Stock Deals

Insider Trades

Insider trading is a term subject to many definitions and connotations and it encompasses both legal and prohibited activity.

Insider trading is the buying, selling, or dealing in securities of a listed company by a director, member of management, employee of the company, or by any other person such as internal auditor, advisor, consultant, analyst, etc, who have knowledge of material inside information which is not available to the general public. 

Insider trading takes place legally every day, when corporate insiders – officers, directors, or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading. Hence Insider trading can be legal as long as it conforms to the rules set forth by SEBI

Legal examples of Insider Trading

CEO or a board member of company ABC buys 2,000 shares of stock in the company ABC. The trade is reported to the SEBI.

An employee of a company exercises his stock options and buys 500 shares of stock in the company that he works for.

Illegal examples of Insider Trading

A member of the leadership team of a company overhears a meeting where the CFO is talking about how the company is going to be driven into bankruptcy as a result of severe financial problems. The employee knows that his friend owns shares of the company. The employee warns his friend that he needs to sell his shares right away.

A government employee is aware that a new regulation is going to be passed that will significantly benefit an electricity company. The government employee secretly buys shares of the electricity company and then pushes for the regulation to go through as quickly as possible

Latest Regulations in India

On 18th January 2019, the Securities and Exchange Board of India (SEBI) decided to hold promoters of the company, irrespective of their shareholding status, responsible for violation of insider trading norms if they possess non-published price-sensitive information (UPSI) regarding the company without any a legitimate purpose.

SEBI specified “that the term legitimate purpose will include sharing of the non-published price-sensitive information (UPSI) in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations.”

This amendment is introduced under “Prohibition of Insider Trading”.

Read more information on Insider Trade regulations

Bulk & Block Deals

These are large transactions made by promoters, mutual funds, financial institutions, insurance companies, banks, venture capitalists, and foreign institutional investors that have the power to control the movement of stock prices. 

Bulk and block deals done on exchanges are keenly watched by market participants daily as they indicate the interest of big investors in the stock. Though these two terms sound similar, there is a difference between them. Here’s what they mean and how investors should interpret them

Block deals

Block deal is a trade, with a minimum quantity of 5 lakh shares or minimum value of Rs. 5 crores, executed through a single transaction, on the special “Block Deal window”. The window is opened for only 35 minutes in the morning trading hours. A Block deal happens when two parties agree to buy or sell securities at an agreed price between themselves and inform the stock exchange. The orders in a block deal are not shown to the people who trade from the normal trade window.

Market regulator SEBI (Securities and Exchange Broad of India) has also made it mandatory for the stockbrokers to disclose on a daily basis.

Stock exchanges should disclose the information on block deals to the public on the same day after market hours. This should contain information bits like the name of the scrip, name of the client, the number of shares, traded price, etc

Bulk deals

A bulk deal is a trade, where the total quantity bought or sold is more than 0.5% of the number of equity shares of a listed company.

Bulk deal can be transacted by the normal trading window provided by brokers throughout the trading hours in a day. Bulk deals are market-driven and take place throughout the trading day.

The stockbroker, who facilitates the trade, is required to reveal to the stock exchange about the bulk deals on a daily basis.

Bulk orders are visible to everyone. If the bulk deal happens through a single trade, it should be notified to the exchange immediately upon the execution of the order. If it happens through multiple trades, it should be notified to the exchange within one hour from the closure of the trading

Regulatory requirements

To facilitate block deals, stock exchanges provide a separate trading window for only 35 minutes at the beginning of the trading hours.

 The transaction price of a share ranges from +1% to -1% of the previous days closing or the current market price. These transactions take place on a delivery basis.

Transparent disclosure of trade transaction details such as the name of scrip, name of the clients (Buyer and Seller), the number of shares bought/sold, and traded price have to be made by the broker to the exchange immediately. The exchange has to furnish all the transaction-related information to the public markets on the same day as the block deal transaction, after the closing of trading hours