In today’s Finshots, we tell you how a huge stock market blunder exposed weaknesses in India’s block deal system and pushed SEBI to quickly change the rules.

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The Story

The stock market had a rather unpleasant surprise towards the end of last week.

Spark Avendus, an arm of Avendus Capital, was looking to sell a big chunk of shares of Clean Science & Technology Ltd. on behalf of the founders — about 24% of the company, worth nearly $300 million to be precise. And that isn’t unusual. Big institutions sell big lots of listed shares all the time. But what followed was the kind of mistake that can send traders into a frenzy.

You see, Avendus thought that their first attempt to sell hadn’t worked. So, they placed the sell order again. That meant more than half of Clean Science’s total shares suddenly hit the market at once. And instead of the intended 2.5 crore shares, over 6 crore shares were suddenly floating around in the market.

Now think about what happens when the market suddenly sees that many shares up for grabs. It’s like flooding a shop with excess stock. Prices start tumbling since there’s a flush of sell orders and demand can’t keep up with supply.

And that’s exactly what happened. Traders were confused by the unusually high volumes, panic set in, and Clean Science’s stock price fell sharply in no time. Eventually, Avendus had to buy back the extra shares they’d accidentally sold just to correct the mess.

But here’s the thing. This isn’t how it should have played out. A deal of this size wasn’t meant to be executed during regular trading hours. Between 9:15 a.m. and 3:30 p.m., the market is open for all kinds of trades big and small. But for very large transactions, there’s a different mechanism called block deal sessions.

If you’re wondering what block deals are, they’re basically high-value trades where either at least 5 lakh shares or shares worth ₹10 crores are exchanged in one go between big players like mutual funds, foreign investors or company promoters. These deals are slotted into two tight 15-minute windows — one before the market opens (8:45 a.m. to 9:00 a.m.) and another towards the end of the session (2:05 p.m. to 2:20 p.m.).

The idea is to keep massive trades from distorting prices for everyone else. That’s why they’re not disclosed to the public right away, and why prices are strictly controlled — trades must stay within a ±1% band of the reference price, which could be either the previous day’s close or the weighted average of the last half hour, depending on the session.

So why wasn’t Avendus doing this in the block deal window?

Well, the Clean Science shares were being sold at a steep 13% discount. And since that was way beyond the 1% leeway allowed, the trade went through during normal hours instead. That’s when a classic ‘fat-finger’ error or the industry’s way of describing a trading mistake made while placing an order, led to duplicate sell orders and sent the stock tumbling.

Now, no one really knows how the error even happened. The bottom line though is that Avendus messed up.

But at the heart of it, the strict rules around block deals gave them little flexibility. And this one incident was enough for market regulator, SEBI, to step in quickly.

Just a day after the mishap, SEBI issued a circular, proposing to widen the price band for block deals from ±1% to ±3% and increase the minimum order size from ₹10 crores to ₹25 crores.

But why did SEBI act so swiftly, you ask?

Well, the answer lies in the sheer rise of block and bulk deals in recent years. Bulk deals are simply big trades involving more than 0.5% of a company’s shares executed during market hours. And over the last decade, both types of deals have grown nearly sevenfold, touching ₹9.4 lakh crores in FY25. Plus, so far this year (FY26), they’ve already crossed ₹1.5 lakh crores. Even if the pace doesn’t look crazy on paper, analysts say block deals are definitely becoming more common.

The reason is simple — You and I. To put things in perspective, retail investors have been pouring money into mutual funds, especially through SIPs, where about ₹26,000 crores flow into funds every month. And mutual funds can’t just let that cash sit idle. They need to put it to work by buying into strong companies. And if you’re a mutual fund trying to buy a big slice of a company, you can’t always count on IPOs. You might not get enough shares allotted. But with block deals, you can pick up or sell large chunks quickly without rocking the market too much. Plus, they often come with a discount compared to the open market. The seller gets to offload a big position smoothly, and the buyer gets a bargain. Everyone’s happy.

That explains why mutual funds, foreign investors and company promoters all love block deals. And it’s also why SEBI had to react. After all, if block deals are so crucial to the smooth functioning of the market, their rules need to allow flexibility, no? Otherwise, such blunders could shift big trades into regular hours, and ordinary investors will be left scratching their heads during sudden price crashes. And some could even incur huge losses if they’re trading those shares at the same time.

But that got us thinking — are SEBI’s changes enough?

Because even with the new framework, some challenges remain. Like the fact that block deals can only be done in two narrow 15-minute windows a day. That doesn’t leave much room for large institutions who need time to negotiate and execute trades. If a deal isn’t matched in that slot, it gets cancelled. That adds execution risk. On top of that, settlements are delivery-based. While that reduces risk of default, it also slows down capital movement for everyone involved.

And as we saw with the Clean Science incident, large trades getting pushed outside those windows can be risky. Duplicate orders and fat fingers are always a possibility.

So what else can be done?

Maybe India could learn from how block trades are handled in other economies such as the US. Over there, block deals often happen in dark pools. These are private exchanges where big buy and sell orders can be matched quietly, away from the public eye and regular market hours. It reduces panic and the risk of running into errors like what we saw above, thereby keeping prices steady. Traders can even split up a big order into smaller chunks across brokers, spreading it out to test market reaction before committing fully. Sure, it’s not foolproof as costs can rise and prices may still shift. But it does give more flexibility.

And while India doesn’t have to copy this wholesale, it can certainly think about longer block windows or even creating dedicated sessions away from market hours to avoid such mishaps. Because even if errors like Avendus’ don’t happen every day, when they do, it’s the small investors who get hurt first.

At the end of the day, stronger systems mean a safer market for everyone. And while SEBI’s quick fix is a step in the right direction, the framework will need more thought as block deals keep growing. What do you think?

Until then…

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