What is IPO grey market?
The unauthorised trading of shares of a firm by traders is known as an initial public offering (IPO) grey market. This occurs prior to the corporation issuing the shares in an Initial Public Offering (IPO).
There aren’t any laws and restrictions because this market is an unofficial one. These transactions do not involve market regulators like the Securities and Exchange Board of India (SEBI). Additionally, the regulator does not support this.
Grey markets are typically operated by a small group of people. Every transaction is founded on mutual trust.
What is Grey Market Premium?
People in the IPO market use the phrase “grey market premium,” also known as “IPO GMP,” to determine the potential listing price of an IPO. Although the grey market is unauthorised, investors look at it to determine the stock’s fixed gain. The grey market operates in the days leading up to the IPO start date and the days after it until the allotment date. The grey market premium provides an estimate of how the IPO might perform on the day it lists. Let’s monitor the progress of the calculation. We can assume that the IPO might list at $100 if the company announces an IPO for $100 and the grey market premium is approximately $20.
We can anticipate that the IPO might list at about 120 on the day of its listing if the business proposes an IPO of 100 and the grey market premium is close to 20. There is, however, no reliability. IPO GMP generally works, but occasionally it doesn’t. According to our observations, the IPO will list around the specified price with an estimated IPO GMP if there is high demand for it and a high estimated HNI and QIB subscription. ipo grey market ipo grey market premium chittorgarh ipo grey market ipo grey market price ipo grey market premium today
What is Kostak Rate?
The sum that one investor pays to the seller of an IPO application prior to the IPO listing is known as the Kostak rate. The Kostak rates likewise change in the same manner as the grey market. One can fix their profit by purchasing and selling their entire IPO application at Kostak prices outside of the market. The buyer must pay the Kostak rates for the IPO regardless of whether the investor receives an IPO allotment. If someone submitted five applications for a single IPO and sold those applications for $1,000 each, that person would have achieved an IPO profit of 5,000 rupees. Even if he receives the allocation after only two applications, he will still make 5,000.
The investor who purchased the application must receive the remaining profit of $5,000 if the stock is sold for a profit of about $1000. This is the safest technique to IPO grey market sell your application.
How to Calculate Grey Market Premium?
Prior to the IPO listing process, a price known as the IPO GMP, sometimes known as the grey market premium, is exchanged. Based on the company’s performance, its demand on the grey market, and the likelihood that someone will subscribe, an estimate is made. Let’s imagine that the IPO could list at 300 (i.e., 200 + 100) if the X IPO price is fixed at 200 and the grey market is showing a rate of 100. This is just a guess, though, thus the listing’s actual price might be different from the black market pricing.
How Do I Buy / Sell IPO Application in Grey Market?
The grey market is not officially affiliated with any individuals or organisations. On the basis of the IPO GMP, certain brokers buy and sell IPO applications on Kostak Rates or Subject to Sauda Rates. Find local brokers who act as a middleman between buyers and sellers and trade IPO applications on the grey market. Before purchasing or selling, be aware of the rates.
Is Grey Market a part of the IPO market?
The IPO market is an official recognised medium of raising funds in the market under SEBI supervision, whereas the grey market is an unofficial market. There is no formal connection between the IPO market and the IPO grey market.
How does Grey Market work?
There are 2 ways to make money on the grey market. Before they are posted on the stock exchange, you can purchase or sell IPO shares on the grey market. The second option is to sell your IPO application for a specific sum of money.
Let’s discuss both ways individually.
Trading IPO Shares in the Grey Market:
- Via an IPO, investors can apply for shares. They run the risk of not receiving any shares or receiving shares but having them trade below the issue price. Sellers are the name for these people.
- There aren’t many people who believe the share is worth more than its issue price. Even before they are distributed via the IPO allotment process, they begin accumulating these shares. Buyers are what we call them.
- By contacting the grey market dealers, buyers place the order to purchase IPO shares at a specific premium.
- The dealer then gets in touch with the sellers who submitted applications for the IPO and inquires about their interest in selling their shares at a specific premium at this time.
- In the meantime, IPO shares may be sold to a grey market dealer for a profit if the sellers don’t want to accept the risk of going public and prefer the premium. However, the seller must agree on a price and complete the transaction with the grey market dealer.
- The dealer receives the seller’s application information and notifies the buyer that he purchased a specific number of shares from the sellers on the grey market.
- Sellers may or may not receive an allocation of shares after the allotment is completed.
If the investor receives shares, he may either receive a call from the dealer asking him to sell the shares at a specific price or transfer the shares to a Demat account.
- When an investor sells shares, the settlement is based on the gain or loss and the premium agreed upon between buyers and sellers on the grey market.
- If no shares are allotted to the sellers, the transaction is terminated without payment.
Trading IPO Applications in the Grey Market:
- Even IPO applications have buyers and sellers, just like IPO share trading.
- Buyers set the application’s price in accordance with a number of presumptions and market factors. They make the sellers an offer that they are prepared to purchase an IPO Application at a specific premium.
- To be on the safe side, sellers could offer their application to the buyer through a grey market broker at a set charge.
- The seller in this case doesn’t have to be concerned with the IPO share allotment. He still receives the grey market premium at which he sold his IPO allocation, even if he didn’t receive any allotment.
- The seller delivers the dealer the thorough form. Additionally, the dealer notifies the buyer that he purchased an IPO application from sellers on the grey market for a specific price.
- The issuing registrar manages the allocation process. Shares may or may not be allocated to the application seller sold.
- Both sellers may receive a call from the dealer asking them to transfer allotted shares to a specific Demat account or sell them at a specific price if shares are assigned to the sold application.
- When shares are sold, the settlement is determined by the profit or loss.
- The transaction is deemed to be completed without a settlement if no shares are allotted to the sellers. The seller still receives his premium, though, because he sold his application.
Current IPO GMP Rates
See below for the most recent IPO analysis and the predicted grey market rates with listing Gain.
|IPO Name||IPO GMP||IPO Price||Listing Gain|
|Pace E-Commerce Ventures||₹0||₹103||0%|
|Phantom Digital Effects||₹60||₹95||60%|
|Five Star Business Finance||₹–||₹-||-%|
|CMR Green Technologies||₹–||₹-||-%|
What is Subject to Sauda?
The amount chosen for the Subject to Sauda on the application, according to the Kostak rate, is determined when investors get firm allotments on their IPO applications. If one purchases or sells the IPO application pertaining to Saudi Arabia, it indicates that one may receive the specified sum if one is allotted; else, Saudi Arabia will be cancelled. Since the allotment determines the profit, one cannot predict it in this situation. Again, if someone receives an allocation and sells an application for roughly $100,000 and makes a sizable profit on listing day of around $15,000, they must give the buyer $5,000.
IPO Kostak & Subject to Sauda Rates
IPO Kostak & Subject to Sauda Rates
|Pace E-Commerce Ventures||₹-||₹-|
|Phantom Digital Effects||₹-||₹50000|
To sum up
The grey market is an unofficial market, as was previously said. The grey market is most effectively viewed by the average investor as a predictor of how the stock will fare after it is listed.