Over-The-Counter Exchange of India: Features and Listing Requirements

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

The Over-The-Counter Exchange of India (OTCEI) is an electronic stock exchange designed to help small- and medium-sized companies raise capital when they cannot meet the listing requirements of larger national exchanges.

It operates entirely through electronic networks rather than a central trading floor, making access easier for emerging firms. OTCEI also features lower capitalization requirements and limits participation by larger companies to ensure its focus remains on smaller issuers.

How the OTCEI Operates and Its Purpose

The OTCEI is based in Mumbai, India, and operates solely over a computer network. Recognized by India's Securities Contract Regulation Act, OTCEI-listed stocks enjoy the same benefits as those on other Indian exchanges.

The exchange was established in 1990 to provide investors and companies with an additional way to trade and issue securities. It was created because small Indian companies struggled to meet listing requirements on major national stock exchanges.

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.

Unique Features of OTCEI That Benefit Small Businesses

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.

OTCEI Listing Requirements for Small to Mid-Cap Companies

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%.

How Transactions Are Conducted on the OTCEI

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.

The Bottom Line

The OTCEI gives small- and medium-sized companies a path to raise capital when they are not yet eligible for national exchanges. With lower equity requirements and limits on larger firms, its structure caters specifically to emerging businesses.

Supported by brokers, market makers, custodians, and transfer agents, the exchange helps issuers build scale and potentially progress to major exchanges over time.