Question

Suppose that an investor places two separate orders of buying common stock of XYZ Ltd.: first order is of buying 2,000 shares and the second order is of buying 8,000 shares. Each purchase is made at the price of $10. The brokerage commission charged for a non-block trade is 1.2% of the value of the transaction. Assume now that he/she places one order to buy 10,000 shares. The brokerage commission for a block trade is 0.1% of the value of the transaction. Find the saving in brokerage commission due to block versus non-block trades.

Answer 1

1. NON BLOCK TRADE

a) BUYING 2000 SHARES @ $10 = 2000*10 = $20000

BROKERAGE COMMISSION @1.2% = $20000 * 1.2/100

= $ 240

b) BUYING 8000 SHARES @ $10 = 8000*10 = $80000

BROKERAGE COMMISSION @1.2% = $ 80000 * 1.2/100

= $ 960

TOTAL NON BLOCK TRADE BROKERAGE COMMISSION = a + b = $240 + $960 = $ 1200.

2. BLOCK TRADE

BUYING 10000 SHARES @ $ 10 = 10000 * 10 = $ 100000

BROKERAGE COMMISSION @ 0.1 % = $ 100000 * 0.1/100

= $ 100.

SAVING IN BROKERAGE COMMISSION DUE TO BLOCK TRADE = 1 - 2 = $1200 - $ 100 = $1100.