Otcei - an overview

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)

12 December 2011

Hello All,

Most of us have come accross the term "Over the Counter Exchange of India (OTCEI)". Now lets have an insight into it. An overview of OTCEI.

Regards

OTCEI - An Overview

OTCEI (Over The Counter Exchange of India) was incorporated in 1990 as a Section 25 company under the Companies Act 1956 and is recognized as a stock exchange under Section 4 of the Securities Contracts Regulation Act, 1956. The Exchange was set up to aid enterprising promoters in raising finance for new projects in a cost effective manner and to provide investors with a transparent & efficient mode of trading.

Modelled along the lines of the NASDAQ market of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based nationwide trading, sponsorship of companies, market making and scripless trading. As a measure of success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral water, etc.

Trading at OTCEI is done over the centres spread across the country. Securities traded on the OTCEI are classified into:

Ø Listed Securities - The shares and debentures of the companies listed on the OTC can be bought or sold at any OTC counter all over the country and they should not be listed anywhere else

Ø Permitted Securities - Certain shares and debentures listed on other exchanges and units of mutual funds are allowed to be traded

Ø Initiated debentures - Any equity holding atleast one lakh debentures of a particular scrip can offer them for trading on the OTC.

Why OTCEI?

Ø Hybrid Trading System

Ø Sponsorship of Companies

Ø Cost Effective

Ø Ideal for Start-up Companies

Ø Enhanced Visibility and Recognition

Ø Assist in Forging partnership

Ø Specialist exchange for technology and growth companies

Need for OTCEI?

Studies by NASSCOM, Software Technology Parks of India, the venture capital funds and the government's IT Task Force, as well as the rising interest in information technology, pharmaceutical, biotechnology and media shares have repeatedly emphasised the need for a national stock market for innovative and high growth companies.

Innovative companies are critical to developing economies like India, which is undergoing a major technological revolution. With their abilities to generate employment opportunities and contribute to the economy, it is essential that these companies not only expand existing operations but also set up new units. The key issue for these companies is raising timely, cost effective and long term capital to sustain their operations and enhance growth. Such companies, particularly those that have been in operation for a short time, are unable to raise funds through the traditional financing methods, because they have not yet been evaluated by the financial world.

Who would find OTCEI helpful:

Ø high-technology enterprises

Ø companies with high growth potential

Ø companies focussed on new product development .

Ø entrepreneurs seeking finance for specific business projects

The Indian economy is demonstrating signs of recovery and it is essential that these companies have suitable financing alternatives to fund their growth and maintain competitiveness.

OTCEI, with its entry guidelines and eligibility requirements tailored for such innovative and growth oriented companies, is ideally positioned as the preferred route for raising funds through Initial Public Offer (IPOs) or primary issues, in this country.

A successful market for technology & growth companies has to :

Ø demonstrate an understanding for new technology and concepts

Ø provide capital formation opportunities for young companies without a track record

Ø be national in order to reach and service entrepreneurs and investors

Ø enable access to a wide spectrum of financial intermediaries

Ø be cost effective for issuers

Ø provide an exit route to venture capital & private equity funds for their investments

Ø adopt state of art trading systems and practices in tune with international norms

Ø be well regulated to promote transparent and fair market practices

OTCEI, by virtue of its unique position, is well suited to service the requirements of these companies, making it the natural choice for the emerging technology and growth stocks. In fact, consumer favourites like VIP Advanta, Sonora tiles and Brilliant Mineral Water are made by high growth companies that have benefited by listing on OTCEI.

Technology

Securities are traded on OTCEI through the 'OTCEI Automated Securities Integrated System' (OASIS), a state-of-art screen based trading system. OASIS combines the principles of order driven and quote driven markets and enables trading members to access a transparent & efficient market directly through a nationwide telecommunication network.

Ø The first Indian stock exchange to introduce nationwide computerized screen-based trading.

Ø State-of-the-art, STRATUS fault tolerant computer server

Ø Trading software modeled on TCAM software

Ø Connectivity through combination of satellite (VSAT) & terrestrial (lease line/dialup) modes.

Ø Excellent infrastructure/software support from CMC/TCS/HCL Comnet

Ø Network of Members / Dealers spread over more than 50 cities.

Promoters

OTC Exchange of India has been co-promoted by the leading financial institutions of the country:

Ø ICICI Bank Limited

Ø Administrator of Specified Undertaking of Unit Trust of India

Ø IDBI Bank Limited.

Ø SBI Capital Markets Limited