Cities like Ahmedabad, Kolkata and Rajkot are the most active centres for the IPO (initial public offerings) grey market.
The grey market is an unofficial market where trading of shares in forthcoming IPOs is conducted. A premium or discount indicates the level of retail interest in a public issue. Trades done in the grey market are settled on the day of listing. As per the rules of the game, once the deal is done at a stipulated price, the seller has to give delivery of shares after he has been allotted the shares by the company.
If the seller falls short in receiving the exact number of shares that he has sold in anticipation, then he will have to buy the shares from the market once the share gets listed in order to honour his commitment. Many traders short sell in the grey market if they feel that the premium on offer is unwarranted and that the stock may list at a price lower than what most market players expect it to.
Though grey market operators say that there is a constant change in the grey market premium, it largely depends on the subscription on the last day and the market conditions, post issue closing.
