What is Kostak Rate?
The premium paid in the grey market for an IPO application, regardless of whether the applicant actually gets an allotment or not.
The Kostak Rate is the premium amount paid in the grey market to purchase a retail IPO application before the allotment is finalized. Crucially, the buyer pays the Kostak amount to the seller regardless of whether the application actually gets an allotment or not.
Why do buyers pay Kostak?
High net-worth individuals (HNIs) or syndicate operators often buy multiple retail applications using Kostak to maximize their chances of getting an allotment in heavily oversubscribed IPOs.
Kostak vs. Subject to Sauda
- Kostak: The seller gets paid even if they get zero shares in the allotment.
- Subject to Sauda: The seller only gets paid if they successfully receive an allotment.