A:

The term "gray market" refers to the market for the purchase and sale of uncirculated securities that will be offered at a future date. An issuer may execute a customer order prior to the initial public offering of the securities. One benefit of the gray market is that the issuer can gauge demand before the public offering. Then, the seller can use the information gained from the gray market to set the stock price. Once gray market trading is completed, the seller must deliver the number of shares the buyer purchased on the day of the listing. Although the exchange of securities on the gray market is unofficial, it is not illegal.

The term "gray market" also may refer to the unauthorized resale of goods outside of an original producer's intention. While this is not illegal, it does amount to profiteering from the unauthorized resale of products. Exchanges on the gray market are nearly impossible to track because there is no way for an original manufacturer to track goods after the conclusion of a sale.

To learn more, read Markets Demystified.

This question was answered by Richard Wilson.

RELATED FAQS

  1. Why is Manchester United (MANU) carrying so much debt?

    Learn how the Glazer family incurred substantial debt for its takeover of Manchester United, and understand how that debt ...
  2. How does the strength of the IPO market affect the drugs sector?

    Discover how the strength of the IPO market affects the drugs sector. A strong IPO market reflects healthy risk appetites ...
  3. Why are some spin-offs taxable and some are tax-free?

    Learn how spinoffs of subsidiaries from a parent company are typically done, and what determines whether a spinoff is taxable ...
  4. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ...
RELATED TERMS
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or ...
  2. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  3. Muppet Bait

    Naive investors who are lured into buying hot stocks or securities ...
  4. At A Discount

    This specifically refers to stock that is sold for less than ...
  5. Aftermarket Report

    A summary of how shares of an initial public offering (IPO) performed ...
  6. Small Corporate Offering Registration - SCOR

    A form of corporate securities registration designed to reduce ...

You May Also Like

Related Articles
  1. Entrepreneurship

    Should I Have An IPO on My Business

  2. Fundamental Analysis

    Why Investment Bank IPO Valuations Go ...

  3. Stock Analysis

    Adjusting Price Charts To Secondary ...

  4. Investing

    How To Track Upcoming IPOs

  5. Investing Basics

    Social Media: High Risk, High Potential ...

Trading Center