price range of the reference price. A working group formed on the issue had suggested a price range of 5 percent for the morning block deal window and a 3 percent price range for the afternoon trading window, though one of the exchanges had suggested a plus and minus 2 percent price range.

Similarly, SEBI has proposed the minimum order size is to be revised to Rs 25 crore instead of the current Rs 10 crore. The working group had recommended that the limit should be hiked, and the rationale was that benchmark indices have increased nearly three times over the last 10 years. So, with the growth in the size and depth of markets, it is desirable that limits be increased. SEBI also analyzed the data of block deals of FY25 at NSE and concluded that 90 percent of block deals were of the size above Rs 14 crore, 75 percent above Rs 26 crore, 60 percent above Rs 50 crore, and 50 percent above Rs 84 crore. So, the need was felt to review the order size.

SEBI had last tweaked the order size in October 2017. The higher threshold is expected to bring liquidity, as the orders below Rs 25 crore will take place in the normal market.

SEBI has also proposed to have a common reference price duration of 30 minutes for block deal windows. Currently, the morning window’s reference price duration (8:45–9:00 am) is based on the volume-weighted average price (VWAP) of the last 30 minutes of trades from the previous day’s close. But the afternoon window’s reference price duration (2:05–2:20 pm) uses the VWAP of trades executed in the stock between 1:45 pm and 2:00 pm.

SEBI draft circular noted about afternoon window that, "The reference price for block deals in this window shall be the volume weighted average market price (VWAP) of the trades executed in the stock in the cash segment between 01:30 PM to 02:00 PM. Between the period 02:00-02:05 pm, the stock exchanges shall calculate and disseminate necessary information regarding the VWAP applicable for the execution of block deals in the Afternoon block deal window".

SEBI had formed a working group which shared its recommendations recently. With inputs from market participants, SEBI has proposed to tweak the framework.

Moneycontrol had previously reported on May 27 that block deals could get a makeover, and on August 11 that the Sebi working group had proposed a broader price range and higher order size.

SEBI has sought the feedback from stakeholders by September 15, thereafter final circular will be issued based on the feedback.