INTRODUCTION
On 8 October 2025, Securities and Exchange Board of India (‘SEBI’) notified the Review of Block Deal Framework, paving the way for significant reforms in the large-value transaction segment of India’s capital markets. The move comes as a response to the need for modernising the existing system by enhancing transparency, efficiency, and market integrity in transactions executed between institutional investors. Key measures include an increase in the minimum order size from ₹10 crore to ₹25 crore, expansion of price bands from ±1% to ±3%, mandatory delivery obligations, disclosure of client identities, and the introduction of dual trading windows.
While the block deal framework has faced challenges with narrow price bands limiting execution flexibility. The SEBI intends to protect the interests of institutional investors while bringing in expanded price bands and dual windows that would reduce market volatility and increase efficiency. However, notwithstanding these intentions, the new framework is not without its share of criticisms and possible pitfalls. This article would consist of a primer on the existing block deal mechanism and the new framework, and would then proceed to analyse the benefits and pitfalls of the proposed reforms.
BACKGROUND
A block deal typically involves the purchase or sale of shares worth a substantial value between two parties, executed through a separate trading window to prevent excessive market volatility. The Indian market currently has one of the narrowest permissible price bands for block deals among Asia-Pacific jurisdictions, allowing trades only within ±1% of the prevailing price under the existing framework. This restricted range, though designed to curb manipulation, has often limited execution flexibility and reduced participation.
Because institutional investors have to execute within such narrow bands, getting enough counterparties interested in a block deal proposal and the price at which large volumes can be traded heavily affects the success of a transaction. A successful block deal execution can be elusive, as the narrow price band restricts realistic pricing aligned with market conditions. This trend of restricted pricing under the existing process, not only thwarted several transaction attempts but also led to a misalignment between buyers and sellers.
SEBI acknowledged these concerns and recognised the growing sophistication of capital markets and the need to align with global best practices. Accordingly, the regulatory authority introduced the revised Block Deal Framework with an aim to modernise the system while maintaining market integrity.
DECODING THE CHANGES
Separate Block Deal Windows
Two distinct trading windows have been introduced for block deals:
- Morning Block Deal Window: Operates from 08:45 AM to 09:00 AM, with the previous day’s closing price serving as the reference price.
- Afternoon Block Deal Window: Operates from 02:05 PM to 02:20 PM, with the Volume Weighted Average Price (VWAP) of trades executed between 01:45 PM and 02:00 PM serving as the reference price. The VWAP data is computed and disseminated between 02:00 PM and 02:05 PM.
Defined Price Range
Orders placed during these windows must be within ±3% of the applicable reference price, subject to surveillance measures and prescribed price bands. This ensures fair valuation and prevents price manipulation. Before, the price band was restricted to ±1% of the prevailing price. Now, the expanded ±3% band will be used to allow greater execution flexibility. However, the broader price range already provides flexibility for institutional trades, which makes some question whether the expansion might open avenues for manipulation and could unnecessarily increase short-term volatility.
Minimum Order Size
The minimum permissible order size for block deals has been set at ₹25 crore, up from ₹10 crore, reinforcing that this mechanism is meant exclusively for large institutional transactions. SEBI’s analysis of FY25 block deal data at NSE revealed that 90% of deals were above ₹14 crore, 75% above ₹26 crore, 60% above ₹50 crore, and 50% above ₹84 crore.
Compulsory Delivery-Based Trades
Every trade executed through the block deal window must result in actual delivery of shares. Squaring off or reversal of trades is not permitted, thereby promoting genuine investment transactions.
Applicability to T+0 Settlement
These provisions are also applicable to block deals executed under the optional T+0 settlement cycle, aligning with faster trade settlement mechanisms.
CRITICAL ANALYSIS
The existing framework with narrow price bands is prone to execution failures and reduced participation, which leads to inefficient large-value transactions. The proposed changes aim to align with global best practices, reduce execution constraints and improve market efficiency by providing an expanded framework. However, there is still some scepticism about the new reforms.
Increase in Minimum Order Size from ₹10 Crore to ₹25 Crore
Raising the minimum order size aims to ensure that block deals remain confined to large, sophisticated institutional investors who possess the financial capacity and market understanding to execute significant trades. This could reduce speculative participation and promote more stable trading activity within the block deal segment. This will ensure that only serious institutional players participate in the block deal mechanism.
However, this move may exclude smaller institutional investors such as mid-sized mutual funds, pension funds, or family offices. Concentrating block deal participation among a limited number of large entities could reduce market diversity and increase price volatility due to fewer participants dominating high-value transactions. This misalignment of interests between different categories of institutional investors can continue in the new approach.
Another criticism of the increased minimum order size is that it lacks the provision for accommodating mid-sized institutional investors who may have legitimate needs for executing large trades below ₹25 crore. This can result in smaller institutions being deprived of an efficient pricing mechanism, which can cause their trades to be executed through less optimal routes. Furthermore, excluding this segment of investors could make them apprehensive of participating in large-value transactions, as there is uncertainty about alternative execution mechanisms. This uncertainty can also negatively affect market liquidity, as seen in other markets where overly restrictive thresholds created barriers to entry. Over time, the higher threshold could create long-term participation constraints, which could repel mid-sized investors from the block deal mechanism, weakening market diversity and thereby impacting overall liquidity. This can affect the efficiency and the depth of the institutional trading segment. The inability to accommodate a broader range of institutional investors and the mandatory higher threshold can deter participation and affect overall market efficiency and investor confidence.
