Grey Market Premium: The Insider's Guide · Chapter 2 of 10
How the Grey Market Works
An off-exchange market
Deals happen between dealers and traders outside the exchange, before the shares exist. There is no clearing house, no regulator and no investor protection. Deals rest on trust between the parties.
Kostak and subject-to-sauda
Two terms you may meet: kostak is a rate paid for an application form regardless of allotment; subject-to-sauda is a deal that holds only if shares are allotted. Both are informal arrangements, and neither is recognised by the exchanges.
Where the numbers come from
Quotes are collected by websites and groups from dealers by phone or messaging. Different sources therefore quote different GMPs, at different times of day.
Why you should not deal in it
Because the market is unregulated, a counterparty can simply refuse to pay, and you have no recourse. Using GMP as information is one thing; trading on it is another.
Key takeaways
- The grey market is off-exchange and unregulated.
- Different sources can quote different figures.
- Do not deal in the grey market: the risks are yours alone.
- Use GMP as information only.