Shades of gray: Within the world of pre-IPO trading

Copyright © HT Digital Streams Limit all rights reserved. Gray market transactions are carried out in cash, often with traders exchanging small slips paper. (IStockphoto) Summary The gray market in stock trading is in the spotlight after retail investors were taken to the cleaners during the Mega £ 12,500 Crore IPO of HDB Financial Services. The gray market in stock trading is in the spotlight after retail investors were taken to the cleaners during the Mega £ 12,500 Crore Initial Public Offer (IPO) of HDB Financial Services under the most popular. Mint looks at this dark corner of Dalal Street. What is the gray market in stocks? This is the non -official market where shares are bought and sold before they complete the IPO process and officially listed on the exchanges. This market is not regulated by any official body such as the Securities and Exchange Board of India (Sebi), and the business is done without the involvement of recognized stock exchanges such as the NSE or BSE. There is no digital accounting. Transactions are done in cash, often with traders who exchange small slips paper. Some websites and online forums enable investors to trade in the gray market, although the primary functioning remains via oral and mutual trust. What is Gray Market Premium (GMP)? GMP refers to the difference between the issue price of an IPO and the price at which the shares are traded in the gray market. A high GMP means that investors are willing to pay a premium for the shares, reflecting the optimism about the firm (or the listing). The GMP has emerged as one of the most detected statistics for assessing IPOs, but it should not be regarded as the truth of the gospel. HDB Financial shares have changed hands in the gray market for £ 1,225 and above. However, the firm later set the top of the price tire at £ 740 – which produced a 40% match in the GMP, which is investors. What are the types of trading in this market? In share -based transactions, a seller agrees to sell shares at an agreed price to them. Application -based offers are of two types. First, ‘cost branch rate’ – the amount a gray market participant pays to someone who sells his IPO application. The applicant gets the money, regardless of whether he gets the shares. Second, ‘Subject to Sauda’: Payout only takes place if the seller is awarded shares. Do such markets exist only in India? No. Pre-IPO shares are traded in many markets, including Wall Street, but the process is more streamlined. In many cases, only accredited investors can trade in unlisted stocks. In the US, retail investors can use a number of dedicated online platforms to buy and sell unlisted shares. Big brokers also provide access to pre-IPO shares to high value clients. Sometimes there are a minimum investment criteria. There are also some exchange -traded funds (ETFs) that invest in private enterprises. How should Indians approach this market? Most experts recommend that retail investors stay away from the gray market due to the risks. The shortage of pre-IPO shares, held by a small group of insiders, makes the market extremely illicide, which means that prices can swing wildly-an obstacle to a company to appreciate a company. The GMP of a problem should not be the only criteria to decide whether to apply for an IPO. However, if it is accompanied by other sources of credible information, it can help the decision -making process of investors. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #stock Markets #retail Investors #Equity #ipos #primer Read Next Story