Expansion of the Price Band from ±1% to ±3% for Non-Derivative Stocks
A wider price band offers greater flexibility in executing large trades, allowing participants to price deals more realistically in line with prevailing market conditions. This could facilitate smoother execution of block trades and reduce the likelihood of failed transactions due to narrow price restrictions. The same is the case with institutional investors which need flexibility to execute large volumes, resulting in more realistic pricing leading towards better execution outcomes.
The expanded price band from ±1% to ±3% facilitates the execution process with bringing in greater flexibility. It is argued that the market value already reflects fair pricing for actively traded stocks making overly narrow bands restrictive. Moreover, before the modifications, institutional investors had already faced challenges executing large trades within the ±1% band, considering the practical constraints of finding counterparties. Institutional investors may not be able to get their fair execution reflected through such narrow bands. Resultantly, a more flexible method of pricing is often relied upon in scenarios where regulations allow the same such as in the case of international markets where wider bands are standard practice. Oftentimes, the method of price discovery is left to the market dynamics. Based on the same, it can be inferred that the aim to augment the confidence of institutional investors in execution efficiency is comprehensively achieved through this modification.
However, expanding the price band could inadvertently increase short-term price volatility and open avenues for market manipulation. Traders might exploit the wider band to influence stock prices, leading to distortions that mislead other market participants.
Mandatory Delivery Requirement for Block Deals
SEBI’s proposal to make delivery compulsory seeks to reinforce the authenticity and transparency of block transactions. By prohibiting intra-day squaring off or reversal of trades, SEBI intends to discourage speculative or artificial volume creation and enhance market integrity.
However, this could limit the flexibility of institutional investors who use such strategies to manage short-term portfolio adjustments or hedge positions. By removing this flexibility, SEBI risks reducing the attractiveness of block deals as a mechanism for efficient portfolio management. This will reduce the chances of certain types of institutional strategies being executed through the block deal mechanism.
Introduction of Dual Trading Windows
The changes made to introduce dual trading windows do come as a positive step. Previously, block deals could only be executed during a single window, which created concentration and potential market impact. Under the existing framework, institutional investors had to execute all large trades within one narrow time window. This led to execution challenges and potential market distortion. This time concentration resulted in inefficiency in the block deal mechanism. Now, having two block deal windows—one in the morning and another in the afternoon—could improve operational convenience and reduce market impact by distributing large trades throughout the day. This mostly comes off as a positive change as it helps to execute trades more efficiently, reducing market concentration.
A pre-change requirement was that all block deals had to be executed in a single window which has now been changed to allow two separate windows to improve execution flexibility. This old requirement concentrated all large trades in one time period and allowed for potential market impact, even in cases where spreading trades throughout the day would reduce volatility. Additionally, institutional investors were deprived of the opportunity to adjust their strategies based on intraday market movements as a consequence of such concentration. This will increase the chances of successful block deal execution.
However, this structure may complicate execution logistics for institutional investors handling large-volume trades. Coordinating within fixed time frames, especially amid volatile market conditions, could increase the risk of partial or delayed execution, thereby affecting overall efficiency.
WAY FORWARD: BUILDING A BALANCED REGULATORY APPROACH
While the new regulations aim to modernise the block deal process, they appear to create a mixed outcome. On one hand, the modification made to introduce dual windows and expand price bands do assist in improving execution flexibility, which enhances market efficiency. But, on the other hand, the increased minimum order size, mandatory delivery requirement and potential for increased volatility can result in reduced participation and a misalignment in the interests of different institutional investors.
Perhaps the key to perfection of the block deal framework in general lies somewhere in the middle: allowing a phased implementation with periodic review. The framework could be rolled out gradually with a pilot phase, in which SEBI can assess the market impact of key measures such as increased order size and expanded price bands.
Equally, a data-driven review mechanism using empirical data to evaluate effectiveness on liquidity, volatility, and participation might inject evidence-based policymaking and prevent the framework from being too restrictive or too lenient.
Additionally, the mandatory delivery requirement could also be rejigged to allow certain exceptions for legitimate hedging or portfolio rebalancing activities. A hybrid approach can be utilised, that would blend compulsory delivery for most trades with limited flexibility for specific institutional strategies, which would help maintain market integrity while preserving execution efficiency.
CONCLUSION
SEBI has made a welcoming move to improve the block deal mechanism, but the limitations of certain measures indicate a need for further refinement to ensure a balanced approach that protects market integrity while preserving efficiency. The proposed review of the block deal framework represents SEBI’s continued commitment to improving market efficiency, transparency, and investor confidence. However, as with any reform, the key lies in achieving the right equilibrium between regulation and flexibility. While stricter norms can enhance accountability, excessive control may deter participation and impact liquidity.
A prudent approach would therefore involve measured regulation backed by continuous assessment and stakeholder engagement. By ensuring that reforms are both transparent and market-friendly, SEBI can strengthen the credibility of India’s capital markets while preserving their competitive and inclusive character.
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