A block trade occurs when multiple number of securities are sold or bought at a fixed price. Block trades often include two parties trading a big quantity of shares or bonds at a predetermined price. They are occasionally carried out outside of open markets to reduce the influence on the price of the security. A block trade is defined as a transaction involving at least 10,000 shares of stock (excluding penny stocks) or $200,000 in bonds. The majority of block trades include significantly more than 10,000 shares.
【block trade】Definition
Individual investors seldom, if ever, make block trades because of the scale of block trades on both the debt and equity markets. Hedge funds and institutional investors normally carry them out through investment banks and other intermediaries.
Volume will change when block trades occur on an open market, impacting the values of the shares or bonds being traded. As a result, rather than acquiring assets directly from a hedge fund or investment bank as they would for lesser sums, block trades are frequently done through an intermediary.
These middlemen, also known as blockhouses, specialize in methodically launching massive deals in order to avoid a dramatic rise or decrease in the security’s price. Traders on the Blockhouse team have handled deals of this magnitude before. Staffers offer a blockhouse with unique ties with other merchants and businesses, allowing the company to exchange big sums of money more readily.
When a huge institution wishes to start a block trade, it will contact a blockhouse’s personnel, knowing that they will work together to get the best offer. After an order is made, blockhouse brokers contact other brokers that specialize in the type of security being traded, and the specialist securities traders fulfil the huge order through many sellers. Iceberg orders are frequently used to hide the true volume of goods being traded.
Example of a Block Trade
A hedge fund is looking to sell 100,000 shares of a small-cap firm for roughly $10 per share. Because this is a million-dollar transaction on a firm with a total value of only a few hundred million dollars, a single market order would likely drive the price down dramatically. Furthermore, because of the order’s magnitude, it would be executed at progressively lower prices as market making occurred. As a result of the hedge fund’s order slippage, other market players may jump on, shorting the stock based on the price movement, driving the stock further lower.
There are three different kinds of block trades: Basis Trade at Index Close (BTIC), Trade at Settlement (TAS) and Trade at Marker (TAM) trades.
BTIC
A BTIC block trade is a futures transaction that uses the cash index close price to price it. The relevant futures price for a BTIC block trade conducted on or before the scheduled close of the underlying main securities market on a given Trading day must be determined by reference to the Index closing value for that trading day, plus or minus the agreed upon basis.
TAS
TAS block trades are futures contract months that are qualified for block trading and are allocated the current day’s settlement price or any permissible price increment ten ticks higher or lower than the settlement price.
TAM
Other block-eligible futures contract months may be performed as TAM block transactions, using the current day’s marker price or any valid price incremental ten ticks higher or lower than the marker price.
Example of a Block Trade
A hedge fund is looking to sell 100,000 shares of a small-cap firm for roughly $10 per share. Because this is a million-dollar transaction on a firm with a total value of only a few hundred million dollars, a single market order would likely drive the price down dramatically. Furthermore, because of the order’s magnitude, it would be executed at progressively lower prices as market making occurred. As a result of the hedge fund’s order slippage, other market players may jump on, shorting the stock based on the price movement, driving the stock further lower.
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