With some of the punters now refusing to honour the grey market deals in Reliance Power, positions worth Rs 250 crore (Rs 2.5 billion) are still to be settled in this illegal market for initial public offers.
Credibility crisis
According to dealers in the know, the Reliance Power IPO had generated deals worth Rs 2,500 crore (Rs 25 billion) in the grey market, of which nearly 90 per cent were settled till Wednesday.
However, with the Reliance Power stock now struggling even to close above the Rs 350 level against the issue price of Rs 450 after three days of listing, some of the clients are refusing to pay, according to sources.
The stock was quoted at a premium of over Rs 400 in the grey market until the issue closed for subscription on January 18.
"Most of them have suffered huge losses on account of lacklustre listing of the stock and are therefore demanding more time of pay-up. But those who have not honoured their positions would not be allowed to trade in the other IPOs," said a dealer.
A similar payment crisis in the grey market was witnessed in 1992-93, when a scheme of Morgan Stanley was listed on the stock bourses. While all the grey market deals were done at Rs 22, the stock was listed at Rs 8 against the issue price of Rs 10.
Market operators believe that most of the pain in the grey market was out as a majority of the deals was honoured. Players said new bets would be accepted from Friday for the Rural Electrification Corporation (REC) IPO.
Stock market experts, meanwhile, have cautioned all the investors to stay away from the unregulated market run by vested interests. They are of the view that grey market premiums are often rigged by merchant bankers who want the issue to be fully subscribed.
Deven Choksey, the managing director KR Choksey Shares and Securities, today came out with a white paper demanding a crackdown on the grey market by plugging the loopholes in the system.
Choksey is of the view that a technological upgrade by making the IPO bidding process online could curb the notorious grey market operation, which was gaining prominence for price discovery among small investors.
"The book-building system has a limitation as pro-rata allotment is systematically misused for creating artificial demand for the IPO. Investors, in turn, apply for far more in excess of the actual requirement as they calculate the actual allotment based on the number of times the IPO is subscribed.
"Moreover, the subscription is misunderstood as the actual demand, which, in turn, is used by the grey market for arriving at the listing price," he said.