OTCEI: Features and Requirements of the Over-The-Counter Exchange of India

About OTCEI

OTCEI, which stands for Over-The-Counter Exchange of India, is a stock exchange based in India. It was established in 1990 with the aim of providing a platform for small and medium-sized companies to raise capital through the issuance of securities.

Unlike traditional stock exchanges, which have a centralized trading floor, OTCEI operates on an over-the-counter basis. This means that trading takes place directly between buyers and sellers, without the need for a physical exchange.

OTCEI offers a range of financial products, including equity shares, preference shares, and debentures. These products are listed and traded on the exchange, providing investors with the opportunity to buy and sell securities in a transparent and regulated environment.

One of the key features of OTCEI is its focus on investor protection. The exchange has implemented strict listing requirements and eligibility criteria for companies wishing to list their securities. This helps to ensure that only credible and financially sound companies are able to raise capital through the exchange.

Overall, OTCEI plays a crucial role in the Indian capital market by providing a platform for small and medium-sized companies to access capital and grow their businesses. It offers investors the opportunity to invest in a diverse range of securities and participate in the growth of the Indian economy.

Features of OTCEI

OTCEI, or the Over-The-Counter Exchange of India, offers several unique features that set it apart from other stock exchanges. These features include:

• Screen-based Trading: OTCEI operates on a screen-based trading system, which provides transparency and efficiency in trading activities.
• Market Maker System: OTCEI employs a market maker system, where designated market makers provide liquidity by quoting both buy and sell prices for securities listed on the exchange.
• Small and Medium Enterprises (SME) Focus: OTCEI primarily focuses on providing a platform for small and medium enterprises to raise capital and access the capital market.
• Flexible Listing Requirements: OTCEI has flexible listing requirements, making it easier for SMEs to get listed on the exchange compared to other stock exchanges.
• Dematerialization of Securities: OTCEI was one of the first exchanges in India to introduce dematerialization of securities, allowing investors to hold securities in electronic form.
• Investor Protection Measures: OTCEI has implemented various investor protection measures, such as mandatory disclosures, investor grievance redressal mechanisms, and surveillance systems.

These features make OTCEI an attractive platform for both issuers and investors, particularly for small and medium enterprises looking to raise capital and grow their businesses.

Listing Requirements

In order to be listed on the Over-The-Counter Exchange of India (OTCEI), companies must meet certain listing requirements. These requirements ensure that only eligible and credible companies are allowed to trade on the exchange.

1. Minimum Net Tangible Assets: Companies must have a minimum net tangible asset value of INR 3 crores.

2. Minimum Promoter Contribution: Promoters must contribute a minimum of 25% of the post-issue capital.

3. Profitability: Companies must have a track record of profitability for at least three years. They should have positive net worth in each of the preceding three years.

4. Minimum Market Capitalization: The minimum market capitalization of the company should be INR 10 crores at the time of listing.

5. Corporate Governance: Companies must comply with the corporate governance requirements as specified by the Securities and Exchange Board of India (SEBI).

6. Compliance: Companies must comply with all the relevant laws and regulations, including those related to taxation, environment, and labor.

7. Financial Reporting: Companies must submit audited financial statements for the preceding three years.

8. Disclosure Requirements: Companies must disclose all material information that may affect the investment decision of investors.

By ensuring that companies meet these listing requirements, OTCEI aims to maintain the integrity and credibility of the exchange, providing investors with a transparent and regulated trading platform.

Trading Mechanism

The Over-The-Counter Exchange of India (OTCEI) offers a unique trading mechanism that ensures transparency and efficiency in the trading process. Here are the key features of the trading mechanism:

1. Screen-based Trading: OTCEI provides a screen-based trading system that allows investors to place buy and sell orders electronically. This eliminates the need for physical trading floors and enables faster and more convenient trading.
2. Market Making: OTCEI has a market-making system in place, where designated market makers provide liquidity by continuously quoting bid and ask prices for the listed securities. This ensures that there is always a ready market for the securities, enhancing their tradability.
3. Order Matching: OTCEI uses an order matching algorithm to match buy and sell orders. The system matches orders based on price and time priority, ensuring fair and efficient execution of trades.
4. Transparent Trading: OTCEI provides real-time information on trading activities, including the latest bid and ask prices, trade volumes, and market depth. This transparency allows investors to make informed decisions and ensures a level playing field for all market participants.
5. Settlement: OTCEI follows a T+2 rolling settlement cycle, where trades executed on a particular day are settled within two business days. This ensures timely settlement of trades and reduces counterparty risk.

