How to do a block trade?

A block trade can be arranged in various formats, one of which is known as a bought deal. In this structure, the investment bank takes on the role of managing the block trade and initiates the process by purchasing shares directly from the seller.

Prior to engaging in any formal marketing efforts, the manager, who serves as an intermediary, acquires the shares from the seller. This step ensures that the bank has full control over the shares and can proceed with the trade according to its own strategy.

The bought deal approach allows the investment bank to have flexibility in managing the trade. By owning the shares, the bank can decide the optimal time to resell them, taking into account market conditions and demand.

Typically, the manager aims to resell the shares as quickly as possible after acquiring them from the seller. This strategy helps to minimize the bank's exposure to market risks and ensures that the trade is completed efficiently.

Block trades, including bought deals, are often utilized by institutional investors who require large quantities of shares for their portfolios. The structure of the trade, particularly the bought deal format, can provide the necessary liquidity and execution speed for these large transactions.