Sebi close to finalising block deal norms, with higer price range and deal size
Securities and Exchange Board of India (Sebi) is likely to finalise the framework for block deals soon, including tweaking the reference price range and increasing the minimum order size. Sebi had formed a working group which shared its recommendations recently. With inputs from market participants, Sebi is expected to finalise the framework soon. 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 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.
The Higher Price Range for Block Deals
As per sources, Sebi may come up with two kinds of price ranges for block deals. Stocks which are available for trading in the Futures & Options (F&O) segment may remain within the plus and minus 1 percent price range of the applicable reference price. Non-F&O segment stocks may 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. NSE data for FY25 suggested that around 66 percent of block deals happened in non-F&O stocks.
Higher Order Threshold
Similarly, the minimum order size is likely 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.
Higher Order Size based on Data Study
Sebi also analysed 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.
One market participant, on the condition of anonymity, said, “The higher threshold is expected to bring liquidity, as the orders below Rs 25 crore will take place in the normal market.”
The Sebi working group was of the view that raising the order size limit would ensure participation mainly from serious institutional investors, not high-net-worth individuals or family offices, who bypass the main market via block deals.
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Common Reference Price Duration for Block Deal Windows
Sebi may also approve the common reference price duration of 30 minutes for block deal windows. The Sebi working group was of the view that it should be common across 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.
OFS-like Mechanism as an Alternative to Block Deals
It is also being discussed with stakeholders such as exchanges, clearing corporations, mutual funds, and brokers that a simplified version of the Offer for Sale (OFS)-like mechanism can be introduced for non-promoter shareholders. It will act as an alternative to the block deal mechanism. Though, it may take longer time to materialize.
The mechanism of block deals was introduced by Sebi in 2005 and is primarily used by institutional investors such as mutual funds and insurance companies to execute large trades without disturbing the market price.
An email seeking comments from Sebi on the proposed changes, did not elicit any response.
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