A block trade is a privately negotiated securities, futures, options, or combination transaction executed apart from the public auction market, either on or off an exchange trading floor. There are minimum order-size requirements that vary according to product and order type, and eligibility for engaging in such trades is strictly regulated. Regulations vary by exchange. In futures trading, participation in block trades is restricted to Eligible Contract Participants as that term is defined in the Commodity Exchange Act.
Traditionally, a block trade has meant any trade over 10,000 shares, but today requirements vary. Typically, a brokerage firm is a party to the block trade with one of its customers, but the firm can also be used to bring two customers together in what is referred to as an “agency” block trade.
Block Trade Facilities
Many exchanges have a block trading facility that allows members to transact business of significant size as a bilaterally agreed transaction and then bring it to an exchange. A futures block trading facility has so far only been made available to large institutional investors who qualify as “eligible participants” under Part 36 of the CFTC rules. In the futures industry, once a block trade has been established, the parties to the trade can use the futures market to hedge their position and then to unwind it, thus bringing more trading volume to the exchange.
Some exchanges require that the block trade be reported in 15 minutes or less, but reporting time differs between exchanges. It can vary with the size of the respective block trade. The larger the size of the block trade, the more time the parties need to hedge or offset their risks, and the more time they need to report it.
Chicago Mercantile Exchange
Rule 526 ("Block Trades") governs block trading in CME, CBOT, NYMEX and COMEX products. Block trades are permitted in specified products and are subject to minimum transaction size requirements which vary according to the product, the type of transaction and the time of execution. Block trades may be executed at any time at a fair and reasonable price and are required to be reported to the CME Group Globex Control Center ("GCC") within five minutes of the execution time, except for Eurodollar, Housing and Weather futures and options which are subject to a 15-minute reporting requirement. Block trades executed when the GCC is closed must be reported no later than five minutes prior to the opening of the next electronic trading session for that product.
Australian Securities Exchange
The Australian Securities Exchange (ASX) introduced a block trading service on June 28, 2010. The platform, called VolumeMatch, is designed to help institutions transact large orders in Australian stocks, with the aim of reducing market impact and information leakage by allowing members to hunt for liquidity anonymously.
- Create More Flexible Block Trading Facilities. Futures Industry Magazine.
- Block Trades. Chicago Mercantile Exchange.
- ASX’s block trading facility attracts players for 28 June launch. The Trade News.