Over the Counter Exchange of India (OTCEI)


The OTCEI is a company incorporated under the Companies Act 1956.

It was set-up to provide small and medium companies an access to the capital market for raising finance in a cost effective manner.

It was also meant to provide investors with a convenient, transparent and efficient avenue for capital market investment.

It is fully computerised, transparent, single window exchange which commenced trading in 1992.

This exchange is established on the lines of NASDAQ (National Association of Securities Dealers Automated Quotations) the OTC exchange in USA.

It has been promoted by UTI, ICICI, IDBI, IFCI, LIC, GIC, SBI Capital markets and Can Bank Financial Services.

Over the counter market may be defined as a place where buyers seek sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both the parties.

It is a negotiated market place that exists anywhere as opposed to the auction market place, represented by the activity on securities exchanges.

Thus, in the OTC exchange, trading takes place when a buyer or seller walks up to an OTCEI counter, taps on the computer screen, finds quotes and effects a purchase or sale depending on whether the prices meet their targets.

There is no particular market place in the geographical sense.

The objectives of OTCEI are to provide quicker liquidity to securities at a fixed and fair price, liquidity for less traded securities or that of small companies, a simplified process of buying and selling and easy and cheaper means of making public sale of new issues.

 

Advantages of OTC Market—

[1] It provides a trading platform to smaller and less liquid companies as they are not eligible for listing on a regular exchange.

[2] It is a cost effective method for corporate as there is a lower cost of new issues and lower expenses of servicing the investors.

[3] Family concerns and closely held companies can go public through OTC.

[4] Dealers can operate both in new issues and secondary market at their option.

[5] It gives greater freedom of choice to investors to choose stocks by dealers for market making in both primary and secondary markets.

[6] It is a transparent system of trading with no problem of bad or short deliveries.

[7] Information flows are free and more direct from market makers to customers since there is close contact between them.