A recent trading error involving Avendus Capital and Clean Science & Technology Ltd. has spotlighted vulnerabilities within India's block deal system, prompting calls for regulatory reform. The incident involved a $300 million mishap where Avendus Capital mistakenly executed duplicate trades while attempting to sell a 24% stake in Clean Science shares. This error occurred during regular market hours instead of the designated block deal windows, highlighting a critical flaw in the system.
Block deals are large trades of shares executed between a buyer and a seller through a single transaction on the stock exchange. These deals typically occur within specific windows, but the Avendus Capital error took place outside of these, compounding the issue. A key limitation exposed by the incident is the 1% discount limit within the block deal windows, while the Clean Science shares were offered at a 13% discount, exceeding this limit. The mishap has drawn attention to the need for enhanced safeguards and increased awareness among market participants.
In response to the Clean Science trading error, the Securities and Exchange Board of India (SEBI) has proposed several changes to the block deal system. These include tripling the discount limit from 1% to 3% and raising the minimum trade sizes. Currently, SEBI has proposed raising the minimum order size for block deals to ₹25 crore from the existing ₹10 crore, a threshold that has been in place since 2017. SEBI is also considering revisions to the block deal framework and has sought public comments on the proposals until September 15. These revisions aim to enhance transparency. To further improve transparency, stock exchanges would disseminate details such as the scrip name, client name, quantity of shares, and traded price to the public on the same day after market hours.
The incident underscores the growing popularity of block deals in India and the necessity for stronger safeguards. Accidentally placed duplicate trades, sometimes known as "ghost orders," could be avoided if carried out in one of India's two 15-minute windows dedicated to block sales. The proposed changes by SEBI are intended to address these shortcomings and prevent similar errors in the future.
