Block Trade
Definition
A block trade is the sale of a large chunk of stock — far bigger than normal market volume — executed off the open market to avoid crushing the price. A shareholder (often a private equity sponsor exiting a position, or an insider post-lockup) sells the block to a bank or through a bank to institutional investors, usually overnight.
In a risk (bought-deal) block, the bank buys the entire position at a discount to the last close — banks often win these via competitive auction among a few desks — and then resells to institutions, keeping any spread but eating losses if the stock gaps down before it can place the shares. In an agency block, the bank simply finds buyers for a fee without taking principal risk.
The discount compensates for size and immediacy; blocks are a major channel for sponsor sell-downs of post-IPO stakes.
Why interviewers ask
Block trades come up in ECM and markets interviews as a test of risk intuition: 'a sponsor wants to sell $800m of stock tonight — how would the bank do it, and what's the risk?' Explaining the bought-deal auction, the discount, and the bank's overnight principal risk demonstrates practical capital-markets understanding.
Related terms
Interviews don't test definitions — they test recall under pressure.
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