The trading mechanism of OTCEI is designed to provide a seamless and efficient trading experience for investors, while maintaining the highest standards of transparency and integrity.

Requirements

The Over-The-Counter Exchange of India (OTCEI) has certain requirements that companies must meet in order to be listed on the exchange. These requirements ensure that listed companies are financially stable and meet certain criteria for transparency and governance.

Financial Requirements

• Companies must have a minimum paid-up capital of INR 3 crore.
• They must have a minimum net worth of INR 3 crore.
• Companies must have a positive net worth in the three preceding years.

Transparency and Governance Requirements

• Companies must have a track record of profitability in the three preceding years.
• They must have a minimum of 100 shareholders.
• Companies must have a minimum of 25% of their shares held by the public.
• They must have a minimum of 50% independent directors on their board.

These requirements ensure that companies listed on the OTCEI are financially stable, have a track record of profitability, and adhere to good governance practices. By meeting these requirements, companies can gain access to the benefits of listing on the OTCEI, such as increased visibility, liquidity, and access to capital.

Eligibility Criteria

Financial Stability

First and foremost, companies applying for listing on the OTCEI must demonstrate financial stability. This means that they should have a track record of profitability and positive cash flows. The company’s financial statements, including balance sheets, income statements, and cash flow statements, will be thoroughly reviewed to assess their financial stability.

Corporate Governance

Companies seeking listing on the OTCEI must have a strong corporate governance framework in place. This includes having a board of directors with a mix of independent and executive directors, as well as a clear system of checks and balances to prevent any misuse of power. The company’s corporate governance practices will be evaluated to ensure transparency and accountability.

Transparency and Disclosure

Transparency and disclosure are key requirements for listing on the OTCEI. Companies must provide accurate and timely information to the exchange, as well as to their shareholders and the investing public. This includes regular financial reporting, disclosure of material events, and adherence to accounting standards and regulations.

Market Capitalization

In order to be eligible for listing on the OTCEI, companies must meet certain market capitalization requirements. The exact criteria may vary, but generally, companies need to have a minimum market capitalization of a certain amount, which ensures that they have a certain level of market presence and liquidity.

By meeting these eligibility criteria, companies can gain access to the benefits of listing on the OTCEI, such as increased visibility, liquidity, and access to capital. Investors can also have confidence in the credibility and financial stability of the listed companies, making the OTCEI an attractive platform for both companies and investors alike.

Documentation

When applying for listing on the Over-The-Counter Exchange of India (OTCEI), certain documentation is required to be submitted by the company seeking to list its securities. The documentation serves as evidence of the company’s compliance with the exchange’s listing requirements and eligibility criteria.

1. Memorandum and Articles of Association

The company must provide a copy of its Memorandum and Articles of Association. These documents outline the company’s objectives, rules, and regulations, and provide important information about the company’s structure and governance.

2. Financial Statements

The company must submit its audited financial statements for the past three years. These statements include the company’s balance sheet, income statement, and cash flow statement. The financial statements provide insights into the company’s financial performance and help investors assess its stability and profitability.

Note: If the company has not been in operation for three years, it must submit its audited financial statements for the period it has been in operation.

3. Prospectus

The company must prepare a prospectus that provides detailed information about the company, its business operations, financial performance, risk factors, and future prospects. The prospectus is an important document for potential investors as it helps them make informed investment decisions.

4. Legal Opinion

The company must obtain a legal opinion from a qualified legal professional stating that all necessary legal requirements have been complied with and that the company is eligible for listing on OTCEI.

5. Other Documents

In addition to the above, the company may be required to submit other documents as specified by OTCEI from time to time. These may include documents related to corporate governance, compliance with regulatory requirements, and any other information deemed necessary by the exchange.

By submitting the required documentation, the company demonstrates its commitment to transparency, accountability, and compliance with the listing requirements of OTCEI. It also provides potential investors with the necessary information to make informed investment decisions.