What is Block Trade? TEJ will introduce you to it from the ground up?

Block Trade
Photo by Nick Chong on Unsplash

Preface

Block Trade, a crucial element of the financial markets, refer to the buying and selling of securities in substantial single transactions. These trades, typically carried out by institutional or large investors, involve a multitude of stocks, bonds, or other financial instruments. Their staggering volume and value characterize them and are often conducted outside the open market to mitigate excessive impact on market prices. TEJ will guide you through this crucial aspect of the financial world.

How did the Block Trade come about?

Block Trade are required to be reported if they meet the following criteria, depending on the number of trades and the amount of money traded:

  • A single security with a reported purchase or sale of 500 units or $15 million or more at one time
  • A portfolio of stocks totaling $15 million or more in a single report of purchases or sales of five stocks.

The Taiwan Stock Exchange (TSE) introduced the Block Trade system in 2005. It revised and adjusted the related functions in 2007, including increasing the number of matching trading methods, extending trading hours, and changing the unit of price increase and decrease as well as the price range of the trade report. These adjustments not only satisfy the market demand but also greatly enhance the willingness of market participants to use the system.

Types of Block Trade?

Matched Trade

Summarize

A Matched Trade is a transaction agreed upon in advance between buyers and sellers that is reported and cleared through a broker or Exchange. Matched trades usually involve large amounts of capital and large quantities of securities to avoid excessive price impact when executed in the open market.

Taiwan Trading Hours

08: 00 – 08: 30 and 09: 00 -17: 00

Characteristics

  1. Bilateral Negotiation:
    • Buyers and sellers negotiate prices and quantities in the OTC market and report to the Exchange after reaching a trade agreement.
  2. Avoid price volatility:
    • Since Trading occurs outside the open market, it avoids the dramatic price fluctuations associated with large trades.
  3. Confidentiality:
    • Details of the transaction are usually kept confidential until it is finalized, avoiding market volatility if the information is known in advance.
  4. Trade Reporting:
    • Transaction details must be reported to the Exchange as soon as the transaction is completed so that the open market knows it.

Advantages and disadvantages of Matched Trade:

Advantages:

  • Avoid drastic price fluctuations in the market
  • High confidentiality to avoid market overreaction
  • More suitable for large trades

Disadvantages

  • More extended negotiation between the two parties to the transaction
  • Delayed reporting may result in asymmetric information

Continuous Trading

Summarize

Continuous Trading involves executing large trades in the open market piecemeal. Large orders are broken down into smaller parts and gradually executed in the market. This Strategy is designed to minimize the instantaneous impact on market prices while ensuring that trades are completed.

Taiwan Trading Hours

09: 00 – 17: 00

Characteristics

  1. Market execution
    • Orders are split into smaller orders executed one by one in the open market. This reduces the impact of a single large trade on the market.
  2. Price Discovery
    • Continuous Trading determines the price of each trade on a trade-by-trade basis through the open market price discovery mechanism, helping to maintain the authenticity and transparency of market prices.
  3. Shock Reduction
    • Splitting reduces the instantaneous impact of large trades on market prices and minimizes the risk of significant price fluctuations.
  4. Real-time disclosure
    • Each transaction is disclosed to the market immediately upon completion, ensuring market transparency and information symmetry.

Advantages and disadvantages of Continuous Trading

Advantages

  • High trading transparency and real-time information disclosure
  • Reduces market price shocks by splitting trades
  • Facilitates market price discovery

Disadvantages :

  • Split trading may increase transaction costs and time
  • Immediate disclosure may result in short-term market volatility.

Impact of Block Trade on Investors

The impact on investors can be examined from several perspectives, including market volatility, investor psychology, liquidity market confidence, etc. The following are some of the significant impacts:

Market Fluctuations

Block Trade can trigger short-term volatility in the market, particularly in less liquid markets where investors are uncertain about the reasons for and the context of the trades. This adds to market instability.

Investor psychology

Block trades may trigger follow-on actions by other investors, especially when they are initiated by well-known investors or organizations. These actions may be easily interpreted as a sign of confidence in the market or a particular stock and affect investors’ sentiment and confidence. This follow-on effect may further aggravate market volatility.

Liquidity

Block Trade can affect short-term liquidity in the market. For example, many sell orders may make it difficult to match buyers, resulting in a decline in liquidity. In the long term, if Block Trade occurs frequently, it may affect the structural liquidity of the market and change investors’ trading strategies and behavior.

Want to know what kind of information Block Trade uses to build their portfolios?

Click on the button below, and TEJ will show you the secrets!

Where does Block Trade information come from? TEJ organizes it for you!

Taiwan Stock Exchange (TWSE) & Over-the-Counter Trading Center (TPEx)

  1. Immediate Disclosure
    • Broker-dealers conducting Block Trade after closing are required to report them immediately to the TWSE and TPEx. TWSE and TPEx typically require reporting within a few minutes after a trade is completed for the trade information to be included in the market data.
    • TWSE & TPEx updates trade information immediately so market participants can quickly understand the day’s Block Trade activity.
  2. Daily Summary Report
    • At the end of each trading day, TWSE and TPEx publish a daily trade summary report that contains detailed information.
    • These reports are essential for market transparency and investor decision-making.

Special Circumstances

  1. Delayed Disclosure
    • In exceptional circumstances, where sensitive information is involved, or there may be a material impact on the market, the parties to a transaction may apply for a delay in disclosure.
    • This will require an application submitted to and approved by the relevant regulator (e.g., stock exchange or OTC). Once approved, the timing and conditions of the delayed disclosure will be strictly limited and regulated.
  2. Compliance Requirements
    • All Block Trade must comply with the Taiwan securities market’s compliance requirements, including real-time reporting, legal trading, and adherence to market rules.
    • Both parties must ensure that the transaction process is transparent and legal and cooperate with regulatory authorities promptly in their investigations and examinations.

TEJ has organized all the information for you. Just log in to TEJ PRO and click on the Listed Block Trade in the TEJ Stock Price Database to get all the relevant information for that day. The database will be updated every day before 10:00 p.m. A period condition query is also at the top, making it more convenient to filter the Block Trade information you want!

Block Trade
TEJ Pro Block Trade data

Conclusion

For institutional investors and large capital managers. Block Trade allows buyers and sellers to transfer large quantities of securities at a negotiated price, thus accomplishing large-scale transactions without triggering sharp market fluctuations. Block Trade can be executed in two ways: matched trades and Continuous Trading, each with advantages and disadvantages.

In Taiwan, the disclosure of Block Trade is handled by the Taiwan Stock Exchange (TWSE) and the Over-the-Counter Exchange (TPEx), which ensure market transparency and fairness by publishing timely trading information through their official websites and trading platforms. Investors should fully understand the characteristics and requirements of each trading method and select the appropriate strategy according to the specific situation to achieve optimal trading results.

TEJ not only helps you to organize all kinds of high-quality information about Block Trade in history or on the same day but also provides backtests of various strategies to help you optimize your investment strategy, so you don’t have to spend time looking for comparative information everywhere and miss the perfect opportunity to invest. TEJ is your best choice for mastering financial data!

Further Reading

Back
Procesing