What are block trades?

Block trades were in the news on Monday after several global investment banks saw their shares hit by a large margin call default by a hedge fund.

Some sizeable block trades in companies including ViacomCBS and Discovery went through on Friday, were said to be the cause big drops in the stocks of a clutch of companies.

The large share sales were linked to the Archegos Capital hedge fund, which had suffered big losses recently and needed to liquidate many of its positions.

A block trade is a large order of shares, bonds or other securities. Typically they would be defined as when more than 10,000 shares or £200,000 worth of bonds are changing hands, although this figure is generally a lot higher and does not refer to penny stocks.

The deal is usually at an arranged price between two parties at an agreed date.

Block trades, which are typically made by large hedge funds and other institutional investors such as pension funds, insurance providers or investment banks, are completed outside of the public markets to try and lessen the impact on the security’s price.

These over-the-counter​ (OTC) trades are also often broken up into smaller orders via different brokers to mask their true size.

‘Dark pools’ were created by investment banks and larger brokers as a type of private exchange to allow institutional investors to complete block trades and other large orders with as little market impact as possible.

They are generally completed using an investment bank or broker that specialises in such deals, known as a blockhouse, which aim to help investors with their risk management and maintaining the price of the security.