Over-The-Counter Exchange of India (OTCEI) Features, Requirements

What Is the Over-The-Counter Exchange of India (OTCEI)?

The Over-The-Counter Exchange of India (OTCEI) is an electronic stock exchange based in India that consists of small- and medium-sized firms aiming to gain access to overseas capital markets, including electronic exchanges in the U.S. such as the NASDAQ. There is no central place of exchange, and all trading occurs through electronic networks.

Key Takeaways

  • The Over-The-Counter Exchange of India (OTCEI) is an Indian electronic stock exchange composed of small- and mid-cap companies.
  • The purpose of the OTCEI is for smaller companies to raise capital, which they cannot do at the national exchanges due to their inability to meet the exchange requirements.
  • The OTCEI implements specific capitalization rules that make it suited for small- to medium-sized companies while preventing larger companies from being listed.
  • The key players in the OTCEI include brokers, market makers, custodians, and transfer agents.

Understanding the Over-The-Counter Exchange of India (OTCEI)

The OTCEI is based in Mumbai, India, and operates solely over a computer network. The exchange is recognized by India's Securities Contract Regulation Act, meaning all listed stocks on the OTCEI benefit equally as other listed securities on other exchanges in India.

The exchange was established in 1990 to provide investors and companies with an additional way to trade and issue securities. It arose primarily from small companies in India finding it difficult to raise capital through mainstream national stock exchanges because they could not fulfill the stringent requirements to be listed on them.

The OTCEI has rules that are not as rigid as the national exchanges, allowing small companies to gain access to the capital they need to grow. The objective is that once they grow to a certain level and are able to meet the requirements to be listed on the national stock exchanges, they will make the switch over and leave the OTCEI behind.

Thanks to advances in technology that have yielded improvements in electronic trading platforms, the differences between traditional exchanges and over-the-counter (OTC) networks are no longer vast, greatly benefiting the small- and medium-sized companies.

Features of the Over-The-Counter Exchange of India (OTCEI)

The OTCEI has some special features that make it a unique exchange in India as well as a growth catalyst for small- to medium-sized companies. The following are some of its unique features:

  • Stock Restrictions: Stocks that are listed on other exchanges will not be listed on the OTCEI and, conversely, stocks listed on the OTCEI will not be listed on other exchanges.
  • Minimum Capital Requirements: The requirement for the minimum issued equity capital is 30 lakh rupees, which is approximately $40,000.
  • Large Company Restrictions: Companies with issued equity capital of more than 25 crore rupees ($3.3 million) are not allowed to be listed.
  • Member Base Capital Requirement: Members must maintain a base capital of 4 lakh rupees ($5,277) to continue to be listed on the exchange.

Over-The-Counter Exchange of India (OTCEI) Listing Requirements

The OTCEI makes it easier for small- to mid-cap sized companies to be listed, although there are still some requirements that companies must meet before being allowed to be listed.

Stipulations include acquiring sponsorship from members of the OTCEI and having two market makers. In addition, once a company is listed, it cannot be delisted for at least three years, and a certain percentage of issued equity capital needs to be kept by promoters for a minimum of three years. This percentage is 20%.

Over-The-Counter Exchange of India (OTCEI) Transactions

The transactions on the OTCEI revolve around the dealers. Dealers operate in a few capacities, the two most important being as a broker and as a market maker. As a broker, the dealer transacts on behalf of buyers and sellers. As a market maker, the dealer has to ensure the availability of the shares for transaction purposes as well as to ensure that the price remains reasonable through supply and demand levels.

In addition to the dealers, the OTCEI also has custodians. The custodian, or settler, is the individual that performs the multitude of administrative tasks necessary for the proper functioning of the OTCEI. These tasks include validating and storing documents as well as facilitating daily clearing transactions.

Finally, the last group of players consists of the registrars and transfer agents, who are responsible for making sure the correct transfer and allotment of shares take place.