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FPIs Want Block Deal Rules Relaxed

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A body representing foreign portfolio investors (FPIs) has written to the Securities and Exchange Board of India (Sebi) seeking relaxation of rules related to block deals. Asia Securities Industry & Financial Markets Association (ASIFMA) has asked for extension of `time window' for block deals and relaxation of `order limit.' Block deal is a trade with a minimum quantity of 5 lakh shares or minimum value of Rs 5 crore, executed through a single transaction, on a special window. The window is open for only 35 minutes during morning trading hours. The transaction price of a share ranges from +1% to -1% of the previous day's closing or the current market price. These transactions take place on a delivery basis.Usually, block deal happens when two parties agree to buy or sell securities at an agreed price and inform the stock exchange.

“We understand the Sebi is not in favour of introducing more flexibility for block trades, we continue to maintain that this is a major issue and one that puts India's markets at o d d s with global practice s, “ the ASIFMA letter said. A head of trading desk at an FPI said they face problems with existing block trade regime as limited time and narrow price band make it difficult and costly to execute block trades.ASIFMA said by restricting block trades, India increases market stress and volatility, encourages information leakage and discourages FPIs from trading in India. “Block trades are a critical tool for institutions to contain impact costs of their trading. These restrictions are hindering the development of India's capital market and limit the number of foreign firms that are active in the space,“ ASIFMA said. “Rules with regard to block trade are archaic and no more relevant to India's market,“ said Deven Choksey , promoter, KR Choksey Shares and Securities.

“Prevailing block deal rules in creases im pact cost for large institu tional traders and force them to shift volumes to overseas exchanges where the im pact cost is thin."

The Economic Times New Delhi,19th April 2017

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