What Is Grey Market Premium IPO?

Grey Market Premium IPO is considered to be an unofficial market where one buys or sells IP shares before they are officially launched on stock exchange for trading. As this is an unofficial market, so there are no regulations around it. Like other stock exchange, it doesn't controlled by Security Exchange Board of India (SEBI).

The trading usually starts shortly before the issuance of new shares i.e. IPO of a company which means the stock trading in this market starts before the shares of a company officially start trading.

Generally, it is estimated from the performance of a company's stock in the gray market, how it's IPO can perform when the stock is listed on the stock exchange and how much listing gain can be found on that IPO.

However, subscribing to a company's IPO just by looking at this market is not always the right decision, as the gray market premium can change at any time before the listing of the IPO.

Sometimes, this IPO comes in handy for GMP investors and sometimes it doesn't work. The gray market premium of any IPO only indicates the sentiment of the investors.

Example

For example, if the IPO of a company is priced at Rs 100 and its Gray Market Premium is running at Rs 50, then when the IPO is listed, its price can be around Rs 100 + 50 i.e. Rs 150.

Although, it's a 'grey' market, it's still a market. Thus, to operate this market there are some specialized dealers who help in buying and selling of various shares among the traders. There is nothing official about this purchase or sale and obviously, there will be no 'tax' involved.

Difference between IPO Grey Market and Official stock market

The difference between IPO gray market and official stock market is that you can buy or sell shares in any quantity as per your choice. There is no maximum purchase limit, which is 15,000 in regular IPO bidding. Also, there is no limit on the total IPO investment, which is kept at Rs 2 lakh for the retail investor in case of regular IPO bidding.

Is GMP IPO and IPO market are same?

Grey market premium IPO and IPO market are not at all same as they don't have any official connection. The IPO market is an official medium of raising funds and it is regulated by SEBI, whereas the grey market is an unofficial market.

Key points of the IPO Grey Market

Most IPOs gray market premium trading takes place only in mainstream IPOs.

If no orders are closed before the IPO opens, the shares are closed at the listing price (hereinafter referred to as the settlement price).

There is no brokerage involved in IPO Gray Market premium trades and all orders are placed at the main price.

IPO gray market premium or even gray market is not regulated by any Indian stock market or financial body. In fact, it is an unofficial in every way.

Since, it is an informal market, it is known for all kinds of manipulations.

One needs to take precautions while investing in Grey market premium as trading or investing here is very risky.

The grey market premium of any company is determined on its demand.

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