Understand What Is TheIPO Grey Market

Understand What Is TheIPO Grey Market

If you have been subscribing to the IPOs then there is very less chance that you may have not heard about the IPO grey market. Your broker would have told you sometimes that the IPO is quoting at a grey market premium or on a grey market discount. So what is this grey market and is it safe to invest in the grey market?

What is the grey market?

The grey market is an unofficial market. TheIPOmarket is a recognized medium which follows the exchange guidelines. The grey market and the IPO market does not have any relationship.

The grey market as mentioned is an unofficial market where the investors or traders come together and bid and offer the shares of the IPO that is about to be listed. These are not the actual IPO shares but are just the forwards of the shares that unofficially did.

Is the IPO grey market organized?

The trades are carried out by phones mostly. Before the company gets listed on the stock exchange the traders in the grey market start to bid on the shares of the IPO based on many factors like the retail view, institutional view, promoters reputation etc. The price in the grey market is a factor of supply and demand.

The grey market is based on trust. The market is run by a small group of people and they bid and offer the IPO stocks at varied prices. The grey market is a rough indicator of how the stock will perform post listing.

The retail investors will use the grey market to understand the post-listing performance of the stock. The HNIinvestorswill look at the grey market to understand the stock appetite and how much to apply in an IPO. The IPOfinancers will look at the grey market to understand whether it is a good idea to finance in the IPO or not.

Grey market premium

This is easy to understand. This is the premium that represents the amount that the gamblers are ready to pay above the IPO price.

The grey market is operated outside of any regulation and any deal that happens here is not authorized or gets any stock exchange approval. There is no circuit filter and the prices can fluctuate widely in the grey market.

The grey market is thus not guaranteed and there is a lot of risks involved when you transact in the grey market. It is more like a forward market and it has the risk of a default by the other party.

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