OTCEI (Over the Counter Exchange of
India)
It
is a Stock Exchange without a proper trading floor
All stock exchanges
have a specific place for trading their securities through counters. But, OTCEI
is connected through a computer network and the transactions are taking place
through computer operations. Thus, the development in information technology
has given scope for starting this type of stock exchange. This stock exchange
is recognized under the Securities Contract (Regulation) Act and so all the
stocks listed in this exchange enjoy the same benefits as other listed
securities enjoy.
OTCEI has been
incorporated under Section 25 of the companies Act. As a result of which the
word limited‘notbe needusedsince it is promoted for a common case of promoting
the interest of small and medium companies. This privilege has been given to
the company by the Central government. This company was promoted by a group of
financial institutions owned by Government of India, consisting of UTI, ICICI,
IDBI, SBI Capital Market, IFCI, LIC, GIC and CAN BANK financial Services.
1 FEATURES OF OTCEI
(1) Use
of Modern Technology: It is an electronically operated
stock exchange.
Restrictions for other stocks: Stocks
and shares listed in other stock exchanges will not be listed in the
OTCEI and similarly, stock listed in OTCEI will not be listed in other stock
exchanges.
(3) Minimum issued
capital requirements: Minimum issued equity capital
should be Rs.30 lakhs, out of which minimum public offer should be Rs.20
lakhs. (4) Restrictions for large companies: No company with the
issued equity share capital of more than Rs.25 crores is permitted for
listing.
(5)
Base Capital requirement for
members: Members will be required to maintain a minimum base
capital of Rs. 4 lakhs to trade on the permitted or on listed segment.
(6)
All India network: The
network of counters links OTCEI members, located in different parts of
the country.
(7)
Satellite facility: The
satellite required for OTCEI for its operations is jointly held with Press Trust
of India
(8)
Computerization of transactions: Computers
at each counter enable the dealers to enter various transactions or
queries or quotes through a central OTCEI computer, using telecommunication
links.
2 Objectives of OTCEI:
The following are the objectives of OTCEI
1.
Assisting and guiding small companies to
raise funds from the capital market in a cost-effective manner
2.
Providing a convenient and an efficient
avenue of capital market investments for small investors
3.
Strengthening investors‘theconfidencefinancialmarketbyoffering
them the two-way best prices to them
4. Ensuring
transparency, redressing investors‘andcomplaintsunifying the
coun
market to cover even those places which do not have
a stock exchange
5. Acting
as a launch pad to an IPO
6. Providing
liquidity advantage to the securities traded
7. Promoting
organized trading in Unlisted Securities
8. Providing
a source of valuation for securities traded OTCEI offers the following benefits
:
Benefits to Listed Companies
The benefits that are offered to companies listed
with OTCEI are as follows:
1.
Negotiability: The
Company can negotiate the issue price with the sponsors who have to market
the issue. It provides an opportunity for fair pricing of an issue through
negotiation with the sponsors.
2.
Fixation of premium: In
consultation with the sponsors, the company can fix an optimum level of
premium on issue with minimum risk of non-subscription of the issue.
3.
Savings in costs: Lots
of costs associated with public issue of capital are saved through this mode.
It provides an opportunity to companies to raise funds through capital market
instruments at an extremely low cost as compared to a public issue. The method
of sponsors placing the scrip‘swithmembers who in turn will offload the
scrip‘stopublicwill obviate the need for a
public issue and its associated costs.
4.
No take-over threat: OTCEI
lists scrip‘sevenwith 40 percent of the capital offered for public
trading. The limit has now been brought down to 20 percent in the case of
closely held companies and new companies. As a result, the present management
of the companies are saved of threats of takeover if they restrict public
offer.
5. Large access: Accessing a large pool of captive investor base through the OTCEI‗s
computerized network is made possible for companies. Though nationwide network
for servicing of investors, companies
listed on OTC Exchange can have a larger investor base.
6. Other benefits:
10.
Helpful to small companies
11.
Shares of all unlisted companies can now
be traded on OTCEI
12.
Platform for issuers and first-level
investors like financial institutions, state level financial corporations,
Foreign Institutional Investors, etc.
13.
System for defining benchmark for
securities
14.
Increasing business for the market
constituents
Benefits to Investors
OTCEI offers the following benefits for investors:
1. Safety: OTCEI‗singless
andr scrip less electronic trading ensure safety of transactions of the
investor. For instance, every-OTCinvestor-Cardfree.Thiscode in a O is
allotted on a permanent basis and should be used in all OTC transactions and
applications of OTC issues. This card provides for the safety and security of
the investors investments. The mechanism offers greater security to investors
as the sponsors investigate into the company and the projects,
before accepting sponsorship
thus building up
much needed greater
investor
confidence.
