What is Distribution Stock
Distribution stock refers to a large block of a security that is sold into the market gradually in smaller blocks rather than in a single large block. This is typically done to avoid inundating the market with the security and driving down its price. The liquidity in the market for the security will determine how the large chunk is broken up.
BREAKING DOWN Distribution Stock
An investment fund with a large position that it wants to liquidate will do so in an orderly fashion to the greatest extent possible. Dumping a large supply in the market with not enough demand to soak up the shares is counterproductive to the fund because sales will be executed at lower clearing prices. Buy-side traders either transact these sales through brokers or send their orders electronically into an exchange, which may be a dark pool. The distribution stock is liquidated over a period of days or weeks without depressing prices or tipping off others to the presence of a large seller in the market.
Distribution Stock and Distribution Days
"Distribution days" is a term related to distribution stock in the sense that heavy institutional selling of shares is taking place. A distribution day, technically speaking, occurs when major market indexes fall 0.2% or more on volume that is higher than the previous trading day. A string of these days together is called distribution days and is often associated with signs of a market top. Distribution stock may be part of this period of high volume selling in the market, although a seller of a large position may not be able to completely unload its desired amount of shares.