Regulators probing block trade on Wall Street, but what is a block

17 Feb , 2022 By : Kanchan Joshi

Block trade of shares: The U.S. Securities and Exchange Commission is investigating whether certain banks may have broken the rules by tipping off hedge funds ahead of large sales of shares, or "block trades," a source familiar with the situation told Reuters on Tuesday.

The scrutiny is part of a years-long investigation into block trading by some of Wall Street's biggest players. Here is a primer on block trading.

The SEC scrutiny is part of a long-running inquiry by the agency into block trading practices, predating the current administration, a source told Reuters.

The probe was given renewed focus after the spectacular collapse of family office Archegos Capital Management in March, which led to a number of large block trades that investors said caused material drops in the stocks of several companies that were linked to the investment fund, according to Bloomberg.

Goldman Sachs faces ongoing lawsuits over alleged insider trading related to its role in the unwinding of Archegos' fund.

Under current SEC Chair Gary Gensler, the regulator has focused on initiatives such as tightening up insider trading rules and improving market transparency, including around hedge fund and private equity disclosures.

HOW COMMON ARE BLOCK TRADES?

Broker-dealers frequently buy and sell blocks of shares, either on behalf of clients or as part of a hedging strategy, which are large enough to move underlying share prices. During times of volatility, block trades tend to be more common.

U.S. block trades hit a five-year high in terms of value last year, at $71.8 billion, according to data from Dealogic.