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2008-02-08 12:11:36 Source : CNBC-TV18
The grey market has had a nice run in the bull market, particularly with regards to IPO premiums. For instance, the grey market has been buzzing with whispers about about the possible level at which Reliance Power IPO will list. The situation is such today that every IPO is being judged on the basis of its grey market premium. It is believed that people will base their assesment on such premiums to decide on buying an IPO.
CNBC-TV18 spoke exclusively to some grey market participants to throw light on how it works.
One such participant pointed out that there hasn't been much trading in the grey market at this point in time. The reason, he said, is that people are waiting for Reliance Power to list on February 11. Only once it has listed and the payments settled, will fresh orders be taken for other issues.
He informed that Reliance Power's current grey market premium is approximately Rs 165-170 per share, whereas a month ago, it was about Rs 450 per share. Investors who bought Reliance Power's shares at that high premium will most definitely lose money. Today's price being Rs 165-170 per share, the difference will have to be borne by the investor and the payment will have to be made within two days post listing.
Already some 5.5 - 6 crore shares of Reliance Power have changed hands on the grey market. "On February 11, it is expected to list at Rs 580-600, but if selling pressure comes in, the stock can go down to Rs 550 levels," he forsees.
Modus operandi
Major centres of grey market operations are in Rajkot, Ahmedabad, Gujarat, Jaipur, Palanpur, Bhuj, etc., the trader said. They do multiple share applications and trade in the grey market. The entire trade is done on 'cash only' basis.
He revealed that even if the client is trustworthy, all orders are accepted mostly through a sub-broker who will get a 0.25-0.50 paise commission per application. The onus for settlement then, is on the sub-brokers. Although, there are some clients who do direct dealings as well.
For example, if a trader sells to a client at Rs 450 per share, post listing whatever is the premium or discount, the payment will be settled in two days through the sub-broker.
He, however, reminds that "all transactions are settled in cash and this is a business of mutual trust." Since mutual trust is involved, there's always an execution risk. But he counters that. "Long time ago, say 25-30 years, when there was no F&O market, there was the 'vaida bazaar'. Trades were done late at night, but were punched and executed the next day. This is similar to that. The trades are not written, but it is based on trust," he explains.
Similar enthusiasm fogged the Future Capital IPO; investors in the grey market bought shares at Rs 400-500 and some even at Rs 600 per share. The stock listed at Rs 1,100 and slipped down to Rs 950. Investors lost money in Future Capital as well.
How a deal is cracked:
Sample the conversation below between the CNBC-TV18 undercover reporter and a grey market operator.
Investor: I need to trade. How do I go about it?
Broker: Nifty or IPO?
Investor: IPO. If I need to trade in Reliance Power?
Broker: The rate is Rs 170/sh.
Investors: What is the minimum tick?
Broker: 1,000 shares.
Investor: Isn't there a tick for 500 shares?
Broker: No, I won't make money by doing only 500. Where do you stay?
Investor: Mumbai
Broker: No a 500 tick is not feasible for Mumbai.
Investor: Is the grey market premium different for different areas?
Broker: No, it does not depend on area. But at a 500 tick, the transaction amount would be Rs 5,000. How will we settle the transaction? It is far.
Investor: Will I have to pay in cash?
Broker: The settlement is done only in cash.
Investor: If I want to buy, don't I need to pay you something right now?
Broker: No, you don't have to pay anything right now. If the rate is above Rs 450, the cut-off will be Rs 450 only.
Investor: How will the settlement be done?
Broker: In cash.
Investor: And if the price comes down, then I'll have to pay the difference.
Broker: Yes.
Investor: So, how will it get settled? Will I meet you?
Broker: All that we will see, but for now trade for 1000 shares first. If you want to sell, I will buy for Rs 160/sh and if you want to buy, I will sell for Rs 170/sh.
Investor: And is there anything for Emaar?
Broker: Emaar is at Rs 19-20/sh
Investor: And how is all this done?
Broker: I will teach you all that, but do you want to trade right now?
Investor: Reliance Power. I want to buy 1000 shares.
Broker: Ok. Will tell you after making the transaction.
Investor: What price?
Broker: At Rs 170/sh.
Investor: Is it done at Rs 170?
Broker: I will tell you now in two minutes after buying.
Investor: Sir, what happened?
Broker: The trade will happen, but it is not advisable to buy right now.
Investor: Why? What happened?
Broker: People are saying that it will fall further. See, there is no panic as such. You will get as many shares as you want.
Broker: Trade is done at Rs 160.
Investor: Done at Rs 160?
Broker: I will explain everything to you. I'm picking up your trade.
Investor: Yes.
Broker: I have bought 1000 shares for you at Rs 160.
Broker: The premium for Reliance Power is at Rs 115-125/sh. There is no buyer, you wanted to buy it based on your information.
Investor: Right now I can give Rs 5,000-10,000, not more than that.
Broker: What if you incur a loss of Rs 50,000?
