What is IPO Grey Market Premium - FAQs

[rmani84]

The IPO Grey Market is an over-the-counter market where dealers may execute orders for preferred customers as well as provide support for a new issue before it is actually issued. (investopedia)

Grey markets(GreyMarket or GMP) work in two ways in India. It decides the premium of an IPO which is not yet listed in Stock Exchange and it also allows investors to sell their application or allocated stocks at certain premium before they list. This thread provides platform to discuss Grey Market Premiums.

Who decides the grey market price?
Just like stock market or commodity market trading, IPO Grey Market Premiums are decided on basis of demand and supply.

If there are more buyers than sellers, the price goes up and visa versa.

Please note that there are no regulatory bodies involved in Grey Market Trading and therefore there are no limitations on price momentum. Grey market premium may rise or fall suddenly. Of course there are no circuit filters in place.

[rmani84]

How can I buy and sell in Grey market?
As it's over the counter market, there are no official people or business you can approach for IPO Grey Market trading.

If you are interested in buying or selling IPO stocks in Grey Market, you have to find a local dealer who can find buyers or sellers for you.

Grey market trading is mainly active in few cities including most of the cities in Gujrat, Mumbai, Delhi, Jaipur etc.

Is Grey market driven by any legal authority?
No, it's an unofficial over-the-counter market. Trades are made by Grey Market Dealers on personal basis.

How come the grey market prices change every day?
Grey market premiums moves like listed stock prices. Ultimately it's based on demand and supply. More buyers than sellers will pull up the grey market premiums, while more sellers than buyers could pull it down.

Many things change when a company announces an IPO to the IPO listing day. Thus the grey market premium keeps changing every day, every hour.

Short selling is also done in grey market if investors think that stock price will go down after listing.

Note: As no regulatory bodies are involved in grey market deals, there's no circuit filters in place and grey market premiums may go up or down drastically in case of any positive or negative news flow.

[rmani84]

Should IPO investors consider Grey Market Premium before applying in an IPO?
Investor could consider grey market premium as one of the parameter before applying for IPO Stocks. Please note that good grey market premium doesn't guarantee for listing gain or long term gains. Grey market premiums may change in the duration when you apply for an IPO and when the issue gets listed.

An IPO investor should consider various factors before applying in an IPO including company financials, business model, promoters, Issue size, upcoming projects or investment plans etc.

Can we sell the stock allotted to us in an IPO before the stock gets listed?
No, you can not place the buy/sell order for shares which are not yet listed in stock exchange. Shares can only be traded after they get listed on stock exchange.

Remember that this is not the case in grey market or over the counter trades. Share holders can trader shares on personal basis before they get listed in stock exchanges. As stock exchanges are not involved in these deals, they are not responsible for any failure in the deal.

[hardikgh]

It is one kind of deal between sub broker and investor. The grey market premium amount is fixed before IPO issue close. The sub broker give you surety to the amount fixed between both. The risk is all his if there is loss in IPO listing, he has to pay the fixed premium amount+loss amount to investor. And if there is profit below the fixed premium amount, investor has to pay difference amount to sub broker.