Mutual funds are pushing for non-disclosure of block deals as Sebi reviews framework

Should the names of parties involved in block deals be made public? The question came up during a review of the block deal framework by a Sebi-appointed working group, where mutual fund representatives pushed for change, arguing that the disclosure does not serve any significant purpose, and may even be detrimental for liquidity in that scrip.

One fund manager suggested to the working group, “If an investor’s allocation across schemes results in a stake of less than 0.50% of a company’s total issued capital, the requirement to publicly disclose their name in block deal data should be done away with.”

Another fund manager said disclosing names in block deals can hurt market liquidity. “Often, once names are disclosed, other market participants follow the trade trend, which impacts both the price and supply of the scrip. In many cases, the intended transaction cannot be completed in a single block deal, and multiple deals are required. But once the news is out, the price moves, derailing the strategy.”

One of the fund managers pointed out that institutional investors often have investment timelines and strategies entirely different from retail investors, and said, “These small, scheme-level transactions rarely carry significant influence over the company but still require the same level of disclosure, adding to compliance burdens without much benefit.”

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However, some market participants disagree. Arun Kejriwal, Founder of Kejriwal Research and Investment Services said Sebi should not entertain such suggestions. “The block deal disclosure framework has existed for many years, it has worked well, and it should continue for the sake of transparency,” said Arun Kejriwal.

The BSE Brokers Forum (BBF), an association part of the working group to review block deal framework also voiced strong reservations. BBF argued that the block deal window comes with privileges – like negotiated pricing and reduced market impact – that justify greater transparency. “The public dissemination of data serves the larger interest of the market,” said one BBF representative, adding, “If participants are uncomfortable with having their names in the public domain, they can always trade in the normal market instead of using the block window.”

The Securities and Exchange Board of India (Sebi) has yet to decide on these suggestions and is reviewing the block deal framework. The working group has proposed several changes, reported earlier by Moneycontrol, including expanding the price band to 5 percent for the morning window and 3 percent for the afternoon window.

Another suggestion is to increase the minimum deal size threshold to Rs 25 crore from current Rs 10 crore. The rationale for higher block size is that benchmark indices have grown nearly 2.7 times over the last 10 years, and with the growth in size and depth of the market, it is natural to raise the current limit, which was set in 2017.

There is also a view that raising the block size limit would ensure participation from serious institutional investors, and not high-net worth individuals or family offices, who bypass the main market via block deals.

Another suggestion to the working group was the need for a unified reference price for both windows. Currently, the morning window’s reference price (8:45–9:00 am) is based on the volume-weighted average price (VWAP) of the last half hour of the previous trading session, while the afternoon window’s reference price (2:05–2:20 pm) is based on the VWAP of trades executed between 1:45 pm and 2:00 pm.

Block deals are primarily used by institutional investors such as mutual funds and insurance companies to execute large trades without significantly disturbing market prices. These pre-negotiated deals are executed in specific trading windows under strict rules to prevent price manipulation.