Grey market and IPO booms: What retail investors need to watch out for, Pg14

Key Highlights:

• An unofficial grey market in yet-to-list IPO shares is gaining traction in India, operating beyond the reach of regulatory mechanisms.
• The grey market premium has become an unofficial indicator of expected listing gains; operators work out of centres like Ahmedabad, Jaipur and Rajkot.
• The Small Investors Welfare Association (SIREN) wrote to the Securities and Exchange Board of India on October 21 seeking immediate intervention.
• SIREN compared the open trading of unofficial premiums on WhatsApp, Telegram and tracking portals to illegal betting activity.
• SEBI did not respond to The Indian Express's queries on the thriving grey market.

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Detailed Insights:

• Grey market deals run on word of mouth with no paperwork; only the difference between the agreed premium and the listing price is settled, with no transfer of shares.
• Market players said high premiums can lure retail investors into subscribing without examining a company's valuation, financials or risks.
• SIREN cited the Reliance Power IPO, whose shares traded at huge pre-listing premiums but crashed nearly Rs 100 below the Rs 450 offer price on listing.
• SIREN asked SEBI either to enforce the law decisively against operators and platforms publishing unofficial rates, or to examine a regulated mechanism for legitimate pre-listing transactions.
• Market players are unsure whether SEBI or state police should act, since the activity is illegal like gambling or betting.
• SEBI regulates securities markets under the Securities and Exchange Board of India Act, 1992; only recognised stock exchanges can offer trading platforms.

Key Concepts Involved:

• Grey market premium: The unofficial premium at which unlisted IPO shares change hands before listing.
• Initial Public Offering: A company's first sale of shares to the public ahead of a stock-exchange listing.
• Securities and Exchange Board of India: The statutory regulator of India's securities markets, set up under a 1992 Act.
• Listing gains: The profit earned when a share lists on the exchange above its issue price.