Foreign fund lobby group wants Sebi to raise price band for block trades to 7%

The existing narrow price band of plus and minus 1% makes it virtually impossible for big institutional investors to negotiate premiums and discounts to make a block worthwhile, says Lyndon Chao.

ETMarkets.com
India’s regulations for block trading need an overhaul to improve ease of doing business for foreign investors and reduce the investment frictions, says Lyndon Chao, Managing Director and head of equities division at leading foreign fund lobby group Asian Securities Industry and Financial Markets Association(ASIFMA). In an interview with ET, Chao suggested that Sebi should increase the permissible price band for block trades to 7% from 1% currently.

What are your key concerns on current block trading rules?
Expansion of the price band from the current plus or minus 1% to 7% is the top priority for our members. In the absence of a significant expansion of the price band, other measures with respect to block trading will not have any meaningful impact.

Also, we are requesting expansion of the block window beyond the current two 15-minute sessions to encompass the entire trading day. Additionally, we want client confidentiality to be maintained by not publishing the names of global investors on the exchange website. This is unique to India.


How do current block trading rules adversely impact the foreign institutional investors?
The current plus or minus 1% price band is insufficient for the market’s needs. This narrow price band makes it virtually impossible for big institutional investors to negotiate premiums and discounts to make a block worthwhile. Based on historical data, a price band of plus or minus 7% would account for around 90% of accelerated book build (ABB) block deals as well as a significant portion of other large sized transactions in India.

How is India’s block trading regime different compared to other emerging markets?
In Australia (ASX) there is no price restriction while in China, the price band is within plus or minus 10% of previous close. Singapore (SGX) allows block trading at fair market value.
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What are your policy suggestions to make block trading more efficient in India?
We believe that addressing the above block trading aspects will improve the ease of doing business for global investors and reduce trading and investment frictions, which is more important than ever as we all face the challenges of Covid-19. What we see across the region is increasing competition for capital and a pivot by regulators more towards market development. We believe it will be extremely important for India to consider a market structure better aligned with international standards to attract foreign capital, which is increasingly more critical in the aftermath of the pandemic.
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