Definition of OTCEI
Over The Counter Exchange of India (OTCEI) can be defined as a stock exchange without a proper trading floor. All stock exchange have a specific place for trading their securities through counters. But the 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.
OTCEI 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.
Need for starting OTCEI:
Many small companies in India are finding it difficult to raise adequate capital through Stock Exchanges as the conditions stipulated by them could not be fulfilled. The companies must have run for minimum three years and they must have earned profit and the minimum capital requirement for listing is also quite high. Hence by promoting a new Stock exchange with flexible conditions, the small and medium companies in India will be able to raise sufficient capital. Once these companies enlarge their resources, they can list themselves in the regular stock exchanges.
Promotion of OTCEI:
OTCEI has been incorporated under Section 25 of the Companies Act. As a result of which the word ‘Limited’ need not be used since it is promoted for a common cause 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 the Government of India, consisting of UTI, ICICI, IDBI, SBI Capital Market, IFCI, LIC, GIC; and Can Bank Financial Services (which is a subsidiary of Canara Bank).
Special features of OTCEI:
1. Use of Modern technology: Unlike other stock market, OTCEI does not have any special counters and it is an electronically operated stock exchange.
2. Restrictions for other stocks: Stocks and shares listed in other stock exchanges will not be listed in the OTCEI and similarly, stocks 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 (PTI) and hence, PTI-OTCEI scan displays the prices of OTCEI’s scripts.
8. Computerization of transactions: Computers at each counter enable to dealers to enter various transactions or queries or quotes through a central OTCEI computer, using telecommunications links.
Due to the above features, OTCEI has an edge over other stock exchanges in the country.
Constituents of OTCEI
OTCEI commenced its operations in 1992. In OTCEI, we have the following parties taking part in various transactions. They are
- Custodian or Settlers
- Transfer agents
- Government and
How are transactions done in OTCEI?
The members of the OTCEI will invite companies to list on the exchange for raising capital. There are dealers who perform the dual role of a broker and market maker. A broker acts on behalf of buyer or seller, while a market maker has a responsibility to make available toe particular share in the maker for transactions and to maintain reasonable price through supply and demand forces.
Example: The market makers will prevent abnormal fluctuations in the price of securities by regulating the supply and demand forces of securities in such a manner than acute scarcity or abundant supply of any security will be avoided. If 1000 shares are demanded among different categories so that the price will not fluctuate abnormally.
The custodian or a settler is one who validates the trading documents, stores the trading documents and also arranges for the clearing of daily transaction. It is the settler who gives the net monetary position of each member with regard to the market as a whole. The registrar and transfer agents ensure share transfers and allotments of shares and also inform the developments of various companies in the market.
What are the Listing requirements in OTCEI?
For any company to list its shares in OTCEI, it requires sponsorship by members of the OTCEI and it must also have two market makers. The OTCEI has also laid down rules regarding listing requirements.
- Once a company lists its securities in the market, it cannot delist its securities for a minimum period of 3 years.
- There are certain norms to be fulfilled by companies for sale of equity shares or any other securities under bought out deal (i.e., a company at its early stage may issue shares with an understanding that it will buy back after 5 years at the market price from out of its profits.)
- 20% of the issued capital should be retained by the promoters for a period of not less than 3 years.
- There should be two market makers as per the guidelines of OTCEI.