OTC Exchange of India (OTCEI)

Over-the-Country Exchange of India (OTCEI) was incorporated in the year 1990 as a Section 25 company under the Companies Act 1956. It is recognised by the Securities Contracts Regulation Act, 1956 as a stock exchange. The purpose of the formation of OTCEI was to aid enterprising promoters in raising finance for new projects in a cost effective manner and to provide transparent and efficient mode of trading to the investors.

It is modelled along the lines of the NASDAQ market and has introduced several novel concepts to the Indian capital markets, like screen-based nationwide trading, sponsorship of companies, market making and scripless trading. Presently the exchange has 115 listings and has helped in providing capital for enterprises which have walked on to build successful brands for themselves. They are VIP, Advanta, Sonora Tiles & Brilliant mineral water, etc.

OTCEI in 1993, became the first Exchange in the country to open Investor Grievance Cells (IGCs) at four Metros - Chennai, Delhi, Kolkata and Mumbai. The IGCs handle complaints/ queries from investors against brokers and/or companies listed on the OTCEI.

The OTC Exchange of India announced moves that would enable it emerge as the key force behind the new entrepreneur-led economy in India in sectors where Intellectual Capital will be the primary driver.

The OTCEI's new initiatives, announced by its Chairman Mr. P.S. Subramanyam, included the introduction of new threshold requirements for IPOs seeking listings on the Exchange and the creation of an Unlisted Securities segment with Internet-based trading. The OTCEI's web-based business model for Unlisted Securities will be the first of its kind in India.

A "fast track" programme whereby "deserving and performing" companies listed on the OTCEI could be traded on the National Stock Exchange" (NSE)

without having to fulfill the latter's base level entry requirements is also under consideration.

In September 1999, the OTCEI had also announced a complete revamp of the Exchange's market making rules to create greater liquidity for stocks listed on the Exchange to provide better exit opportunities for the investors at all stages. The new market making system will be operational by the 4th week of October and will be integrated with the existing OASIS system.

The norms will ensure a rigorous scrutiny at the pre-listing stage so that only quality companies with a commitment to enhancing shareholder value will list on the OTCEI. Emphasis would also be on quality disclosures on a continuous basis. "This will ensure a sense of confidence among investors where their investments will not be squandered," said Mr. Bosco.

Among the new norms are:-

1. New threshold listing requirements for IPOs seeking listing on the OTCEI.

2. An arrangement with the NSE for parallel trading of OTCEI listed securities.

3. The appointment of a panel of chartered accountant/audit firms to undertake a due diligence exercise of companies seeking listing on the Exchange.

4. The constitution of a separate committee for screening companies prior to listing.

OPERATIONS EXCHANGE
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OTC
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FUTURE PLANS

During the year, 118 brokers were active and their trading turnover amounted close to Rs. 0.09 crores. During the year, the turnover on its wholly owned subsidiary - OTCEI Securities Ltd. (OSL) increased by 216.78% to Rs 1072.31 crores from Rs 338.50 crores. 40 OTCEI members are now taking advantage of trading on capital market segment of NSE through OSL in comparison to 26 in the last year. In its constant endeavor to add value to the capital market activities and redefine its role accordingly, OTCEI started a new segment Retail Debt Market in January 2003. The new segment caters to the retail investors needs of investing in sovereign securities. Unfortunately due to investor unawareness about this segment the participation level have been negligible. The exchanges detailed proposals on Single Call Auction Markets and Privately Placed Debt are awaiting SEBIs approval. The launch of these two new segments could provide the exchange with a fillip, which is much needed to boost up its product line and bottom line.

Benefits:

The OTCEI has set up a national, automated screen based and ringless stock market. It helps companies raise finance from the capital market in a cost effective manner and provides a convenient and effective avenue of capital market investment for investors at large. While the other recognised stock exchanges require that in order to have its securities listed the company should have an issued capital of not less than Rs. 3 crores out of which normally 25% is to be offered to the public, the minimum issued equity share capital of a company for eligibility for listing on the OTCEI is Rs 30 lacs. Listing on OTCEI is advantageous to companies because of the high liquidity of these securities, which is a result of compulsory market making, improved access and speed of transactions resulting from the extensive network of electronically interlinked counters.arial. Companies can obtain a fair price of their securities by negotiating the same with the sponsors (who are members of the OTCEI) and save unnecessary issue expenses by placing their securities with the sponsors who will in turn off load the securities to the public. This

mechanism is now popularly known as a bought out deal.

