Block trade

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The block trade (block trading) is a large deal in securities , which is privately negotiated outside of the open market for such securities and executed. Large brokers often offer block trading services to their institutional clients, sometimes known as "upstairs trading desks". In the US and Canada , a block trade is typically at least 10,000 stocks or $ 100,000 in bonds, but in practice it is significantly more.

For example, a hedge fund has a large position in Company X and wants to sell it entirely. If this came on the market as a large sell order, the price would fall sharply. By definition , participation was large enough to influence supply and demand and thereby achieve a market effect. Instead, the fund can arrange a block trade with another company via an investment bank , from which both parties benefit: the selling fund offers a more attractive purchase price, while the buying company can negotiate a discount on the market price. In contrast to large public offers, where the preparation of the necessary documents often takes months, block trades are usually carried out at short notice and concluded quickly.

Block trades can be more difficult than other trades and often put the broker at greater risk for a variety of reasons. Mainly because the broker has committed to a price for a large amount of securities, any adverse market movement can place a large loss on the broker if the position is not sold. Therefore, participating in block trading can tie up a broker's capital. Moreover, the fact that a well-informed money managers a large position in a particular security sell (or maybe buy) wants future price movements result have (that is, the money manager can have an information advantage) by the opposite side of the transaction takes , the broker runs the risk of "poor choices."

Block trade is a useful measure for analysts to gauge where institutional investors are pricing a stock , because in a merger or takeover, a bid must "clear" the market (ie enough shareholders must submit an offer), it is most useful to see what prices large blocks of stocks are trading at. These prices imply that the largest shareholders are ready to sell their shares; therefore, when analyzing the block trade, small trades are ignored to avoid biasing the data.

See also

Individual evidence

  1. ↑ ICE FUTURES US BLOCK TRADE - FAQs
  2. ↑ Lemke and Lins, Soft Dollars and Other Trading Activities , §2: 33 (Thomson West, 2013 ed.).
  3. ^ Institutional Trading Costs .
  4. ↑ Lemke and Lins, Soft Dollars and Other Trading Activities , §2: 33 (Thomson West, 2013 ed.).