Investor: I don't have more than Rs 5,000-10,000.
The grey market has had a nice run in the bull market, particularly with regards to IPO premiums. For instance, the grey market has been buzzing with whispers about about the possible level at which Reliance Power IPO will list. The situation is such today that every IPO is being judged on the basis of its grey market premium. It is believed that people will base their assesment on such premiums to decide on buying an IPO.
CNBC-TV18 spoke exclusively to some grey market participants to throw light on how it works.
One such participant pointed out that there hasn't been much trading in the grey market at this point in time. The reason, he said, is that people are waiting for Reliance Power to list on February 11. Only once it has listed and the payments settled, will fresh orders be taken for other issues.
He informed that Reliance Power's current grey market premium is approximately Rs 165-170 per share, whereas a month ago, it was about Rs 450 per share. Investors who bought Reliance Power's shares at that high premium will most definitely lose money. Today's price being Rs 165-170 per share, the difference will have to be borne by the investor and the payment will have to be made within two days post listing.
Already some 5.5 - 6 crore shares of Reliance Power have changed hands on the grey market. "On February 11, it is expected to list at Rs 580-600, but if selling pressure comes in, the stock can go down to Rs 550 levels," he forsees.
Modus operandi
Major centres of grey market operations are in Rajkot, Ahmedabad, Gujarat, Jaipur, Palanpur, Bhuj, etc., the trader said. They do multiple share applications and trade in the grey market. The entire trade is done on 'cash only' basis.
He revealed that even if the client is trustworthy, all orders are accepted mostly through a sub-broker who will get a 0.25-0.50 paise commission per application. The onus for settlement then, is on the sub-brokers. Although, there are some clients who do direct dealings as well.
For example, if a trader sells to a client at Rs 450 per share, post listing whatever is the premium or discount, the payment will be settled in two days through the sub-broker.
He, however, reminds that "all transactions are settled in cash and this is a business of mutual trust." Since mutual trust is involved, there's always an execution risk. But he counters that. "Long time ago, say 25-30 years, when there was no F&O market, there was the 'vaida bazaar'. Trades were done late at night, but were punched and executed the next day. This is similar to that. The trades are not written, but it is based on trust," he explains.
Similar enthusiasm fogged the Future Capital IPO; investors in the grey market bought shares at Rs 400-500 and some even at Rs 600 per share. The stock listed at Rs 1,100 and slipped down to Rs 950. Investors lost money in Future Capital as well.
How a deal is cracked:
Sample the conversation below between the CNBC-TV18 undercover reporter and a grey market operator.
Investor: I need to trade. How do I go about it?
Broker: Nifty or IPO?
Investor: IPO. If I need to trade in Reliance Power?
Broker: The rate is Rs 170/sh.
Investors: What is the minimum tick?
Broker: 1,000 shares.
Investor: Isn't there a tick for 500 shares?
Broker: No, I won't make money by doing only 500. Where do you stay?
Investor: Mumbai
Broker: No a 500 tick is not feasible for Mumbai.
Investor: Is the grey market premium different for different areas?
Broker: No, it does not depend on area. But at a 500 tick, the transaction amount would be Rs 5,000. How will we settle the transaction? It is far.
Investor: Will I have to pay in cash?
Broker: The settlement is done only in cash.
Investor: If I want to buy, don't I need to pay you something right now?
Broker: No, you don't have to pay anything right now. If the rate is above Rs 450, the cut-off will be Rs 450 only.
Investor: How will the settlement be done?
Broker: In cash.
Investor: And if the price comes down, then I'll have to pay the difference.
Broker: Yes.
Investor: So, how will it get settled? Will I meet you?
Broker: All that we will see, but for now trade for 1000 shares first. If you want to sell, I will buy for Rs 160/sh and if you want to buy, I will sell for Rs 170/sh.
Investor: And is there anything for Emaar?
Broker: Emaar is at Rs 19-20/sh
Investor: And how is all this done?
Broker: I will teach you all that, but do you want to trade right now?
Investor: Reliance Power. I want to buy 1000 shares.
Broker: Ok. Will tell you after making the transaction.
Investor: What price?
Broker: At Rs 170/sh.
Investor: Is it done at Rs 170?
Broker: I will tell you now in two minutes after buying.
Investor: Sir, what happened?
Broker: The trade will happen, but it is not advisable to buy right now.
Investor: Why? What happened?
Broker: People are saying that it will fall further. See, there is no panic as such. You will get as many shares as you want.
Broker: Trade is done at Rs 160.
Investor: Done at Rs 160?
Broker: I will explain everything to you. I'm picking up your trade.
Investor: Yes.
Broker: I have bought 1000 shares for you at Rs 160.
Broker: The premium for Reliance Power is at Rs 115-125/sh. There is no buyer, you wanted to buy it based on your information.
Investor: Right now I can give Rs 5,000-10,000, not more than that.
Broker: What if you incur a loss of Rs 50,000?
Investor: I don't have more than Rs 5,000-10,000.
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