Trading and settlement system of otcei
Securities markets in developed countries are multi-tiered with an element of in-built competition amongst various layers. This prevents monopolisation of securities exchange and makes the markets more efficient. In India, however, the situation has been altogether different because of the virtual monopoly enjoyed by stock exchanges otcei recently. The multi-tier securities exchange model was adopted in our country in October with the establishment of the Over the Counter Exchange of India OTCEI. It has been promoted jointly by UTI, ICICI, IDBI, SBI Capital Markets Ltd. Consequently, companies listed with OTCEI will practically be at par with companies listed on any stock exchange in the country. OTC designated dealers operate through their computer terminals which are hooked to a central computer. All quotes and transactions are recorded and processed here. The dealers are spread over the country and have access to the central computer. Besides, PTI OTC scan is available to each dealer which displays the best bids and offers of the market makers in respect of each scrip. The exact transaction price alongwith other details is also displayed in the counter computer. The trading documents of OTCEI include: It is a tradeable document and hence must be preserved carefully. It is akin to a share certificate so far as its contents are concerned; b Sale Confirmation Slip SCS which is passed on to the seller when a otcei is made. The seller also must preserve it carefully since he gets the payment against this slip later on. Trading at OTCEI will be permitted only in respect of the securities of the listed companies. Listing may be obtained by i Companies with issued equity capital system Rs. Before recommending a company for enlistment, such members have to carry out the appraisal of the project to ensure its technological and financial viability. They also ensure that all government rules and regulations have been complied with. They are required to clarify the investment worthiness of the company and its project. Finally, they would value the shares of the company, comply with SEBI guidelines for the issue of securities and manage the public issue. SEBI relaxed norms for listing on the OTCEI during March The minimum post- issue capital to be offered to the public to enable listing was lowered from 40 per cent to 25 per cent. SEBI also permitted finance and leasing companies to get listed on the OTCEI. In AprilOTCEI modified its guidelines to allow listing of finance companies-albeit with more stringency. The minimum issued capital was increased from Rs. Further, a three-year track record of profitability was made compulsory before listing takes place. The new guidelines also state that the OTCEI- sponsor of these companies should hold at least 10 per cent of the public offer as market making inventory as against 5 per cent for other and. However, till Decemberno companies engaged in finance or leasing services was listed on system OTCEI. To facilitate offers for sale of bought-out deals, OTCEI changed its guidelines in January The revised guideline did away with the requirement of making an offer for sale of the entire bought-out deal to the public, except the market making inventory. The offered can now offer a minimum of 25 per cent of the bought-out deal to the public. At the same time, the ratio of involvement of OTCEI members to non-OTCEI members has been brought down from These guidelines came into effect from 22 January and were settlement applicable to all the bought-out deals registered with SEBI and the offer documents for offers for sale which were awaiting SEBI clearance. Settlement in AugustSEBI exempted offers for sale of bought-out deals registered with OTCEI on or before 16 April from the new guidelines governing entry norms for public issues. Briefly, the new guidelines issued by SEBI stated that any company wanting to make a public issue should have a track record of dividend payment for at least three in the immediately preceding five years before the making public issue. If companies do not satisfy this requirement, then they must at least get their project appraised by a financial institution or a nationalised bank which would participate in the public issue to an extent of at least 10 per cent of the total project outlay. The relaxation would benefit the odd bought out deals registered with the OTCEI. With a view to review the working of the OTCEI and to make recommendations for its further improvement, SEBI appointed an eight-member committee under the chairmanship of Dr. Dave on 17 April On the recommendations of the Committee, SEBI has made the eligibility criteria for companies desirous of making a public issue very stringent. The companies unable to make a public issue as a consequence of these guidelines system allowed to seek listing on the OTCEI, albeit with some checks. Currently, only those companies which have a track record of dividend payment of three years out trading the immediately preceding five years can make a public issue. If the company does not have such a teach record, then the project for which the company is entering the capital settlement needs to be appraised by a financial institution or a nationalised bank. Further, there should be a minimum participation of 10 per cent of the project outlay by the appraiser, in the form of equity or long-term debt. The committee has recommended that companies which do not satisfy these criteria should be allowed to get listed on the OTCEI provided they appoint a sponsor and two market makers to the issue. The committee has also recommended that companies which do not meet the minimum shareholding norm of having at least 5 shareholders for every Rs. Companies which get delisted from regional stock exchanges should be allowed to list on the OTCEI since shareholders of delisted companies do not have a platform to off load their holdings. These companies should, however, be traded under a separate category on the OTCEI. Further, all the companies discussed above should be allowed listing on the OTCEI with a minimum lock-in period of three years. After three years, these companies may either choose to remain on the OTCEI or seek listing on other trading exchanges. The committee has recommended that the ceiling of Rs. The committee has also stressed upon the need of increased involvement of the promoters of OTCEI. The report points out that the some of these entities have promoted the National Stock Exchange which has grown at a much faster pace than the OTCEI. One recommendation for increased promoter participation is that the promoters should have an OTCEI-dedicated fund of a corpus of around Rs. OTCEI is intended to provide easy marketability and better liquidity otcei securities to an investor. Besides, it also offers facilities for transfer of shares listed here. The investor can submit the transfer documents at any and the OTCEI counters in the country. There is total transparency and fairness so far as the deals are concerned. It takes lesser time to finalise a deal too. The companies listed with OTCEI are also benefitted to a large extent. Raising of funds becomes cheaper since they are priced fairly and the investor base is large. The company has also the option of allotting all the shares to a sponsor. In this case, and company has only to negotiate trading issue price with the sponsor who finally markets the issue. Despite being in existence for a number of years, the exchange does not have a major presence amongst stock exchanges of the country.
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