Block deal rule rejig on Sebi agenda

The Securities and Exchange Board of India (Sebi) is said to be in talks with the bourses to revise norms for block deals, following a representation from major institutional brokers and foreign investors. An upward revision of the price band and share limits for a deal is on agenda.

The market cop has also sought the opinion of the capital markets division of the finance ministry.

According to government sources, foreign and large institutional investors have told Sebi that during block trading, share prices were driven upwards as information on a deal reached the market. Hence, large investors had to pick up shares at a price much higher than what was planned.

Sebi allows block deals to execute large trades through a single transaction, without placing buyers or sellers at a pricing disadvantage.

According to the current guidelines, a block deal should be for at least 500,000 shares, or a minimum value of ~5 crore, and must be executed within a range of plus to minus one per cent of the last traded or previous closing price.

“The options being explored are to raise the block deal share and amount limits, so that large investors can pick up a higher number of shares outside a deal, or create a separate window for foreign portfolio investors where other traders cannot participate,” an official said.

Block deals are primarily used by foreign portfolio investors, mutual funds and other financial institutions to invest in equities. According to investors, the current norms inhibit price discovery and restrict negotiations on deals. It also prevents sellers from seeking a premium when a large number of shares are sold or buyers from seeking a higher discount if demand is weak.