What is Grey Market Premium?

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What is Grey Market Premium?

The IPO market is running at a high today. The NSE and BSE IPO grey market premium has an important role in determining the subscription status. Moreover, the important question is where is grey market premium in India? It is all over India. Grey market premium determines the interest level of investors in an IPO. If the premium is high, more investors will apply for IPO. On the other hand, if the premium is low or negative, fewer investors will apply for the IPO.

Definition of IPO – Grey Market

An IPO -Grey market is an OTC (Over – the – Counter market), where IPO applications and stocks are bought and sold, even before they are available to trade on stock exchange. Grey market is one kind of unofficial market, where transaction in an IPO are not backed by stockbrokers / SEBI.

Trading in the IPO grey market include following details:
1. Buying and selling IPO shares before they are listed on stock exchanges and,
2. Buying and selling certain IPO application at a premium.
Trading in the grey market generally conducted within a small group of trusted people. In this market official regulation is not involved. There are two important terms in the grey market i.e. premium and kostak, which we will discus in detail in this blog.

Meaning of Grey Market Premium

The grey market premium(GMP) is an over the counter market or unofficial market. Here the new shares or the shares of the company bringing the IPO are bought and sold even before their listing on any of the exchange. GMP helps in price discovery of a stock. Furthermore, the premium can be negative and positive depending on the demand and supply of shares.
Let us take an example to understand the concept of the grey market premium for smart investors.

Example of GMP

Here, we will take two different situations.
• Suppose the issue price of Reliance Nippon is Rs.250. GMP of Reliance Nippon is Rs.50. In the given situation, the premium is positive. Because of positive premium, the buyers are ready to purchase the shares of Reliance Nippon at Rs. 250 + Rs. 50 = Rs. 300
• Suppose, in this situation the GMP of Reliance Nippon is Rs. -20. The issue price is Rs. 250. Since the GMP here is negative, it means that the sellers are ready to sell the shares at a discount of Rs. 20 i.e. Rs. 250 – Rs. 20 = Rs. 230

The changes in the premium price keep on happening. Until the shares are listed for trading on the exchange, action in GMP price continues. Also, an investor can take the delivery of shares by purchasing the shares of the IPO company on a listing day.
Meanwhile, apart from the grey market premium, there is another concept that is very popular for IPOs. It is Kostak. Let us understand what does Kostak means.

Meaning of Kostak

Kostak is the price of the IPO application in the grey market. The Kostak rates vary for different IPOs. To put it another way, Kostak Rate is the premium price a seller gets by selling his IPO application to someone else even before the allotment or listing of the issue. It is an off the market transaction.

More Detail About: Kostak


You must realize that trading in the Grey market is an illegal activity. All transactions are done with the use of black-money. Before you involve in such kind of activity, make sure that you are aware of all legal rules and regulations.

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