In a move aimed at improving flexibility and transparency, SEBI (Securities and Exchange Board of India) is considering a significant overhaul of the block deal framework in the Indian stock market. As India’s capital markets grow in scale and complexity, stakeholders have called for more room in executing large trades without impacting market prices.
SEBI, in collaboration with stock exchanges, has begun preliminary discussions to revisit the current block deal rules. A working group has been set up to evaluate key aspects and gather feedback from mutual funds, brokers, investment bankers, and other major market players.
Key Focus Areas of the Review
The review is still in early stages, but the working group is currently examining five critical areas of the block deal mechanism:
1. Minimum Deal Size Threshold
The existing threshold for block deals is either ₹10 crore or 5 lakh shares — a limit that has been unchanged since 2017. SEBI is now re-evaluating whether this threshold should be increased to better reflect the rising depth and scale of the Indian equity market. Market participants believe a higher bar would make the system more efficient and aligned with current volumes.
2. Wider Price Band Flexibility
Currently, block deals are only allowed within a tight ±1% price band around the reference price. This has proven to be restrictive, especially in mid- and small-cap stocks, where liquidity is lower. SEBI is considering relaxing this to a ±2% band, giving institutional investors more flexibility to complete transactions without facing liquidity issues or price manipulation risks.
“Narrow price bands have been a hurdle in executing large trades, especially in less liquid stocks,” said a market participant familiar with the discussions.
3. VWAP Time Window Adjustment
At present, the Volume Weighted Average Price (VWAP) for the afternoon block deal session is calculated using a 15-minute window between 1:45 PM and 2:00 PM, with trades occurring between 2:00 PM and 2:05 PM. The group is exploring whether this window should be extended to 30 minutes to ensure greater price stability and reduce last-minute volatility.
4. Differentiated Price Bands for Sessions
Currently, both morning and afternoon block deal windows operate under the same ±1% price limit. However, SEBI is assessing the possibility of introducing different price bands for different sessions. Stakeholders argue that varying trading conditions throughout the day call for differentiated limits.
5. Reworking Block Deal Timings
There are presently two block deal windows — one in the morning (8:45 AM to 9:00 AM) and one in the afternoon (2:05 PM to 2:20 PM). SEBI is reviewing whether these windows are sufficient given the evolving nature of the market.
In addition, a new proposal for a third block deal window during the Closing Auction Session (CAS) from 3:30 PM to 3:45 PM is under consideration. This window would offer a wider ±5% price band, and trades would be settled at the equilibrium price — the level where maximum volume can be executed. This is particularly aimed at helping passive funds reduce tracking errors.
“These proposals are still under discussion and no final decision has been made,” confirmed one of the sources familiar with SEBI’s internal deliberations.
Why Are Block Deals Important?
Block deals are a crucial tool for institutional investors, such as mutual funds, pension funds, and insurance companies. These investors use block deals to execute large transactions without disrupting the broader market. The deals are typically pre-negotiated and occur within defined windows under a strict regulatory framework to avoid price manipulation and information leaks.
What Lies Ahead?
This initiative signals SEBI’s intent to modernize trading frameworks in line with the growing sophistication of India’s markets. By seeking feedback from across the investment ecosystem, the regulator aims to create a more transparent, flexible, and efficient block deal mechanism.
The outcomes of this working group could pave the way for a more responsive and investor-friendly market environment. For now, all eyes are on SEBI as the review process continues.
