Define Grey market premium.

Stock market investors use the Grey Market term to unofficially price shares that are offered via IPO. Several investors trade shares before the IPO shares are listed on the stock exchange. These are informal transactions, as these involve the stock market, SEBI, and banks. These transactions are not performed by SEBI.

Company XYZ, for example, launched an IPO at Rs 100. It is expected that the issue will list within 15 days. Unofficially, some people buy and sell shares based on mutually agreed price. A buyer might be willing to purchase shares of XYZ at Rs 125. Grey Market Premium is Rs 25. A mediator who is familiar with both buyers and sellers facilitates the transaction between them.

Notice:

• Grey Market profits and losses are settled in cash
• Grey Market Premium is a way to determine how shares will be listed on stock exchanges.
• These transactions are often handled by sub-brokers who also represent their clients.
• Although there is no guarantee, most cases are successful and the GMP functions properly. IPO lists at the indicated price.