Subject to Sauda (STS) is one of the three key terms in IPO grey market trading alongside GMP and Kostak rate. While many investors have heard the phrase, few understand exactly how it works and why it differs from Kostak. This guide explains Subject to Sauda with real examples, its risk profile, and when it makes sense for IPO applicants in India.
What is Subject to Sauda in IPO?
Subject to Sauda — often abbreviated as STS — is a conditional grey market deal in which an IPO applicant sells their application at an agreed price, but payment is made ONLY if the applicant receives allotment. If no allotment happens, the deal is automatically cancelled and no money changes hands.
The word "Sauda" means "deal" or "trade" in Hindi/Urdu. "Subject to" means conditional. So "Subject to Sauda" literally means "deal is conditional" — on getting allotment.
Unlike a Kostak deal, where the buyer pays a fixed amount upfront regardless of allotment outcome, the STS structure shifts the entire allotment risk away from the buyer. This makes STS rates higher than Kostak rates for the same IPO — the seller is compensated for taking the risk that they may walk away with nothing.
How Subject to Sauda Works — Step by Step
Consider this real-world style example for a hypothetical IPO of XYZ Ltd:
- IPO issue price: ₹200/share
- Lot size: 70 shares
- Application value: ₹14,000
- STS rate quoted: ₹3,500 per application
You agree to sell your application at the STS rate of ₹3,500. Two scenarios can play out.
Scenario 1 — You receive allotment: The buyer pays you ₹3,500. The buyer takes possession of your allotted shares and either pockets any listing gains or absorbs listing losses. Your profit is locked at ₹3,500 regardless of how the stock performs after listing.
Scenario 2 — You don't receive allotment: The deal is cancelled automatically. You receive nothing. The buyer pays nothing. No money changes hands. Your blocked application amount is unblocked by your bank as part of the standard ASBA refund cycle.
The settlement is informal. It typically happens via grey market dealers acting as middlemen between the seller and the buyer. The dealer earns a small commission on each successful settlement.
Subject to Sauda vs Kostak Rate vs GMP
Understanding the difference between these three grey market terms is essential before participating in any pre-listing deal. The table below compares them across every important parameter.
| Feature | GMP | Kostak | Subject to Sauda |
|---|---|---|---|
| What is traded | Per share premium | Full application | Full application |
| Payment condition | If allotted | Regardless of allotment | Only if allotted |
| Risk to buyer | Allotment risk | Allotment risk | No allotment risk |
| Risk to seller | Misses listing gains | Misses listing gains | Misses gains; may get nothing |
| Typical rate | Highest in absolute ₹ | Lower | Medium-high |
| Safer for buyer? | No | No | Yes |
| Safer for seller? | N/A | Yes (guaranteed payout) | No (conditional payout) |
Why STS Rate is Higher than Kostak
The buyer in an STS deal bears no allotment risk — they only pay if shares are actually allotted. This makes STS safer for the buyer and riskier for the seller (the seller might end up with nothing if no allotment happens). To compensate the seller for taking this allotment risk, STS rates are quoted significantly higher than Kostak rates for the same IPO.
A live example from a recent oversubscribed mainboard IPO:
- Kostak rate: ₹800 per application
- Subject to Sauda: ₹2,200 per application
The roughly 2.75× STS premium reflects two market realities: the buyer's reduced risk, and the seller's lower probability of receiving anything if the issue is heavily subscribed (allotment in a 50× oversubscribed IPO is only around 2 percent for retail investors).
Who Should Consider Subject to Sauda?
As a SELLER (IPO applicant): Consider STS if you want a higher payout when allotted but are willing to walk away with zero if you don't get shares. STS makes sense when subscription levels are very high — Kostak buyers will only pay a small amount because they expect not to receive shares, so the absolute Kostak income is low. The STS structure inverts this: when allotment probability is low, STS rates rise because each individual allotment becomes more valuable to the buyer.
Avoid STS if you need guaranteed income from the application regardless of allotment. In that case, Kostak is the appropriate structure.
As a BUYER: STS is structurally safer than Kostak — you only pay when shares actually arrive in your demat. But STS rates are higher, so your break-even listing price is also higher. STS makes sense if you have a strong view that the IPO will list well above issue price and want exposure without the risk of paying for nothing.
Risks of Trading Subject to Sauda
Counterparty risk: Grey market trading is unregulated and informal. If a buyer refuses to pay after allotment, there is no legal recourse. All transactions rely on the personal trust and reputation of grey market dealers. A buyer who defaults can simply disappear.
Regulatory status: SEBI does not oversee or endorse grey market trading. There have been periodic SEBI advisories warning investors about the risks of grey market participation. Although STS is not explicitly banned, it operates entirely outside the regulated capital markets framework.
Price manipulation risk: In low-float SME IPOs and small mainboard issues, a small group of dealers can manipulate STS rates to attract applicants and then default on settlement. The smaller the dealer network, the higher the manipulation risk.
ipomarket.in tracks STS and Kostak rates as market intelligence only. We do not facilitate grey market trading and we do not recommend retail participation in unregulated grey market deals.
Where to Check Current Subject to Sauda Rates
You can track live Subject to Sauda and Kostak rates for all open IPOs on our GMP tracker. Rates are updated every 30 minutes alongside the standard grey market premium. For upcoming IPOs where the price band is announced but bidding has not yet opened, only indicative GMP is typically available — STS and Kostak rates emerge once the subscription window opens and dealer demand becomes visible.
FAQ
What is Subject to Sauda in simple terms?
Subject to Sauda is a grey market deal where you agree to sell your IPO application at a fixed rate, but the buyer only pays you if you actually receive allotment. If you don't get allotment, the deal is cancelled and no money changes hands.
Is Subject to Sauda safe?
It is unregulated and carries counterparty risk — the buyer may default after allotment. SEBI does not oversee grey market transactions. Use only through grey market dealers with a long settlement track record, and never participate in STS without understanding the full risk.
What is the difference between Kostak and Subject to Sauda?
Kostak is paid regardless of whether you get allotment — guaranteed but smaller. Subject to Sauda is paid only if you receive allotment — larger but conditional. STS rates are typically 2–3× the Kostak rate for the same IPO.
Can I check Subject to Sauda rates online?
ipomarket.in tracks STS rates on our live GMP page for active IPOs, updated every 30 minutes during the subscription window. Rates may be unavailable for very small SME issues with limited grey market activity.
Is grey market trading legal in India?
Grey market trading is unregulated but not explicitly banned. SEBI does not endorse it and has periodically warned investors about the risks. There is no legal recourse if a grey market counterparty defaults on payment.
What happens if the IPO lists below issue price after I sold via STS?
If you sold via STS and received allotment, the buyer pays you the STS rate and then absorbs the listing loss themselves. Your STS payout is unaffected by the listing price — that risk transferred to the buyer the moment allotment was confirmed.
Disclaimer: This article is published by ipomarket.in for educational and informational purposes only. It does not constitute investment advice, a recommendation to buy or sell any security, or an offer to invest. IPO investments are subject to market risks. Grey Market Premium (GMP), Kostak rate, and Subject to Sauda data referenced here are sourced from unofficial market participants and are not endorsed by SEBI, NSE, or BSE. Past performance is not indicative of future results. Please read all scheme-related documents carefully and consult a SEBI-registered financial advisor before investing. ipomarket.in is not a SEBI-registered investment advisor or research analyst.