What is Kostak rates IPO grey market?

The Kostak rate in the IPO grey market is the fixed rate or price at which IPO applications are sold and bought regardless of their allotment status .

The Grey market premium Kostak rate is set by the mutual understanding of the seller and the buyer. The Kostak rate is the price for the entire lot or IPO application.

For example, if investor A has applied for 10 lots at Rs 100 and one lot consists of 15 shares, the total IPO application amount is Rs 15,000 (10 *15 * 100)

Now there is an investor B in the grey market who is willing to buy the entire application at a premium of Rs 2,000. This Rs 2,000 is a sure profit for investor A, regardless of the allocation status.

If Investor A receives the full allotment and the listing is at Rs 150, Investor A will receive only Rs 2,000 and must pass on the listing gains to Investor B.

Thus, investor B makes a profit of Rs 5,500 against Rs 2,000 paid as Kostak. Alternatively, investor B can also receive a credit of shares by paying Rs 17,000 ( application amount + Kostak)

If investor A does not receive the allotment, he will still receive Rs 2000 from investor B.