Over The Counter Exchange of India (OTCEI) was incorporated in October 1990 under Section 25 of the Companies Act, 1956 with the objective of setting up a national, ringless, screen-based, automated stock exchange. It is recognized as a stock exchange under Section 4 of the Securities Contracts (Regulations) Act, 1956. It was set up to provide investors with a convenient, efficient and transparent platform for dealing in shares and stocks; and to help enterprising promoters set up new projects or expand. their activities, by providing them an opportunity to raise capital from the capital market in a cost-effective manner. Trading in securities takes place through OTCEI’s network of members and dealers spanning the length and breadth of India. Over The Counter Exchange of India was promoted by a consortium of financial institutions including:
- Unit Trust of India.
- Industrial Credit and Investment Corporation of India.
- Industrial Development Bank of India.
- Industrial Finance Corporation of India.
- Life Insurance Corporation of India.
- General Insurance Corporation and its subsidiaries.
- SBI Capital Markets Limited.
- Canbank Financial Services Ltd.
The Over The Counter Exchange of India is based on the model of national association of securities dealers’ automated quotation (NASDAQ) of USA, with modifications to suit the Indian conditions. The OTCEI arose out of the need to have a second tire market in the country. It was set up to provide small and medium companies an access to capital market for raising finance in a cost effective manner and investors with a convenient, transparent and efficient avenue for capital market investment. The OTCEI was the first ring less, electronic and national exchange with a screen based trading system listing an entirely new set of companies of small size. It allowed companies with a paid up capital as low as 30 lacs to get listed, It brought screen based trading system in vogue for the first time; this was quite different from the open outcry system at BSE. Moreover, each strip listed on the exchange had at least two market makers who continuously gave two way quotes. Market makers are merchant bankers willing to make a market in securities by continuously offering buy and sell quotes. They act as a dealer cum stockiest and do not charge any commission or brokerage. Their profit margin is the spread between the bid and offer prices. A voluntary market maker can be appointed for a period of six months. Market making is a unique concept of OTCEI. The other player on OTCEI is the custodian or registrar a safe keeper of share certificates. The OTCEI provides a liquid cash market for retail investors with a T+3 rolling settlement systems and no problem of bad of short deliveries.
Salient Features of Over The Counter Exchange of India
- Ringless and Screen-based Trading: The Over The Counter Exchange of India was the first stock exchange to introduce automated, screen-based trading in place of conventional trading ring found in other stock exchanges. The network of on-line computers provides all relevant information to the market participants on their computer screens. This allows them the luxury of executing their deals in the comfort of their own offices.
- Sponsorship: All the companies seeking listing on Over The Counter Exchange of India have to approach one of the members of the OTCEI for acting as the sponsor to the issue. The sponsor makes a thorough appraisal of the project; as by entering into the sponsorship agreement, the sponsor is committed to making market in that scrip (giving a buy sell quote) for a minimum period of 18 months, sponsorship ensures quality of the companies and enhance liquidity for the scrip’s listed on OTCEI.
- Transparency of Transactions: The investor can view the quotations on the computer screen at the dealer’s office before placing the order. The OTCEI system ensures that trades are done at the best prevailing quotation in the market. The confirmation slip/trading document generated by the computers gives the exact price at which the deals has been done and the brokerage charged.
- Liquidity through Market Making: The sponsor-member is required to give two-way quotes(buy and sell) for the scrip for 18 months from commencement of trading. Besides the compulsory market maker, there is an additional market maker giving two way quotes for the scrip. The idea is to create an environment of competition among market makers to produce efficient pricing and narrow spreads between buy and sell quotations.
- Listing of Small and Medium-sized Companies: Many small and medium-sized companies were not able to enter capital market due to the listing requirement of Securities Contracts (Regulation) Act, 1956 regarding the minimum issued equity of Rs.10 crores in case of the Mumbai stock Exchange and Rs.3 crores in case of other stock exchanges. The OTCEI provides an opportunity to these companies to enter the capital market as companies with issued capital of Rs.30 lacks onwards can raise finance from the capital market through OTCEI.
- Technology: Over The Counter Exchange of India uses computers and telecommunications to bring members/dealers together electronically, enabling them to trade with one another over the computer rather than on a trading floor in a single location.
- Nation-wide Listing: Over The Counter Exchange of India network is spread all over India through members, dealers and representative office counters. The company and its securities get nation-wide exposure and investors all over India can start trading in that scrip.
- Bought-out Deals: Through the concept of a bought-out deal, OTCEI allows companies to place its equity with the sponsor-member at a mutually agreed price. This ensures swifter availability of funds to companies for timely completion of projects and a listed status at a later date.
Benefits of getting OTCEI Listing for Companies
The Over The Counter Exchange of India offers facilities to the companies having a issued equity capital of more than Rs. 30 lakhs. The benefits of listing at the Over The Counter Exchange of India are:
- Small and medium closely-held companies can go public.
- The OTCEI encourages entrepreneurship.
- Companies can get the money before the issue in cases of Bought-out-deals.
- It is more cost-effective to come with an issue of OTCEI.
- Small companies can get listing benefits.
- Easy issue marketing by using the nation-wide OTCEI dealer network.
- Nation-wide trading by listing at just one exchange.
Benefits of Trading on OTCEI for Investors
- The OTCEI trading counters are easily accessible by any investors.
- The OTCEI provides greater confidence to investors because of complete transparency in deals.
- At the OTCEl, the transactions are fast and are completed quickly.
- The OTCEI ensures security, liquidity by offering two-way quotes.
- The OTCEI is an investor friendly exchange with Single Window Clearance for all investor requests.