Gray Market
What Is a Gray Market?
A gray market is an unofficial market for financial securities. Gray (or "gray") market trading generally happens when a stock that has been suspended from trades off the market, or when new securities are bought and sold before official trading starts. The gray market empowers the issuer and underwriters to measure demand for another offering since it is a "when issued" market (i.e., it trades securities that will be offered in the exceptionally not so distant future). The gray market is an unofficial one yet isn't unlawful.
The term "gray market" additionally alludes to the import and sale of goods by unauthorized dealers; in this example too, such activity is unofficial however not unlawful.
Gray Market Explained
In gray market trading, while the trade is binding, it can't be settled until official trading starts. This might make a corrupt party renege on the trade. Due to this risk, a few institutional investors, similar to pension funds and mutual funds, may shun gray market trading.
The gray market for goods flourishes when there is a critical price error for a famous product in various nations. In numerous nations, there is a substantial gray market for well known consumer gadgets and hardware in light of the fact that these can be handily purchased online and sent to any location. Other well known gray market products incorporate luxury cars, very good quality apparel, totes and shoes, cigarettes, drugs, and beauty care products. Unauthorized dealers might import such things in bulk and, in spite of adding a sound markup, sell them at a price actually well below the nearby cost.
Customers who buy such products for the discount price might face issues from here on out and ought to guarantee that they meet nearby safety and certification standards. Post-sale service and support is another key issue, as authorized dealers might be reluctant to service goods bought in the gray market.
Consumers may likewise at times accidentally buy a gray market product. A few indications that a product is probably going to be from a gray market are a price that is impressively lower than that offered by other neighborhood retailers, client manuals in an alternate language, and copied manuals or copied software CDs.
Adverse Impact on Businesses
The size of a few gray markets is substantial. Business outside official channels presents difficulties for the manufacturers of the goods. Beside the loss of sales that a company can book straightforwardly, the gray market delivers a risk to brand equity and damages connections in the proper sales channel comprised of wholesalers, merchants, and retailers, whose selectiveness for sought-after goods is debilitated.
Features
- The gray market for financial securities alludes to unofficial, over-the-counter (OTC) transactions in a security.
- The gray market likewise alludes to products, frequently imports, that are sold through alternative retail channels.
- Dissimilar to normal OTC trading where securities never trade on an exchange, the gray market trades in securities that have been suspended from official trading, or which have not yet started official trading on an exchange.
- In either case, while not unlawful, the unofficial status of the gray market builds its riskiness.
