Block Sales

Institutional investors frequently trade blocks of several thousand shares of stock. Table 3.6 shows that block transactions of over 10,000 shares now account for about half of all trading on the NYSE. Although a 10,000-share trade is considered commonplace today, large blocks often cannot be handled comfortably by specialists who do not wish to hold very large amounts of stock in their inventory. For example, one huge block transaction in terms of dollar value in 1999 was for $1.6 billion of shares in United Parcel Service.

In response to this problem, "block houses" have evolved to aid in the placement of block trades. Block houses are brokerage firms that help to find potential buyers or sellers of large block trades. Once a trader has been located, the block is sent to the exchange floor, where the trade is executed by the specialist. If such traders cannot be identified, the block house might purchase all or part of a block sale for its own account. The broker then can resell the shares to the public.

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