Sebi panel recommends easing block deal framework

An expert committee of the Securities and Exchange Board of India (Sebi) has recommended easing the ‘block deal’ framework. The Secondary Market Advisory Committee (SMAC) is in favour of extending the block deal window and allowing better flexibility in terms of pricing of deals.

Under the current framework, block deals are allowed during a 30-minute window — between 9.15 am and 9.45 am. Sources said the SMAC wanted the alignment of the block deal window with normal trading hours.

Block deals involve trading of a large number of shares between two parties, which are typically pre-decided.

The current framework also allows pricing of such deals close to the market rate — plus or minus one per cent from the previous close. The expert panel deliberated whether more flexibility could be provided by allowing pricing to be up to five per cent higher or lower compared to the last close.

The SMAC will soon submit its recommendations to the capital markets regulator, which will then decide the final course of action.

Among other measures discussed by the panel are boosting the securities lending and borrowing (SLB) framework, weekly-settlement of derivatives contract, and rules governing index providers.

Sebi is keen on enhancing the SLB mechanism to help better price discovery in the cash segment. Due to lack of a vibrant SLB market, small investors are being forced to trade in the riskier derivatives market.

Sources said the SMAC didn’t discuss the issue of extending trading hours for the equity market segment. The current framework allows the extension of trading by another two hours. However, the broking community isn’t in favour of extending market timings.

The review of the call auction framework was also discussed at the SMAC meeting, said sources. Call auction is a price discovery mechanism aimed at arriving an equilibrium price based on the demand and supply to iron out volatility.