what is grey market premium

Grey market premium (GMP) is the price at which grey market IPO shares are traded before they get listed on the stock exchange. It is an unofficial market where individuals buy/sell IPO shares or applications before they are officially launched for trading on the stock exchange. Grey market trading is done among a small set of people as there is no official platform or rules defined for these trading. The grey market premium reflects how the IPO will react on its listing day. The grey market premium is often used as an index for determining the market sentiment of the IPO. The grey market determines the share price of an IPO-bound company depending on the subscription data and investor sentiment. If the demand for shares is too high and the supply limited, the share quotes a premium over the allotment price. Investors take cues from the GMP for the listing price and to gauge the overall response to an IPO. However, GMPs may not always be an accurate indicator as the grey market is susceptible to manipulation.