In one of the most cutthroat corners of global finance, Australia’s block trading market has become a high-stakes battleground where bankers are taking ever-bigger gambles to outmaneuver rivals for lucrative deals. Once a niche segment of equity trading, block transactions — large, privately negotiated chunks of stock — now account for an extraordinary 43% of total market volume, according to Bloomberg data. The shift, driven by the country’s fast-growing pension funds, has transformed the structure of Australia’s capital markets and forced even smaller investors to follow suit as liquidity drains from traditional exchange-based trading.
The growing dominance of block trades has made life increasingly perilous for investment banks. In this $110 billion-a-year arena, dealers often commit billions of dollars within hours, risking significant losses if they misread market sentiment. Citigroup Inc. learned that lesson painfully late last year when it reportedly lost more than A$70 million ($45.7 million) after misjudging a block trade in an Australian real estate stock. Despite expectations that the debacle would cool the market, competition has only intensified. Fee rates for block trades have continued to shrink in Australia, even as they rise in markets such as Hong Kong and India, spurring what one market participant called “a race to the bottom.”
Interviews with over a dozen bankers and fund managers reveal an industry pushing limits to win business. In one recent episode, shares in Australian telecom firm Tuas Ltd. spiked after an earnings-boosting acquisition, allowing an existing shareholder to sell a A$140 million block through Morgan Stanley — remarkably, with no discount to the market price. Not long after, Macquarie bankers began testing appetite for another Tuas block, driving the share price lower even though no seller had been confirmed. The episode, recounted by two money managers, underscores how aggressively banks now probe for deals. Macquarie declined to comment.
For Elfreda Jonker, client portfolio manager at Alphinity Investment Management, Australia offers a stark warning about what happens when markets rely too heavily on block trades. “Australia is experiencing significant liquidity constraints,” she said, noting that institutional investors are increasingly shifting risk to brokers’ balance sheets as active managers retreat.
Unlike most corners of Wall Street, where algorithms dominate, block trading still thrives on personal relationships and opaque negotiations. Yet those same dynamics have created a minefield for bankers, where even rumors of a pending sale can sour client trust or draw hedge funds looking to front-run trades. Brokers compete fiercely, bidding for large blocks of shares at tight discounts — low enough to flip for a profit but not so deep they lose the mandate.
Few markets have become as frenzied as Australia’s. The nation’s A$4.3 trillion superannuation sector — set to become the world’s second-largest pension pool by 2030 — has unleashed enormous demand for big-ticket trades. Many funds are now internalizing their trading operations, accelerating the move toward direct participation in block transactions. “Internalization of expertise” is how Justin Pascoe, head of portfolio construction and execution at Cbus Super, describes the shift, which has further intensified competition among banks.
That influx of capital has also lured new players. Since 2020, firms such as Jarden and Barclays-backed Barrenjoey have entered Australia’s equity markets, joining heavyweights like UBS, JPMorgan, and Jefferies. The resulting glut of brokers has squeezed pricing power: average equity capital market block-trade fees have fallen by nine basis points in five years to around 1.3% of proceeds, according to London Stock Exchange Group data. In contrast, fees have risen in Hong Kong, India, and the United States.
The pressure to win deals has led to some extraordinary outcomes. UBS reportedly underwrote a A$1.2 billion sale of Auckland Airport shares in December without charging any fees, while Citigroup’s ill-fated Goodman Group trade wiped out its entire equity capital markets revenue for 2024, Bloomberg reported. Citi has since tumbled nine spots in Australia’s league tables but remains committed to rebuilding under a new regional ECM head.
For bankers, the challenge lies not just in pricing risk but in timing. “You’ll get notified at 10 past 4 in the afternoon that you’ll need a bid by 5:30 p.m.,” said Chris Williams, head of equities at Barrenjoey. “So you’ve got an hour to make a judgment on three and a half billion dollars of risk.”
With more trades happening off-exchange, liquidity in Australia’s $1.9 trillion public equity market has thinned dramatically. The bid-ask spread — the gap between buy and sell prices — now averages 0.18%, higher than in Hong Kong, Japan, or the U.S., according to Bloomberg. As a result, the prices displayed on the ticker increasingly resemble a mirage, prompting investors to rely on blocks or end-of-day auctions to execute large orders.
The Australian Securities and Investments Commission says it has not yet detected systemic liquidity problems but is closely reviewing market dynamics to ensure efficiency and investor protection. The Australian Stock Exchange, meanwhile, is experimenting with new mechanisms like post-close trading sessions to support participants.
For investors like Alphinity’s Jonker, the transformation is unmistakable. “You can see the price, but there’s no volume behind it,” she said. “That forces you to go out into a block or wait until the close. It’s just the reality of how this market now works.”
