Grey Market goes bust

The collapse of the unofficial market has spread to dabba trading as well

The high volatility in the secondary market has brought trading in the grey market for yet-to-be-listed stocks to a grinding halt.

In the last couple of days, no grey market trades have taken place in Ahmedabad, the biggest such market in the country.

For some time now, investors have been trading unofficially in stocks even before the shares have been allotted to them. All high-profile initial public offers in the recent past, including that of real estate developer DLF, have seen a thriving pre-allotment grey market at work.

Companies such as Maytas Infrastructure, Reliance Power and Mundra Port, which are planning to come out with IPOs soon, too had seen active trading in the grey market.

Thanks to the recent volatility and loss of momentum in the stock market, the grey market is now uncertain over the performance of the IPOs. This has led to trading in the grey market coming to a halt.

Shares of Reliance Power had gained fancy in the grey market and a premium was quoted for the first time for an issue, which was yet to receive clearance from the market regulator.

However, on Tuesday and Wednesday, the premium was down to Rs 38-40 from the high of Rs 48 just few days ago. Since then, no trading has been taking place in the stock on the grey market.

Even an application form for Reliance Power shares worth Rs 100,000 was trading in the grey market for as high as Rs 5,800.

Such was the interest in the IPO of the company, which will apart from others also set up the 4,000 megawatt Sasan ultra mega power project, that investors were making such trades even before the application forms were printed. Such trading too has come to a complete halt now.

The collapse of the unofficial market has spread to dabba trading also — the unofficial market for listed shares. In a falling market, and especially when the fall is so huge as was witnessed in the last four trading days, such trading stops over worries that settlement could become a problem.

Maytas Infra, a Satyam group company, is expected to be listed next week on bourses. Mundra Port is also coming out with an IPO in the next few weeks, though the price band is yet to be announced.