The Over-The-Counter Exchange of India (OTCEI) is an electronic stock exchange specifically tailored to support small- and medium-sized firms by helping them access capital markets, including prominent electronic exchanges such as NASDAQ in the U.S. Utilizing a purely electronic network eliminates the need for a central exchange location.
Key Takeaways
- The OTCEI is an Indian electronic stock exchange for small- and mid-cap companies.
- Its main function is to enable smaller companies, which cannot meet national exchange requirements, to raise capital.
- The OTCEI’s capitalization rules are specially designed for small- to medium-sized companies, excluding larger firms from listing.
- Primary participants in the OTCEI include brokers, market makers, custodians, and transfer agents.
Empowering Small- and Medium-Sized Enterprises (SMEs)
Based in Mumbai, the OTCEI operates exclusively through a computer network, benefiting from recognition under India’s Securities Contract Regulation Act. All listed stocks on OTCEI enjoy similar regulatory standards as those on other significant Indian exchanges.
Founded in 1990, OTCEI emerged to help small companies in India raise capital when they found the stringent national stock exchange requirements too challenging to meet. The flexibility of OTCEI’s rules supports these companies’ growth until they meet the criteria to transition to national stock exchanges.
Advancements in electronic trading platforms have minimized the gaps between traditional exchanges and Over-The-Counter (OTC) networks, thereby making it easier for SMEs to thrive.
Standout Elements of OTCEI
The OTCEI possesses distinctive features that uniquely position it as an incubator for growing companies. Here are some key aspects:
- Stock Restrictions: Listings are exclusive; OTCEI-listed stocks won’t appear on other exchanges and vice versa.
- Minimum Capital Requirements: A minimum issued equity capital of 30 lakh rupees (approximately $40,000) is required.
- Large Company Restrictions: Companies with issued equity capital over 25 crore rupees ($3.3 million) are not eligible to be listed.
- Member Base Capital: Members must maintain a base capital of 4 lakh rupees ($5,277) to stay listed on the exchange.
Listing Requirements of OTCEI
The OTCEI simplifies the listing process for small- to mid-cap companies, yet specific criteria must be fulfilled before listing. These prerequisites include gaining sponsorship from OTCEI members and having two market makers. Once listed, a company must retain its listing for at least three years and ensure that promoters hold 20% of issued equity capital for the same duration.
Transaction Mechanics on the OTCEI
Dealers are crucial to OTCEI transactions, performing roles as brokers or market makers. Brokers act on behalf of buyers and sellers, while market makers ensure share availability and price stability through supply and demand management.
Custodians handle essential administrative tasks like document validation and daily clearing transactions. Registrars and transfer agents ensure precise share transfer and allotment operations.
In summary, the OTCEI serves as a specialized venue that empowers small- and medium-sized enterprises by providing a lenient platform for capital raising and growth until they are prepared for national listing.
Related Terms: capital markets, NASDAQ, listed securities, equity capital, delisting, brokers, market makers, custodians, transfer agents.
