If you’ve come across discussions about the grey market, especially when a highly anticipated IPO enters the market, terms like grey market, grey market premium, GMP, and others might be familiar. Let’s delve into your questions and provide answers related to the grey market.
What is the Stock Market? Before understanding the grey market, let’s get acquainted with the stock market. The stock market, or stock exchange, is a platform where buying and selling of shares of companies take place. It functions like a bridge between buyers and sellers of shares. The stock market operates under certain rules, often referred to as regulations, making it a regulated market.
Distinguishing Between the Market and Grey Market The grey market, on the other hand, operates similarly but lacks regulation, making it an unregulated market. In simple terms, it can be considered an unofficial stock market, often referred to as a parallel market. In the grey market, trading occurs without the oversight and regulations that characterize official stock exchanges.
How Does Trading Work in the Grey Market? In standard language, the grey market can be termed a parallel market because it functions parallelly to the stock market. It is also known as an unofficial stock market. While trading in the official stock market doesn’t necessarily require face-to-face interactions between buyers and sellers, in the grey market, transactions typically happen directly and are often in cash.
Historical Perspective of the Grey Market in India The history of the grey market in India is quite extensive. While the BSE (Bombay Stock Exchange) is considered the oldest major stock exchange in India, established in 1875, the grey market, functioning as a form of a speculative market, predates it. Traditional speculative markets, such as the Satta Bazaar in Falodi, Rajasthan, where bets are placed on various events from elections to sports, have been popular in India for a long time.
Is Trading in the Grey Market Safe? Trading on established stock exchanges like BSE or NSE is considered safe because securities are first listed on these exchanges, and they are regulated by market watchdogs like SEBI. However, the same security is not guaranteed in the grey market.
How Does the Grey Market Operate? The grey market operates based on the principles of supply and demand, akin to basic economic principles. For instance, when Tata Teck’s IPO was launched, there was significant interest in the shares. Naturally, the grey market premium (GMP) for Tata Teck’s shares was notably high.
Relevance of the Grey Market The grey market is relevant because it provides an estimate of the value of a company’s shares before officially entering the stock market. The consistent accuracy of grey market predictions has been evident in several IPO listings.
Benefits for Companies in the Grey Market Many times, companies themselves release their shares in the grey market. This serves as a tool for companies to assess the value of their shares before officially entering the stock market.