The Securities and Exchange Board of India has asked brokers to make disclosure in all bulk deals where the quantity transacted is more than 0.5 per cent of a company's equity shares listed on the exchanges.
The Sebi order is aimed at making bulk deals transparent. "The disclosure shall be made with respect to all transactions in a scrip where total quantity of shares bought and sold is more than 0.5 per cent of the number of equity shares of the company listed on the stock exchange," Sebi said in a media release.
The brokers to the deal also have to disclose to the exchange apart from the name of the scrip, the name of the client, quantity of shares bought and sold and the traded price.
At present bulk deals are shrouded in secrecy. Apart from the parties concerned, there is little information on block deals and rumours about the size of the deal tend to drive up the share price on subsequent days.
The clients involved are rarely known. Block deals are sometimes struck at a price which may be different from the price at which the scrip is trading on the bourses which impact normal scrip price movements.
There have been unconfirmed instances of interested parties colluding to strike bulk deals between themselves to increase the day's traded volumes to such levels as may show up on the general investors' radar.
Usually, the two parties keep switching buy and sell positions to drive up volumes. Once the traded volumes show up in routine statistics of the exchanges, the markets are fed with the rumour of significant institutional buying interest, which is then a self fulfilling prophesy.
Investors are caught in this trap as they most often chase the slightest signs of heightened institutional activity in a scrip.
According to Sebi, the disclosure has to be made on a near real-time basis. "The disclosure shall be made by brokers immediately upon execution of the trade," it said.
It is not merely the stock exchanges but the information has to be made known to the public as well. The stock exchanges have to disseminate the information on the block deal "on the same day, after market hours, to the public."
