SEBI to raise minimum block deal size to Rs.25 crores
The existing threshold of Rs.10 crores was set in 2017
The Securities and Exchange Board of India (SEBI) is considering introducing new reforms to its block deal framework. It intends to raise the minimum trade size to Rs.25 crores and widen the permissible price range to channel smaller trades towards the regular cash market.
The existing threshold of Rs.10 crores was set in 2017, when a major overhaul of the framework was carried out.
The market regulator also proposes to change the price band for block deals. Presently, trades can be executed within a 1 percent band on either side of the previous day’s closing price. To reduce the risk of market manipulation, it is considering a wider band of up to 3 percent for non-derivative stocks, while retaining the 1 percent band for futures and options (F&O) scrips.
Additionally, a separate dispensation is being examined for SME-listed stocks.
The proposals were discussed at a recent meeting between the regulator, stock exchanges, and market participants.
Earlier, SEBI had constituted a working group to review the block deal framework.
Market experts have welcomed the raising of the deal size, as a Rs.10 crore trade can be comfortably executed through the normal trading window.
Commenting on the matter, Kaushik Mukherjee, partner at IndusLaw said, “The 1 percent up/down price range from the previous day’s price was quite limiting. It prevented block discounts in the market price and premiums. The 3 percent range gives more flexibility to buyers and sellers to price a block.”
He added that retaining the existing band for F&O stocks was a mindful move to prevent manipulation through block deals. It could create artificial demand to profit from F&O bets on the same stock or on indices whose volatility depended on the stock’s price.
Pranav Haldea, managing director of Prime Database, said thresholds should be reviewed periodically, “preferably every five years, so they remain aligned with market growth.” He added that the block deal mechanism had provided comfort to foreign investors by allowing smoother exits.
Block deals remain an important avenue for large institutional trades. So far this year, block deal transactions totaled Rs.1.32 trillion, with the highest monthly activity in June at Rs.77,000 crore. Currently, it is Rs.4,300 crores.
However, Vivek Boray, partner at King Stubb & Kasiva, Advocates and Attorneys, cautioned that while the proposed framework could aid transparency and price discovery, it might reduce options for mid-sized investors. “The discussions reflect SEBI’s broader push to deepen liquidity in Indian markets,” he remarked.
Currently, exchanges operate two 15-minute (8.45 am to 9.00 am and 2.05 pm to 2.20 pm) block deal windows on all trading days. Orders in these windows must be placed within 1 percent of the previous day’s closing price.
The advantage is that sellers can place shares directly with their preferred buyers.