Grey market premium
Also called: GMP · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
Grey market premium (GMP) is the unofficial extra price at which IPO shares are traded informally before they list on the stock exchange. These deals happen outside the exchange, so no regulator oversees them and nothing guarantees them. People treat GMP as a rough signal of how much demand the shares will see on listing day. It is only a guess, and the actual listing price can be very different.
Example
Suppose an IPO has an issue price of Rs 200 and informal dealers are paying Rs 250 for its shares before listing. The GMP is Rs 50. That suggests people expect the shares to list above the issue price, but there is no guarantee.
Don't confuse with
- Listing gain: the actual profit on the listing day, based on the official price on the exchange. GMP is only an unofficial guess made before listing.
Related concepts
- Primary market
- Initial Public Offering
- Red herring prospectus
- Book building
- Anchor investor
- Qualified Institutional Buyer
- Application Supported by Blocked Amount
- Green shoe option
- Underwriting
- Follow-on Public Offer