2.
Transparency: OTC
screens at every OTC counter display the best buy/sell prices. The exact trading
prices are printed in the trading documents for confirmations. This protects
the investor interest and there by minimize disputes.
3.
Liquidity: A
great advantage of the OTC is that the scrip‘stradedare liquid. This is
because there are at least two market-makers who indulge in continuous
buying and selling. This enables investors to buy and sell the scrip‘sany time.
4.
Appraisal: OTC
members sponsor each scrip listed in an OTC counter. The sponsor makes an appraisal
of the scrip‘sforinvestor worthiness. This ensures quality of investments.
5.
Access: Every
OTC counter serves as a single window to the entire OTC exchange throughout the
country and throughout the world too. Therefore, buying and selling may be
resorted to from any part of the world. It offers the facility of faster deal
settlement for investors across the counters spread over the entire country.
6.
Transfer: It
is important that OTC shares are transferable within 7 days, where the consolidated
holdings of the scrip‘sdonotexceed 0.5 percent of the issued capital of the
company.
7.
Allotment: There
is not much waiting for the investors when it comes to allotment of scrip‘s.
Allotment is completed in all respects within a matter of 35 days and
trading begins immediately thereafter.
8.
Other benefits : a.
Derivatives such as futures and options, forward contracts on stock, and other
forms of forward transactions and stock lending are allowed on OTCEI b. Scrip
less trading makes dealings simper and easier c. Market-making system in OTC
Exchange gives sufficient opportunities for the investors to exit d. Acts as a
benchmark to value securities e. Creating an exit option for illiquid
stocks/venture capitalists f. Shuffling portfolios for the investors g.
Organizing and broad-basing trading in the existing market
3 Benefits to Financial System
The OTCEI‗s role has
been laudable in as far as it helps contribute improving the financial system
of India in the following ways:
1. National network of
OTCEI operations facilitates the integration of capital market in the country.
2.
Boon to closely-held companies as they
are encouraged to go public because scrip‘scanbe listed even if only 40 percent
of capital (now a minimum of 20 percent in case of closely held and new companies)
is offered for public trading.
3.
Facilities wider dispersal of economic
activities by encouraging small companies and small investors.
4. Promoting
savings and investments by offering easier avenues for raising capital.
5. Providing
over-all stimulation to venture capital activities thereby promoting
entrepreneurship.
6.
Market-making assistance by the sponsors
on the OTCEI that helps in making appraised future projections in the issue
documents which in turn helps prospective investors in determining the
usefulness of the issues for investment purposes, promoting investment
environment in general.
7.
Those members of the OTCEI who did not
have multiple memberships can now have an opportunity to trade in some of the
large capital index stocks.
8. Encourage
venture capital activities and boost entrepreneurship
9. Spread
of stock exchange operations geographically all over India
Securities Traded Following
are the securities that are traded on the OTCEI:
1. Listed equity (exclusive): These
are equity shares of the companies listed exclusively on the
OTCEI. The shared can be bought or sold at any of
the member/ dealer‗s office all over India.
The securities, which
are listed exclusively on the OTCEI, cannot be traded on other stock exchanges.
Listed debt: These
are the debentures/bonds that are issued through a public issue or a private
placement and are listed on OTCEI. Any entity holding the entire series of
a particular debt instrument can also offer them for trading on the OTCEI, by
appointing an OTCEI member/dealer to carry out compulsory market making in
those securities.
Gilts: The securities issued
by the Central and State Governments are called ‘gilts’. Government of India
Dated Securities, Treasury Bills and special securities are traded in this
segment. Banks, Foreign Investors, Foreign Institutional Investors, NBFCs and
Provident Funds can trade in these securities through OTCEI designated
members/dealers.. PSU Bonds, Commercial Paper, and Certificates of Deposit will
also be traded in this segment.
4. Permitted
securities: These are the securities listed on other
exchanges, which are permitted for trading on OTCEI. Securities of Blue
Chip companies like ACC, Reliance Industries Ltd., State Bank of India, ITC,
etc. are traded in this segment.
5. Listed mutual funds: Listed
mutual funds are units of mutual funds that are listed on OTCEI.
Mutual fund units like
units of Unit-64, Monthly Income Plan, and under this category. To counter the
influence of Bombay Stock Exchange and reduce the influence of certain powerful
intermediaries in the stock market, a new stock market was promoted in which
both securities of companies and debt instruments are traded, namely the
National Stock Exchanges. NSE takes into account the screen based trading and
so it is the most advanced. The success of this stock exchange is quite evident
that within a few years of its promotion the volume and the value of
transactions have surpassed the BSE.
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