What is IPO Grey Market?

IPO grey market is an unofficial Over-The-Counter (OTC) market where buying and selling of IPO applications or shares take place before they become officially available for trading on the stock exchange. All transactions are settled in cash. The network operates amongst a small group of trusted people and is unofficial in nature with no intervention by the regulator.

What are Grey Market Premium & Kostak rates? How does it help investors?

Grey Market Price/ Grey Market Premium (GMP) is the tentative/expected price at which the company is expected to be listed on the stock exchange. It can be positive or negative based on demand & supply of the issue. Many investors bid for IPOs by considering its GMP.

A high/positive GMP usually indicates that the IPO will be oversubscribed and it will be difficult to get allotment. Hence, an investor can expect quick listing gains if he/she gets a successful allotment.

However, it is advisable not to do so as GMPs are highly volatile and subject to manipulation by vested interests.

Kostak Rate is the premium one gets by selling his/her IPO application (in an off-market transaction) to someone else even before allotment or listing of the issue