2. Introduction
 Over the counter exchange of India was started in 1992
after the role models of NASDAQ(national association
of securities dealers automated quotation) and
JASDAQ.
 The OTCEI was started with the objective of providing
a market for the smaller companies that could not
afford the listing fees of the large exchanges and did
not fulfill minimum requirements for listing.
 It aimed at creating a fully decentralised and
transparent market.

3.  Over the counter means trading across the country in
scrip's.
 The counter refers to the location of the member or
dealer of the OTCEI where the deal or trade takes
place.
 Every counter is treated like trading floor for the
OTCEI where the investor can buy or sell.
 The member or dealers of OTCEI counters are linked
to the central OTCEI computer.
 The member should have the computer and
telecommunication facility.

4. The promoters
 OTCEI is incorporated as a company under section
25(c) of Indian companies act 1956. As per the
registration norms, OTCEI will be obliged to plough
back all its profits and will not be allowed to declare
dividend on its share capital. The promoters are as
follows
UTI GIC
ICICI SBI capital markets
IDBI Canbank financial services
IFCI LIC

5. PLAYERS IN THE OTCEI MARKET
 The players on the OTCEI exchange are the members
and dealers. The activities of members and dealers are:
1. Act as broker, buy and sell securities according to the
instructions of investor.
2. Market makers in securities, they quote the prices at
which members are willing to buy and sell the
specified no. of securities.

6. Members
 Members can be public financial institutions,
scheduled banks, mutual funds, SEBI approved
merchant banker, banking subsidiaries, venture capital
funds and other non-banking financial companies
with minimum net worth of 2.5 crores.
 Members pay a one time non-refundable admission fee
of rs 10 lakh and rs 5 lakh after one year.
 The annual subscription fee is rs 1 lakh.

7. Dealers
 The dealers are individuals, partnership firm, and
corporate entities with a minimum net worth of Rs 5
lakh.
 They should have adequate office space and
telecommunication facilities.
 They have to pay one time non-refundable fee of rs 2
lakh and annual subscription fee of rs 5000.
 OTCEI may collect additional security deposit if it
considers necessary, depending upon the business
experience of applicant.

8. Scrips to be traded
 The minimum capital requirement for a company to be
listed on the OTCEI is Rs 3 crores and the maximum is
Rs 50 crore.
 For companies with an issued capital of more than 30
lakh but less than 300 lakhs, the minimum public offer
should be 25% of the issued capital or 20 lakhs worth
of shares in face value, which ever is higher.
 Companies with an issued capital of more than Rs 30
crores seeking to be listed have to comply with listing
requirements and guidelines that are applicable to
such companies in other stock exchanges.

9. Revised listing norms
 Closely held existing corporate houses upto 100 cr.
 New companies with paid up base of upto 50 cr.
 All currently listed companies on various stock
exchanges.

10. Procedure for listing the scrips
1. And OTCEI member is appointed as a sponsor for the
company’s issue. The sponsor appraises the project or
the company on technical, managerial, commercial,
economical and financial aspects. The sponsor certifies
the OTCEI regarding its appraisal.
2. The sponsor determines the price of the company’s
shares offered to the public, members and the dealers of
OTCEI.
3. The sponsor gets all statutory consent and compliance
with SEBI guidelines.
4. The sponsor registers the issue with OTCEI and places
the equity

11. 5. The listing application has to be made to the OTCEI as
per its rules and regulations.
6. After getting the approval the allotment is made.
 Once the allotment is over, the equity is listed and the
trading commences. The sponsor is sole underwriter to
the issue. He can sub write his liability with the
syndicate of members and dealers.

12. The trading system
 The OTCEI dealer’s screen has a left and right half for
the sell and buy counters.
 The sell counter gives the rate, the no. of shares offered
and the name of the market maker.
 It is always in ascending order with the lowest buy
quotes given at first.
 The sell quotes are displayed in descending order and
the seller can decide to unload at the highest price
displayed.

13.  Once the deal is struck, it is entered into computer. To
confirm the transaction on line message appears on
screen.
 The confirmation slip or trading document is
generated through the computer in duplicate.
 One copy is retained and other is sent to the OTCEI
counter. This is known as counter receipt.

14.  The counter receipt gives the following details:
(I) Transaction number
(II) Names of previous holder and the new holder
(III) Date and time of transaction
(IV) Price and value of transaction
 The name of the dealer, brokerage charged and
distinctive no. of scrips.
 The counter receipts are used for further transactions.

15. Settlement system
 At present the settlement procedure has five days
trading cycle. Forward trading is not permitted on
OTCEI. Short sales and squaring up have to be done
within the trading cycle and certificate to the investor
must be delivered within a fortnight from the date of
purchase.
 Thus it avoids speculation.

16. Market making concept
 In the market making, market makers offer tow way
quotes continuously i.e. buy quote and sell quote.
 The main objective behind the market making concept
is to make the merchant bankers accountable even
after an issue is over. This promotes liquidity to the
small investor.
 There are three types of market making:
(I) Compulsory market making
(II) Additional market making
(III) Voluntary market making

17. Compulsory market making:
 This responsibility is undertaken by the sponsor of the
issue for a period of three years from the date of public
trading.
 Even if the market making responsibility is assigned to
some other member by sponsor, the sponsor is
responsible for satisfactory discharge of compulsory
market making.
 At the end of three years period, the sponsor can
withdraw from the market making function only if he
could provide another compulsory market for the
scrip.

18.  The market maker can apply for termination of duty
only if the scrip sponsored has incurred cash loss for
three years or if the company is insolvent or the
company’s prospects are bleak.
 The OTCEI exchange may terminate if it thinks fit.
 Even after the termination, if the company regains
once again, the trading would be permitted by OTCEI.
 The compulsory and additional market makers should
possess 5 % of the public offer.

19. Additional market making
 The additional market maker is appointed by the
sponsor for a period not less than one year from the
date of public offering. The additional market maker
can be more than one.

20. Voluntary market making
 This is offered voluntarily by the member and once
offered, he should continue at least three months from
the date of commencement. He can offer buy and sell
quotes. He has to refrain from giving sell quotes if he
does not possess the quantity specified by OTCEI.

21. The present situation
 Sluggish growth
 Lack of liquidity