OTCEI's wide computerized net work will be spread all over India and will make investment easier.All deals will be entered into through remote terminals which will be connected to the mainframe computer of the OTCEI.The exchange will enable transactions to be completed quickly and investors can settle the deals across the counter within Few Days.

OTCEI Motto
"To assist in efficient capital formation by developing a vibrant, dynamic and self-regulated capital market conferring benefits to the investors, issuers, capital market and the nation at large."

Securities:

Several public sector undertakings have issued "debt instruments" commonly known as PSU bonds. These bonds are securities as defined under the SCR Act. Interest earned on some of these PSU bonds are not liable to income tax.

Euro-issues:
A large number of Indian companies are considering the issue of Euro-issues in order to finance their foreignexchange requirements. Blue chip companies initially allowed to enter the market include Grasim Industries and Tata Iron. Several international bankers and other organisations have approached the above companies indicating their keenness to price and underwrite the issues.

OTCEI Brokers
There are three types of intermediaries in this exchange.

Members

Dealers

Sponsors

The above three contribute to the activities of the exchange through trading and enabling listing of companies on the Exchange. Members and Dealers can carry out activities like trading, underwriting, market making and participation in bought out deals. Dealers can never sponsor an issue for listing. Sponsors can perform the function of sponsorship of issues, but they are not permitted to take part in secondary market activities.

OTCEIs Five Years Total Turnover

OTCEIs Fact

It is the first screen based nationwide stock exchange in India. It is the first exchange to introduce Market Making in India. It is the first exchange to introduce Sponsorship of companies in India. It is the only exchange which allows the listing of companies with a paid-up capital below Rs. 3 crores. It is the only exchange which allows the companies with less than 3 year track record to tap capital market. It has shifted trading from counter receipts to share certificates. It has introduced Weekly Settlement Cycle. It allows short selling. It allows the demat trading through NSDL. It has tied-up with NSCCL for Clearing.

OTCEIs Trading in Unlisted Securities

According to the Dave Committee report in 1996, it was suggested to allow trading the equity shares of unlisted companies. The exchange has also designed trading rules and market guidelines in this context and it has also been submitted to SEBI for approval. The exchange also proposes to introduce a vibrant and well structured and regulated market for unlisted securities trading, giving an exit option for venture capital/ Private equity, offshore funds and other institutions and corporates. This results in an improvedinvestment opportunities in start-up enterprises, particularly in the growth sectors.

OTCEI Grievance Cells

OTC Exchange of India became the first Exchange in the country to open the Investor Grievance Cells (IGCs) at the four Metros. The cell was opened in 1993 and it handles complaints/queries from the investors against the brokers and/or OTCEI listed companies.

The investors can send an e-mail or can approach to any one of of the following grievance cell: E-mail: igc@otcei.net

THE ELIGIBILITY CRITERIA FOR LISTING ARE AS FOLLOWS:

(i) Companies with issued capital from Rs.30 lakhs to less than Rs.3 crores should make a minimum public offer of 40% of their capital or Rs. 20 Lakhs, in face value, whichever is higher. (ii) Companies with issued capital from Rs. 3 crores to Rs. 25 crores should satisfy the listing requirements and guidelines as currently applicable on other exchanges. (iii) Venture capital companies/funds approved by the Department of Economic affairs, Ministry of Finance or such other authority nominated by the Central Government, should make a minimum public offer of 20% of their issued capital in relaxation of Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. (iv) Companies engaged in hire purchase/finance/leasing/amusement parks etc. shall not be eligible for listing on the OTC Exchange.

(v) Companies covered under the MRTP/FERA may be listed on the OTC Exchange if they satisfy listing guidelines as on other recognized stock exchanges, such as minimum issued equity capital of Rs.300 lakhs or such other limit as may be prescribed.

(vi) A company which is listed on any other recognized stock exchange in India would not simultaneously be eligible for listing on the OTC Exchange. (vii) The minimum number of centres for collection of application forms for issues of securities shall be four, one each from the Northern, Southern, Eastern and Western regions of the country, but may be increased by OTCEI depending on the size and the nature of the issue of securities made. (viii) Whenever securities are issued at a price above par, the premium will be approved by the Controller of Capital Issues.

(ix) A company shall not issue securities at par in case the securities are eligible to be issued at a premium under the guidelines issued by the Controller of Capital Issues.

The National Securities Clearing Corporation Ltd. (NSCCL) was set up by the National Stock Exchange of India Limited (NSE), the country's largest stock exchange. It is the largest clearing house in the Indian capital markets and is responsible for settling all trades on the NSE as well as on OTCEI.

OTC Exchange of India

(OTCEI)
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