This article has been written by K Jyoti Rao pursuing the Diploma in General Corporate Practices from LawSikho. This article has been edited by Tanmaya Sharma (Associate, Lawsikho) and Smriti Katiyar (Associate, Lawsikho).
Bulk deal means that the aggregate or number of shares bought or sold is more than 0.5 per cent of the number of shares in a listed company. These bulk deals can happen through the normal trading window provided by the trader. Whenever these transactions happen the brokers who manage these bulk deals have to reveal these transactions to the stock exchange. As compared to block deals, bulk deals are visible to everyone. These are basically the opulent investors such as the fund houses, FII’s (Foreign Institutional Investors), Banks, Insurance, firms and HNI’s(High Net worth Individuals) given the high amount required to enter into these transactions which involve and include a percentage of shares. Particularly, investors look at the bulk and block deals which show a keen interest in the big stocks. If several deals like that happen in stock continuously over a period of time, these can be taken as a sign of confidence and the price of the stock may increase in the near future but big institutions or investors buying the shares through such deals does not mean that the stock for this will increase in future. Those brokers who facilitate the trade are impelled to notify the particular exchange about the deal. They must inform the stock exchange within an hour of the closing day of the trading, especially if the deals are done through a single transaction. It’s the sole responsibility of the broker who conducts the transaction to inform the stock exchange about the fact that the trade of high-value volume has been conducted.
Some specific details have to provide by the Brokers about the deal such as:
- Bought the script or sold the name of the client.
- The quantity bought or the volume of shares bought or sold and the trade price.
- Apart from sharing the information, brokers must also share it with the public after the trading hour closes on the same day of implementing the trade.
- Bulk deals must mandatorily result in delivery.
- Buyers or sellers are required to pay the Securities Transaction Tax (STT) on bulk orders.
This article mainly outlines and attempt to address to explain and address the issues: · Overview about the Bulk deal.
Bulk and block deals
To increase the transparency in the block and bulk deal, preventing them from the rumours and speculation is the main reason for the introduction of this deal by the SEBI. When the volume of the trading increases in the stock, it creates all sorts of rumours including the sale by the promoter or interest shown from the institutional investors. Earlier times, before the guidelines were issued by this the disclosure of Bulk and the block deals were issued, these transactions were made in a secret manner. Apart from the parties involved in this i.e. the buyer and the seller, no information shall be shared with the retail investors about the size of the deal, their stock price and their related rumours on that particular subsequent day on the block deals. Thus, the introduction to the bulk deal and the block deal is considered to be good which gives it transparency, for better clarity and specifies the reason for the increase in volumes.
Major participants in the Bulk/ Block deals
Major participant includes in the bulk and the block deal is:
- Institutional players;
- High Net Worth Individuals (HNIs);
- Mutual Funds;
- Financial institutions;
- Insurance Companies;
- Venture Capitalists;
- Foreign Institutional Investors (FIIs);
- Foreign Institutional Insurance companies.
These are the market players which trades included in the bulk and the block deals. Promoters use this window in many companies.
Interpretation of the Bulk and the Block deals
Most of the investors get excited by seeing the names in the bulk /block deals in the particular stock that does not mean that the price of that particular stock will change or increase. Investors should know the fundamentals of the stock and its performance over the years among those other things. Investors should understand the risk involved before any investment.
