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
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.