Kostak Rate & Subject to Sauda (SS) Explained: Unofficial IPO Deals
In Indian financial media and informal trader circles, discussion of an IPO's Grey Market Premium (GMP) frequently mentions two terms: Kostak and Subject to Sauda (SS). Both represent informal, off-market OTC contracts struck between retail applicants and informal dealers before shares officially list.
1. What is Kostak Rate?
Kostak is a fixed cash premium paid by a grey market buyer to purchase your entire IPO application rights regardless of whether shares are allotted or not.
- How it works: If you apply for one retail lot of an IPO and a dealer offers a Kostak rate of ₹500, the dealer pays you ₹500 in cash.
- If you get zero allotment: You keep the ₹500 Kostak profit; the buyer gets nothing.
- If you are allotted shares: You must sell the allotted shares on listing morning and transfer the entire listing profit to the buyer. You keep only your initial ₹500 Kostak fee.
- Who uses it: Retail applicants who wish to lock in a guaranteed small profit without bearing allotment lottery risk or listing day volatility.
2. What is Subject to Sauda (SS)?
Subject to Sauda (SS)—often called "Sauda on Allotment"—is an off-market contract where the deal is valid only if shares are successfully allotted to the applicant.
- How it works: A dealer agrees to pay you a fixed sum (e.g. ₹5,000 per lot) conditional upon allotment.
- If you get zero allotment: The contract is automatically void. No money changes hands.
- If you get allotment: The dealer pays you the fixed ₹5,000. Regardless of whether the stock opens at a +100% gain or a -10% discount, your profit is fixed at ₹5,000. On listing day, you execute the trade and remit the net proceeds to the buyer.
Kostak vs Subject to Sauda vs Direct GMP
| Feature | Kostak | Subject to Sauda | Holding for Listing (GMP) |
|---|---|---|---|
| Payment Trigger | On application | Only upon allotment | On market listing |
| Allotment Risk | Zero risk for seller | Zero risk for seller | Full lottery risk |
| Listing Gain Upside | None (capped at Kostak fee) | None (capped at agreed SS) | 100% of market return |
| Downside Risk | None | None | Full market discount risk |
| Enforceability | Unregulated / Informal | Unregulated / Informal | 100% Legal & Regulated |
Why SEBI and Exchanges Do Not Recognize Grey Market Deals
All grey market transactions operate purely on personal trust between local sub-brokers and clients. There is no clearing corporation, no trade guarantee, and zero legal arbitration under Indian law. If a counterparty defaults or refuses to settle a massive listing gain, the investor has no legal recourse.
Frequently asked questions
Is Kostak trading legal in India?
No. Off-market grey market deals in unlisted IPO application rights are neither recognized nor permitted by SEBI or stock exchanges. They operate outside regulatory protection.
Why do dealers buy Kostak applications?
Grey market syndicates accumulate hundreds of retail application rights to assemble large synthetic positions in hot IPOs when they cannot secure sufficient allotment through direct bidding.
Last updated 2026-10-25. Information only, not investment advice.