Review of Block Deal Framework - Modified Trading Windows and Reference Prices

Description

SEBI revises block deal framework introducing morning and afternoon trading windows with new reference price mechanisms and maintaining minimum order size of INR 25 Crores.

Summary

SEBI has comprehensively revised the Block Deal Framework through Circular SEBI/HO/MRD/POD-III/CIR/P/2025/134 dated October 08, 2025. The new framework introduces two distinct trading windows - a Morning Block Deal Window (08:45 AM to 09:00 AM) using previous day’s closing price as reference, and an Afternoon Block Deal Window (02:05 PM to 02:20 PM) using VWAP calculated from trades between 01:45 PM to 02:00 PM. The minimum order size remains at INR 25 Crores, with orders permitted within +3% of applicable reference prices. These provisions apply to both T+1 and optional T+0 settlement cycles, with implementation effective from the 60th day of circular issuance.

Key Points

• Two separate block deal windows introduced: Morning (08:45 AM - 09:00 AM) and Afternoon (02:05 PM - 02:20 PM)
• Morning window uses previous day’s closing price as reference price
• Afternoon window uses VWAP calculated from cash segment trades between 01:45 PM to 02:00 PM
• Stock exchanges have 15-minute window (02:00 PM to 02:05 PM) to calculate and disseminate VWAP for afternoon session
• Price range restricted to +3% of applicable reference price in respective windows
• Minimum order size maintained at INR 25 Crores per trade
• All trades in block deal windows must result in delivery - no squaring off or reversal permitted
• Stock exchanges must disseminate block deal information (scrip name, client name, quantity, price) to public after market hours on same day
• Framework applies to both T+1 settlement cycle and optional T+0 settlement cycle
• All surveillance, risk containment measures, and trading practices applicable to normal segment extended to block deal windows

Regulatory Changes

Modified Block Deal Framework replacing existing provisions:

• Previous Framework: Single block deal window structure under Paragraph 1.2 of Chapter 1 of SEBI Master Circular SEBI/HO/MRD-PoD2/CIR/P/2024/00181 dated December 30, 2024
• New Framework: Dual window system with distinct reference price mechanisms

Trading Hours and Windows:

• Stock exchanges permitted to set trading hours between 08:45 AM to 05:00 PM
• Morning Block Deal Window: 08:45 AM to 09:00 AM (reference: previous day closing price)
• Afternoon Block Deal Window: 02:05 PM to 02:20 PM (reference: VWAP from 01:45 PM to 02:00 PM)
• VWAP calculation and dissemination period: 02:00 PM to 02:05 PM

Reference Price Mechanism:

• Morning window: Static reference based on T-1 closing price
• Afternoon window: Dynamic reference based on intraday VWAP calculation from specific 15-minute period

Applicability Extensions:

• Modifications to Paragraph 3.5 of SEBI Circular SEBI/HO/MRD/MRD-PoD-3/P/CIR/2024/172 dated December 10, 2024
• Framework now uniformly applicable to optional T+0 settlement cycle block deal windows

Compliance Requirements

For Stock Exchanges:

• Implement separate trading windows for morning and afternoon block deal sessions
• Establish VWAP calculation mechanism for trades executed between 01:45 PM to 02:00 PM in cash segment
• Disseminate calculated VWAP and necessary information between 02:00 PM to 02:05 PM
• Publish block deal information (scrip name, client name, quantity bought/sold, traded price) to public after market hours on same day
• Ensure all trading practices applicable to normal segment are implemented for block deal windows
• Set trading hours within permitted timeframe of 08:45 AM to 05:00 PM

For Clearing Corporations:

• Apply all settlement practices applicable to normal trading segment to block deal windows
• Implement surveillance and risk containment measures for block deal transactions
• Ensure delivery-based settlement for all block deal trades (no squaring off permitted)

For Depositories:

• Ensure appropriate settlement practices for block deal transactions
• Implement necessary systems to support delivery-based settlement mandate

For Market Participants:

• Ensure order size meets minimum threshold of INR 25 Crores
• Place orders within +3% price range of applicable reference price
• Comply with delivery mandate - no squaring off or reversal of block deal trades
• Adhere to applicable price bands and surveillance measures

Important Dates

Circular Issuance Date: October 08, 2025

Implementation Date: 60th day from October 08, 2025 (approximately December 07, 2025)

Daily Trading Windows (Post-Implementation):

• Morning Block Deal Window: 08:45 AM to 09:00 AM
• VWAP Calculation Period: 01:45 PM to 02:00 PM
• VWAP Dissemination Period: 02:00 PM to 02:05 PM
• Afternoon Block Deal Window: 02:05 PM to 02:20 PM
• Block Deal Information Disclosure: After market hours (same day)

Impact Assessment

Market Structure Impact:

• Introduction of dual window system provides greater flexibility for large institutional trades across different market conditions
• Morning window allows execution based on stable previous day closing price before market opens
• Afternoon window enables price discovery based on real-time intraday trading patterns through VWAP mechanism

Trading Strategy Impact:

• Market participants can choose optimal execution window based on price reference preference
• Morning window suitable for pre-market positioning based on T-1 closing levels
• Afternoon window beneficial for participants seeking mid-day VWAP-based execution
• 15-minute VWAP calculation window (01:45 PM - 02:00 PM) may witness increased trading activity

Operational Impact:

• Stock exchanges require system upgrades for VWAP calculation and dissemination infrastructure
• Enhanced surveillance mechanisms needed for dual window monitoring
• Participants need to adjust order management systems for window-specific reference prices
• Mandatory delivery settlement eliminates speculative block deal activity

Price Discovery Impact:

• Afternoon window’s VWAP-based reference provides market-linked pricing mechanism
• +3% price band around reference prices maintains price discipline while allowing negotiation flexibility
• Real-time VWAP calculation from specific 15-minute period creates transparent reference benchmark

Transparency Impact:

• Same-day disclosure of block deal details (including client names) maintains market transparency
• Public dissemination of VWAP between 02:00 PM - 02:05 PM provides pre-trade transparency for afternoon window

Settlement Cycle Impact:

• Uniform applicability to both T+1 and optional T+0 settlement cycles ensures framework consistency
• Mandatory delivery requirement aligns with settlement integrity objectives across both cycles

Risk Management Impact:

• Extension of normal segment surveillance measures to block windows enhances market integrity
• INR 25 Crores minimum threshold maintains focus on institutional-grade transactions
• No squaring off provision reduces settlement risk and speculative trading

Impact Justification

Major structural change to block deal framework affecting all market participants executing large trades; introduces dual window system with different reference price mechanisms impacting trading strategies and execution timing