By ipomarket.in Editorial Team · Last reviewed: 2026-11-04
Disclaimer: This article is for informational purposes only and does not constitute investment advice. IPO investments are subject to market risks. Please read the offer document carefully and consult a SEBI-registered investment advisor before investing.
Before an IPO lists, some applicants try to lock in a profit by selling their application itself rather than waiting for allotment. Two mechanisms make this possible: the Kostak rate and Subject to Sauda (often shortened to STS). They sound similar and both operate in the IPO grey market, but they split the risk very differently. Understanding that split is the whole point of this article.
Both of these operate in the IPO grey market, which is an unofficial, unregulated space where shares and applications change hands before the stock is listed on the exchanges. It is a useful read on sentiment, but it comes with no safety net.
What is the Kostak rate?
The Kostak rate is a fixed amount a buyer agrees to pay for your entire IPO application, regardless of whether that application receives allotment. If you sell your application at a Kostak rate and then get no shares at all, you still keep the agreed amount.
Two features define it:
- It is a fixed amount paid for the whole application, not a per-share figure.
- The seller's payout is guaranteed once the deal is struck, allotment or not.
Because of this, the buyer carries the risk. The buyer is effectively betting that the application will be allotted and that the stock will list at a profit large enough to cover what they paid. If the application draws a blank, the buyer absorbs that loss while the seller walks away with the fixed Kostak amount.
The term itself is believed to have originated among Mumbai's IPO brokers and is now standard terminology used across India.
What is Subject to Sauda?
Subject to Sauda flips the condition. Here, the buyer agrees to pay the seller only if the seller's application actually receives allotment. "Sauda" means a deal, and the deal is conditional.
If the seller gets allotment, the agreed amount changes hands. If the seller does not get allotment, the deal simply lapses and the buyer pays nothing. That conditional structure is the single biggest distinction from Kostak.
Because the buyer only pays when there is a real, allotted application to take over, the buyer carries less of the blind risk that a Kostak deal involves. That is why Subject to Sauda rates are generally higher than Kostak rates. The seller is being compensated for the fact that they only get paid if things go their way.
Kostak vs Subject to Sauda: the core difference
| Feature | Kostak | Subject to Sauda |
|---|---|---|
| Payment condition | Paid regardless of allotment | Paid only if allotment happens |
| Seller's payout | Guaranteed | Depends on getting allotment |
| If no allotment | Seller still keeps the amount | Deal lapses, buyer pays nothing |
| Who carries more risk | Buyer | Shared, but seller carries the allotment risk |
| Typical price level | Lower | Generally higher |
The way to read this: in Kostak, the seller has certainty and the buyer takes the gamble. In Subject to Sauda, the seller trades away that certainty in exchange for a higher rate, because payment hinges on allotment landing.
How these differ from GMP
Grey Market Premium (GMP) is the figure most retail investors see first. It is quoted per share, estimating the premium at which the stock might list above its issue price. Kostak is different in unit: it applies to an entire IPO application as a fixed amount, not per share.
So GMP, Kostak, and Subject to Sauda are three separate signals. GMP tells you what the market thinks of the stock's listing price. Kostak and STS tell you what someone is willing to pay to take over your application before allotment is even known. If you want a deeper grounding in the first of these, see our explainer on what is IPO GMP and how does it work, and our dedicated piece on the Kostak rate.
Who sets these rates, and how
None of these numbers come from an exchange or a regulator. Grey market dealers circulate GMP, Kostak, and Subject to Sauda rates through informal channels such as WhatsApp groups and phone calls. The figures move with demand and sentiment, and there is no official record of a trade.
That informality matters. There is no order book, no settlement guarantee, and no authority you can appeal to if the other side walks away.
The risk you cannot ignore
The IPO grey market is unofficial and unregulated. It operates outside the oversight of SEBI, and is not protected by the NSE or BSE. Grey market trading is not illegal in India, but being unregulated, it offers no legal protection if a deal fails.
Put plainly: if a buyer refuses to pay on a Kostak deal, or disputes whether a Subject to Sauda application was really allotted, you have no formal recourse. These arrangements rely entirely on the reputation and word of the dealers involved. For context on where the line sits between legal and unregulated, our guide on what is subject to sauda covers the mechanics in more detail.
This is also why grey market figures should be treated as sentiment indicators, not promises. They are not forecasts, and a strong Kostak or STS rate is no guarantee of a strong listing.
FAQ
What is the difference between Kostak and Subject to Sauda?
In a Kostak deal, the buyer pays a fixed amount for your entire IPO application regardless of whether you get allotment, so your payout is guaranteed. In Subject to Sauda, the buyer pays only if your application actually receives allotment; if it does not, the deal lapses and you get nothing.
Why are Subject to Sauda rates higher than Kostak rates?
Because the buyer only pays when there is a confirmed allotment, the seller takes on the risk of not getting allotted. Subject to Sauda rates are generally higher than Kostak rates to compensate the seller for that conditional payout.
Is grey market trading legal in India?
Grey market trading is not illegal in India, but it is unregulated. It operates outside SEBI's oversight, which means there is no legal protection if a deal fails or the other party does not honour it.
How is Kostak different from GMP?
Kostak is a fixed amount paid for an entire IPO application, while GMP is a premium quoted per share. They measure different things: Kostak values the application, GMP estimates the likely listing premium on each share.
Who carries the risk in these deals?
In Kostak, the buyer carries most of the risk, because they pay even if the application gets no allotment. In Subject to Sauda, payment depends on allotment, so the seller carries the risk of the deal lapsing with no payout.
Last reviewed: 2026-11-04 by the ipomarket.in Editorial Team.