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Glossary

Gray market

Market participants often deal with investors or speculators who are ready to start trading when they are anticipating a bond issue by the issuer or open trades with them after the issue.

The gray market doesn’t just consist of bonds. The variety of markets depends on the type of products on the said market. There are two definitions of the gray securities market. A gray market is an unofficial securities market where bond trading is conducted before their official issue.

The gray market is a market where sellers can fulfill orders from high-profile clients for securities, such as bonds, before they are officially issued. In this case, the market serves to determine the demand and the price (and markups, if any) of the securities ahead of the placement. Thus, underwriters and issuers can predict how successful it is going to be - in our example, the issue of bonds.

Unlike the black market, the gray market is legal. Gray market transactions are binding but can’t be settled before the official securities trading starts on the exchange.
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