A gray list is a list of securities ineligible for trading by an investment bank’s risk arbitrage division due to a higher degree of risk, often related to mergers or acquisitions. The list is confidential and used for internal purposes only, but other departments may still trade the stocks.
A gray list is a list of securities that are currently ineligible for trading by the risk arbitrage division of an investment bank. Inclusion on this list does not mean that there is anything inherently wrong with these values. In some cases, the basis for listing has to do with the fact that the companies issuing the shares are already working with the bank in some type of merger or acquisition situation. Once those matters are fully resolved, the securities can be delisted, allowing the bank to actively trade the shares.
The concept behind the gray list is to protect the interests of the bank by avoiding investment in securities where there is currently a higher degree of risk. In the event of a merger or acquisition, the outcome of those proceedings will have some kind of effect on the value of the shares issued by each company involved in the business. While that effect is often positive, it can also cause a decline in the value of equity issues. Until the acquisition or merger is complete and the impact is determined, the shares will remain greylisted.
Investment banks do not make the details of a gray list available to the general public. The document is used strictly for internal purposes. This is because the companies currently on the list are working with the bank in some way, and the details of those business deals are considered confidential. For this reason, no one knows who is currently on the list, apart from the individual company and bank employees who are directly involved in the risk arbitrage division or who are authorized to have access to the gray list as part of their process. continuous. job responsibilities
While stock offerings from companies that are currently greylisted are not eligible for trading by the risk arbitrage department, those stocks may be deemed eligible for trading by other departments or divisions of the bank. For example, the investment bank’s block trading desk may not have a problem making trades involving those shares. This apparent contradiction in the bank’s position is explained by what is known as a Chinese wall. This is essentially a split that occurs due to the confidential nature of each department’s interaction with the bank’s customers. Block trading desks are likely to be unaware of the impending merger or acquisition, and will treat shares issued by the client company in the same way as any shares issued by other bank clients.
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