The grey market is an unofficial, unregulated market in which IPO shares or applications are traded before the shares are listed on an exchange. Participants buy and sell the right to receive allotted shares, or the application itself, at a premium or discount to the issue price, and that premium is the grey market premium, or GMP. Deals are made on trust between dealers, with no exchange, no clearing house and no legal protection, and they are not recognised by SEBI. The grey market is closely watched because the premium reflects what a small group of traders expects the listing price to be, but the signal is often wrong and can be manipulated by those who have an interest in the outcome. Investors should never pay money in the grey market or treat GMP as a promise, and it should not be the sole reason to apply for an IPO. Participating in unofficial trades carries counterparty risk, the possibility of default, and potential legal and tax issues. IPO Bulletin reports GMP only as market information, with the date and a clear warning, and not as advice or a forecast.
Example: An IPO is priced at Rs 100 and the grey market quotes a premium of Rs 20. That suggests traders expect a listing near Rs 120, but if the market falls before listing, the real listing price can be lower or even below Rs 100.