Investors who attempted to participate in last week’s ₹2,050 crore ($258 million) share sale in the country’s largest airline IndiGo were left empty-handed due to a feature of the trading rules that has long been a source of frustration for institutional fund managers.

None of the investors lined up by the banks working on billionaire Rakesh Gangwal’s sale of part of his family’s stake in IndiGo got any shares in the block trade as a result of slippage, a phenomenon where orders aren’t filled due to the presence of bids with a higher competing price, according to people with knowledge of the matter.

While some degree of slippage is expected in the Indian market, a situation where none of the intended buyers in a trade gets any stock is extremely rare and likely to amplify irritation with the regulator’s rules that don’t allow block trades to be crossed directly on the exchange.

As is typically the case with privately-negotiated sales of large amounts of stock, the banks on the deal—Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley in this case—lined up institutional buyers for the sale, which was priced at a 4.2 per cent discount to the previous close. In most other markets, the shares could then change hands directly on the exchange.

But in India, if the trade is priced at a discount or premium of over one per cent to the previous close, the orders have to go through the main market screen where they risk being edged out by orders from unrelated buyers. The vast majority of large share sales are priced at discounts wider than one per cent , making them vulnerable to slippage.

Representatives for Goldman Sachs and JPMorgan declined to comment. Morgan Stanley, Gangwal and Securities & Exchange Board of India didn’t reply to requests seeking comment.

Slippage occurs when a block trade entered in the main market system encounters a higher-priced bid which is filled first, leaving some of the intended buyers without any stock.

Fund managers have long pressed the regulator SEBI to amend its block trading rules to bring them more in line with most other markets and ensure they actually get the stock they’ve been allocated. But their efforts have been fruitless so far, with the regulator asking for proof of alleged front-running of trades in response to their complaints, said a media report.

Still, some said that India’s rules are market-driven.

“The regulator has not mandated that only pre-defined buyers get the shares,” said Anuraj Benara, a fund manager with Subhkam Ventures. “Once the block hits exchange upon start of trading, anyone can put in rate and fetch the deal.” 

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