Here’s a simple model of a block trade. There’s a public company, its stock trades on the exchange, its current price is $100. A big shareholder wants to sell a block of a million shares. This will drive down the price: supply and demand, more sellers than buyers, etc. Let’s say that fully selling all of the shares will drive the price down by $3.

You’re a bank, and the seller comes to you and says: “I want to do a block trade. I want you to buy all this stock at a firm price and resell it at your own risk. You have to buy it after the market closes in two hours; I’ll call you for your bid then.” How much should you bid? Well, on my numbers in the previous paragraph, the stock is at $100, selling all the shares will take $3 off the price, and you’ll be able to resell it at $97. So you should bid, like, $96, to add a little cushion (in case that $3 estimate of the price impact is wrong) and some profit for you.

QOSHE - Morgan Stanley Leaked Some Block Trades - Matt Levine
menu_open
Columnists Actual . Favourites . Archive
We use cookies to provide some features and experiences in QOSHE

More information  .  Close
Aa Aa Aa
- A +

Morgan Stanley Leaked Some Block Trades

4 0
16.01.2024

Here’s a simple model of a block trade. There’s a public company, its stock trades on the exchange, its current price is $100. A big shareholder wants to sell a block of a million shares. This will drive down the price: supply and........

© Bloomberg

Get it on Google Play