These deals are usually done by the Foreign Institutional Investors (FII’s), Domestic Institutional Investors (DII’s) and the mutual funds and in some of the cases these are the High- Net- worth- Individuals as well. These deals do not necessarily mean that the expected price may likely increase or down. In the case of the bulk deals which happen on a continuous basis on a trading day, it could be expected as a sign of big variance expected at the share price in the near future. It could also happen in the operator driven counters. These bulk and block deals are considered not a good investment strategy. It is difficult to predict the conditions or the circumstances under which the buyer is buying or selling the shares. Investors are advised not to make any assumptions for the prices that will likely increase or decrease on the basis of such deals and the investors are advised to look into their fundamentals, their past performance, their future plans of the company before investing in any company. If any such trade has been made through a single transaction, the broker shall inform the BSE/ NSE on an immediate basis about the fact that the particular transaction has been conducted or made. If that particular deal has been conducted through multiple transactions, the broker shall inform the stock exchange about the bulk deal within one hour from the closing of the trading day. After such bulk deal has been conducted, the broker is required to inform about the BSE/NSE:
- Scrip Name;
- Clients Name;
- Quantity of the shares Bought Sold;
- Traded Price;
- After the receipt of such information about the Bulk Deal by the stock exchange i.e. The BSE/NSE, the stock exchange, is required to disclose all the relevant detailed information publicly about the transaction made in the public after the closure of the trading hours on the same day after the implementation of the trade.
- Bulk trade is conducted in the normal trading hours itself and is visible to everyone in the normal trading window. All these trades necessarily result in Delivery and cannot be squared off the day.
- Securities Transaction Tax is charged on such orders in the same manner as charged on all other orders.
- The details of all such bulk deals conducted on the BSE and the NSE on any day are mentioned.
Main characteristics of the Bulk deal
- It considers as an indication of the Concentration of interest :
Bulk Deals are basically in the equity markets. It is important to know that the bulk deal is buying or selling since every transaction has two sides. A bulk deal gives us some important clues and is different from block deals. These are different from the block deals.
It creates a sign of interest in the particular stock. It tends to indicate the sudden interest from the informed investors. Over the period of time, the BSE and the NSE seem to check the impact of the stock price of the bulk deal. It is obvious from the fact that the concentration of interest involved in any of the institutions has a positive impact on the prices. The reverse is in the case of consistent selling the word of caution is warranted.
Smart investor’s deals by reporting and executing slightly lower than 0.5 per cent marks.
- Separation of the intraday trades and the bulk transfers:
Firstly, we need to separate the normal trading day transactions and the bulk deal transactions. Such data are the intraday trade data and the short-term trade data. These are basically the large investors and the proprietary books trying to ride for the short-term profits. They do not indicate anything.
Secondly, these sets of data are transacted among the institutions. We need to see that the larger positions in the bulk deals segment are nothing but the Foreign Institutional Investors, Mutual Funds, large High net worth individuals and the promoter’s actually shifting ownership around them.
Thirdly, it shall be prudent that the bulk deals are backed by the heavy shortage of funding in future or the arbitrage funds. This is most likely an arbitrary position, not a direct indication.
- Focus on the Bulk deal trends over a period of time:
This is the most important takeaway from the bulk deal data. It took a period of 2 years to integrate the bulk data and try to sort it out on the basis of the stock and the date. It will give you
a better and clear idea of how the price of the stock has moved in conjunction with the bulk deals.
It gives you an idea of which the traders and the investors are the most adept at catching the trends as evidenced by the future movement in the process. If these factors are combined these bulk deals become relevant and workable from the view of the selection of stock perspective.
Bulk deals reveal only the part of the interest built up in the stock and manner times are not indicative. Aggregation of long-term bulk deals does not give you important clues. The onus on them is that a detailed study is to be done before embarking on an investment decision. We just need to be cautious there shall be hidden wisdom in the bulk deals.
Thus, bulk and block deals are the two variants of market transactions that are pre-owned by the big institutional investors, large funds and the high-net-worth individuals to execute the large volumes in the stock market. Each of them has its own advantages and disadvantages and its differentiation. Where bulk deals are visible to everyone as their transaction is made during the regular market hours whereas block deals are transacted through a special trading window and afford a greater degree of privacy to the concerned parties.
However, Bulk deals need to report the transactions made at the end of the day and the information shall be made available to the public. Investors shall utilize the data on bulk and block deals which creates the set indicators in their trading strategy as they create larger corporate interest in the direction of the trade. This data shall be used with caution which can often be misleading.
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