The Securities and Exchange Board of India (SEBI) has recently floated significant proposals to revamp the country’s block deal framework, marking a pivotal moment for institutional trading in the Indian capital markets. The regulator’s latest consultation paper outlines substantial changes that could reshape how large-scale transactions are executed, particularly for non-futures and options (non-F&O) stocks.
Understanding Block Deals: The Foundation
Block deals serve as a crucial mechanism in capital markets, allowing institutional investors to execute large transactions without significantly impacting market prices. Currently defined as single transactions with a minimum value of ₹10 crores or a minimum quantity of shares, these deals provide a separate trading window away from regular market hours, ensuring that large trades don’t create undue volatility in the broader market.
Key Proposed Changes: What’s on the Table
1. Substantial Increase in Minimum Deal Size
SEBI has proposed a dramatic increase in the minimum block deal size from the current ₹10 crores to ₹25 crores. This 150% increase reflects the growing scale of institutional transactions and aims to ensure that the block deal mechanism serves its intended purpose of facilitating genuinely large trades.
The rationale behind this increase is supported by compelling data. SEBI’s analysis of block deals in FY25 at the National Stock Exchange revealed that 90% of block deals exceeded ₹14 crores, with 75% above ₹26 crores, 60% above ₹50 crores, and 50% above ₹84 crores. This distribution clearly indicates that the current threshold of ₹10 crores may be too low to effectively separate large institutional trades from regular market activity.
2. Expanded Price Range for Non-F&O Stocks
Perhaps the most significant change proposed is the widening of the price band for non-F&O stocks from the current 1% to 3% on either side of the reference price. This tripling of the permissible price range acknowledges the unique liquidity characteristics and price discovery challenges often faced by stocks that are not part of the derivatives segment.
Interestingly, SEBI has proposed to maintain the existing 1% price band for futures and options stocks, recognizing that these securities typically enjoy better liquidity and more efficient price discovery mechanisms due to their inclusion in the derivatives market.
3. Refined Reference Price Mechanism
The regulator has also proposed changes to how reference prices are determined for block deals:
- Morning Window (8:45 AM to 9:00 AM): The reference price would be the previous day’s closing price
- Afternoon Window (2:05 PM to 2:20 PM): The reference price would be the volume-weighted average market price (VWAMP) of trades executed between 1:30 PM and 2:00 PM
This bifurcated approach ensures more accurate price discovery and reduces the potential for manipulation or unfair pricing.
Market Impact and Trading Volumes
The significance of these changes becomes clear when examining the current market dynamics. In 2025 so far, block deal transactions have aggregated approximately ₹1.32 trillion, demonstrating the substantial role these mechanisms play in the Indian capital markets. The highest monthly activity was recorded in June at ₹77,000 crores, while August volumes have reached around ₹4,300 crores.
These figures underscore the importance of having a robust and well-calibrated block deal framework that can accommodate the growing institutional trading activity while maintaining market integrity.
Implications for Different Market Participants
Institutional Investors
The proposed changes present both opportunities and challenges for institutional investors. While the higher minimum deal size may exclude some smaller institutional transactions from the block deal mechanism, the expanded price range for non-F&O stocks could provide greater flexibility in executing large trades in less liquid securities.
Non-F&O Stocks
Companies whose stocks are not part of the derivatives segment stand to benefit significantly from the expanded 3% price band. This wider range could facilitate better price discovery and potentially increase institutional interest in these securities, as investors gain more flexibility in execution.
Market Makers and Intermediaries
Brokers and market makers will need to adapt their strategies and systems to accommodate these changes. The wider price bands may create new arbitrage opportunities while requiring enhanced risk management frameworks.
Stakeholder Consultation and Implementation
SEBI’s approach to these changes has been comprehensive and consultative. The draft circular was developed based on extensive feedback from various stakeholders, including stock exchanges and clearing corporations. This collaborative approach ensures that the proposed changes address real market needs while maintaining regulatory oversight.
The consultation paper approach allows market participants to provide input before final implementation, ensuring that any unintended consequences can be identified and addressed proactively.
Looking Ahead: Future of Block Trading
These proposed changes represent a significant evolution in India’s block deal framework, reflecting the maturation of the country’s capital markets and the increasing sophistication of its institutional investor base. The differentiated treatment of F&O and non-F&O stocks acknowledges the diverse liquidity characteristics across different segments of the market.
For the Indian capital markets, these changes could lead to:
- Enhanced Market Efficiency: Better price discovery mechanisms and more appropriate transaction sizes
- Increased Institutional Participation: More flexible execution options may attract greater institutional interest
- Improved Market Depth: Larger minimum sizes ensure that block deals truly represent substantial institutional activity
Conclusion
SEBI’s proposed changes to the block deal framework represent a thoughtful evolution of India’s institutional trading infrastructure. By increasing minimum deal sizes and expanding price ranges for non-F&O stocks while maintaining existing parameters for derivatives-eligible securities, the regulator demonstrates a nuanced understanding of market dynamics.
As the consultation process unfolds, market participants should engage actively to ensure that the final framework serves the needs of all stakeholders while maintaining the integrity and efficiency of India’s capital markets. These changes, once implemented, could mark a new chapter in the story of India’s growing institutional trading ecosystem.
The success of these proposed changes will ultimately be measured by their ability to enhance market efficiency, improve price discovery, and facilitate the smooth execution of large institutional transactions while maintaining fair and orderly markets for all participants.
