A block trade is a permissible, noncompetitive, privately negotiated transaction either at or exceeding an exchange determined minimum threshold quantity of shares called block shares which is executed apart and away from the open outcry or electronic markets. Major broker-dealers often provide "block trading" services. In the United States and Canada, a block shares are usually sold at least 10,000 shares of a stock or $100,000 of bonds but in practice significantly larger. For instance, a hedge fund holds a large position in Company X and would like to sell it completely. If this were put into the market as a large sell order, the price would sharply drop by definition the stake was large enough to affect supply and demand causing a market impact. Instead, the fund may arrange for a block trade with another through an investment bank, benefiting both parties: the selling fund gets a more attractive purchase price, while the purchasing company can negotiate a discount off the market rates.
Definition,block shares, A large number of company shares, usually 10,000 or more sold in bulk in a single trade. Block trading is a useful measure for analysts in order to assess where institutional investors are pricing a stock. Because in a merger or acquisition, a bid needs to "clear the market" (i.e. enough shareholders need to tender), it is most useful to see at what prices large blocks of stock are trading. These prices imply what the largest shareholders are willing to sell their shares for; therefore, in block trading analysis, small trades are ignored to avoid skewing the data.
A block trade, also known as a block order, is an order or trade submitted for the sale or purchase of a large quantity of securities. It involves a significantly large number of equities or bonds being traded at an arranged price between two parties, sometimes outside of the open markets, to lessen the impact on the security price. In all, 10,000 shares of stock, not including penny stocks, or $200,000 worth of bonds are considered a block trade.
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