What is Grey Market?
A Grey market on a stock is an unofficial market in shares before they have been officially listed and traded on the BSE / NSE.

If the government is going to privatise one of its Utilities such as BHARAT Gas it will offer to sell shares to the institutions and general public. Anyone is able to apply for as many shares as they want, but they will often only get a percentage of their requirements.

The shares will be offered at a set price, say Rs.200, but depending on how the market judges the success of the offer the financial spread betting companies will normally make a market before the shares are officially traded on the NSE/BSE. Incidentally, although grey markets are unofficial they are perfectly legal.

Grey markets are not just available on government privatization issues but most new issues as long as there is good public interest.

How it Works?

1. For example, if a store owner is an unauthorized dealer of a certain high-end electronics brand, the product is considered to be sold in the grey market. If the product is illegal, it would be selling on the "black market".

2. The grey market is an over-the-counter market where dealers may execute orders for preferred customers as well as provide support for a new issue before it is actually issued. This activity allows underwriters and the issuer to determine demand and price the securities accordingly before the IPO.