Trading in unlisted shares and gray market is not the same, know what is the difference between them, how to buy shares before getting listed in the market?

The unlisted market is regulated as per SEBI guidelines, whereas there is no SEBI guideline regarding gray market but it is neither legal nor illegal.

Unlisted Market vs Grey Market: If a company needs money, it has several options to issue a share. Generally investors think about buying and selling only those shares which are listed in the market. However, apart from listed companies, shares are also bought and sold. They are sold in the unlisted market. Apart from this, when companies issue IPO, a lot of talk is done about gray market before its listing and many investors take investment decision based on its premium.

Since the gray market is also associated with the buying and selling of shares before the company is listed, most people consider unlisted and gray market to be the same, whereas it is not so. The unlisted market is regulated as per SEBI guidelines, whereas there is no SEBI guideline regarding gray market but it is neither legal nor illegal.

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Understand Unlisted Market vs Gray Market in this way

  • When a company announces the price band of the IPO, then gray market activities start around it. On the contrary, trading of shares in the unlisted market can be issued long before the IPO, like the IPO of Nazara Technologies has come this year but its shares are available in the unlisted market from the year 2018 only.
  • In the dealing of shares in the gray market, no shares are actually available, but in a way it is like an unofficial future / forward. In contrast, in the unlisted market, shares are kept in a demat account. As per SEBI regulations, it is mandatory to hold all physical shares in electric form.
  • In the gray market, shares are bought and sold through cash and in this the whole process rests on trust, that is, the risk in it is very high. On the contrary, trading in the unlisted market is done according to the guidelines of SEBI.

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  • Trading of shares in the gray market is done through a local broker and through him unofficial forward / futures contracts for the shares are done. In contrast, shares are transferred from one demat account to another in the unlisted market.
  • Shares are not available in the gray market before the IPO, whereas in the unlisted market, the shares remain in the demat account even before the IPO. Shares are available in the unlisted market through the promoter or employee of the company. To buy shares in the unlisted market, the broker dealing in the unlisted market can be approached.

(This article is based on a conversation with Abhay Doshi, founder of unlistedarena.com, who deals in the unlisted market.)

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