Buy/Sell IPO Application in Grey-Market – What is IPO Grey-Market & Gray-Market Premium?
You are already familiar with the IPO. However, chances are you’ve probably heard your broker say “IPO Grey Market and Grey Market Premium“. In this article, we explain “how to sell the IPO application in the grey-market?“.
Here’s a quick explainer on the IPO grey market to help you understand what goes on before the market draws the curtains.
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IPO Grey-Market(GM) and Gray-Market Premium(GMP)
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The Grey Market of IPO is a market where the selling and buying of shares are done even before they are even on the stock market in India.
It is a non-official market, which is formed by reliable investors. Because this is a non-official market, there are no rules and regulations.
Market regulators like the SEBI – Securities and Exchange Board of India are not involved in these transactions.
The regulator doesn’t endorse this either. Grey markets are usually run by a small set of individuals.
All deals are, based on mutual trust.
However, this shouldn’t be confused with a black market. A grey market is unregulated but legal. A black market involves the smuggling of illegal or restricted products.
Generally, Trading in Grey Market includes the buying or selling of IPO applications at a specific rate (premium price) and buying or selling of allocated shares before they are formally available on the Stock Exchange.
A premium price is charged for the IPO, which is not listed on the stock exchange.
This premium is called ‘Gray Market Premium(GMP)’.
According to the demand and supply aspects, the purpose of premium price takes place.
This premium price can be negative or positive, depending on the investor sentiments.
This price is decided according to the company performance and probability of subscriptions by each investor category.
Now you’re thinking about how to buy and sell the IPO application in the gray-market.
Let’s learn about the same.
Also Read What is Grey Market & Grey Market Premium (GMP) of the IPOs with Example?
Grey-Market Website
- Since it’s unofficial, there are no official website you can approach for IPO Grey Market trading.
- Nobody has a record of how many shares are traded in the grey market and at what price.
- if you trade as an investor trade in the grey market and something goes wrong, there is no official body you can approach with your grievance.
Also Read Listing Gains in IPO | Highest Listing Gain IPO in India | IPO Listing Price
How to Sell IPO Application in Grey-Market?
- One can also buy/sell IPO applications on the GM. This usually happens after the application window is closed but before the allotment takes place.
- If you are interested in trading IPO shares in GM, you have to find a local dealer who can find buyers or sellers for you.
- The GMP are attached with words ‘buyer’ and ‘seller‘. They tell the price either at which buyers are willing to buy shares or the price at which sellers are willing to sell their IPO shares.
- At the time of IPO allotment, the seller will transfer all the shares allocated to her to the buyer, regardless of what the listing price may turn out to be later.
- In return, she accepts Kostak over the issue price on the spot. Again, nothing is issued by the GM to indicate this sale.
- All transactions in this market are done in cash only and this market is not regulated by SEBI. Therefore, transactions in an GM are based on utmost trust but are neither backed by stockbrokers nor SEBI.
A thriving IPO grey market is an indicator of trades being honored, though, you should remember that this is a non-official market fraught with risk. It is a GM for professional traders who do transactions in massive volumes.
Because bids are done in the grey market are neither approved nor authorized by the SEBI, you are subject to a counterparty risk in case you trade shares in such a market.
Also Read How Many Lots Can We Buy in IPO to increase the chances of an allotment?