NSE, BSE OTCEI & overseas stock exchanges

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, settlement process, etc. At the last count, the BSE had about 4,700 listed firms, whereas the rival NSE had about 1,200. Out of all the listed firms on the BSE, only about 500 firms constitute more than 90% of its market capitalization; the rest of the crowd consists of highly illiquid shares.

Almost all the significant firms of India are listed on both the exchanges. NSE enjoys a dominant share in spot trading, with about 70% of the market share, as of 2009, and almost a complete monopoly in derivatives trading, with about a 98% share in this market, also as of 2009. Both exchanges compete for the order flow that leads to reduced costs, market efficiency and innovation. The presence of arbitrageurs keeps the prices on the two stock exchanges within a very tight range.

OTCEI

Over the counter exchange of India or OTCEI which is commonly known as an electronic stock exchange in India. Also, it consists of small and medium-sized companies that aim to get access to capital markets. So, this is similar to electronic exchanges in the USA in the form of Nasdaq. Also, there is no central place for exchange. While the entire trading occurs through electronic networks.

OTCEI concept is a great innovation in the Indian Stock market. It is a recognized stock exchange under the Securities Contract (Regulations) Act, 1965 as well as the Indian Companies Act. OTCEI is a computer based screen system exhibiting the quotations of the scrips of the companies of different industries of the nation. It has a national network and there is no geographical barrier for listing. Dealers and Investors can take decisions on the spot more quickly than on the regular stock exchanges. It is a great boom to the small and marginal investors who are greatly neglected till today.

OTCEI was incorporated in October 1990. This company was promoted by a consortium of premier financial institutions, namely, UTI, ICICI, IDBI, SBI Capital Markets Ltd., IFCI, QIC and its subsidiaries and Canbank Financial Services Ltd. OTC Exchange is recognized by the Government of India as a “recognized stock exchange” under section 4 of the Securities Contract Regulations Act, 1965.

Companies listed on the OTCEI will enjoy the same listing status as available to other companies listed on any other stock exchange in the country except that a company listed on OTCEI cannot be listed /traded on any other stock exchange in India. The corporate office is situated in Bombay. It started functioning in 1992.

OTCEI has been linked to 42 centers all over India through computers. OTCEI operates with the use of INET the country’s first public switched data network and Telex – the first nationwide information dissemination network and RABMN  Remote Area Business Message Network.

Any counter in any of the four hundred cities in India can receive the scrip prices, which are generated by OTCEI’s central computer in Bombay. Any person or Indian citizen can apply for dealership or membership of the OTC provided he adheres to the prescribed conditions.

The aspirants would also have to pass a computer -based written test. Preference would be given to professionals and people having experience in the field with sound network. Those having proper infrastructural facilities like telephone, computers, telex, fax, office space and other networks would also be given due weightage and preference.

Features of OTCEI:

Following are the features of OTCEI:

1. Ringless Trading:

For greater accessibility to the investor, the OTC Exchange has eliminated the trading ring. Trading will take place through a network of computers of OTC dealers located at several places within the same city and even across cities. The exchange allows dealers to quote, query and transact through a central OTC computer using telecommunication links.

2. National Reach:

Unlike other stock exchanges, the OTC Exchange has a nationwide reach. This enables widely dispersed trading across cities, resulting in greater liquidity. Companies thus, have the unique benefit of nationwide listing and trading of their scrips by listing at just one exchange, the OTC exchange.

3. Computerized:

All the activities of the OTC trading process are computerized. This facilitates a more transparent, quick and disciplined market. The trading mechanism brings out these features of the system.

4. Exclusive List of Companies:

The OTC Exchange will not list and trade in companies listed on any other exchange. It will list an entirely new set of companies, sponsored by members of the OTC Exchange.

5. Closeness:

Initially counters were opened at Bombay and were followed by counters at other centers. OTCEI will give public notice as to the availability of counters where trading take place. Facility for trading will be available after the offer at the counters of the sponsor and the additional Market Maker addresses will be given in the new issue application attached to offer for sale document (OSD) and with all the dealers of OTCEI.

6. Authorized Dealers:

All members and dealers are authorized and approved by the OTCEI

7. Liquidity through Market Making:

The sponsor-member requires day quotes (buy and sell) for the 12 months from the date of commencement of trading. Besides compulsory market maker, there are additional market maker and voluntary market maker who give two way quotes for the scrip.

8. Efficient Market Pricing:

Competition among market makers produces efficient pricing. This reduces spreads between buy and sell quotations. It also increases the capacity to absorb larger volumes, to the benefit of investors. The market makers continually analyze companies and provide information about them to their investors, thus helping investors to make an informed investment decision.

9. Transfer of Securities:

Investors will be required to submit transfer deeds to any of the OTCEI counters for transferring the shares in their names. Shares will be automatically transferred in the name of the investors, if the consolidated holding of the shares does not exceed 0.5% of the issued capital of the company.

10. Investor Registration:

For buying and selling shares on the OTCEI and investor needs “INVESTOTC Card”. Application for “INVESTOTC Card” can be made at any of the counters of OTCEI and also at the time of applying for new issues on the OTCEI. The share application form includes the necessary details to be filled in for obtaining INVESTOTC Card.

11. Transparency of Transactions:

At the OTC Exchange, the investor can see the available quotations on the computer screen at the dealer’s office before placing the order. The confirmation slip/trading document generated through the computer gives the exact price of the transaction and the brokerage charge. So the investor’s interest is totally safeguarded. This system also ensures that transactions are done at the best prevailing quotation in the market.

12. Faster Delivery and Payment:

On the OTC Exchange, the transaction is settled within a period of 7 days. Further, the investor actually gets the delivery of the scrip or the payment for the scrip sold within 7 days.

13. Sponsorship:

The companies that seek listing on the OTC Exchange have to approach one of the members appointed by the OTC for acting as a sponsor to the issue. The sponsor makes thorough appraisal of the project, resulting in investors getting a choice of quality companies. Through the sponsor-ship agreement, the sponsor is committed to making market in that scrip by giving a buy / sell quote for a minimum period of 1 year from the date of listing. Investors are benefited by this as it enhances the liquidity of the scrips listed on the OTC Exchange.

14. Listing of Small and Medium Sized Companies:

In the past, many small and medium sized companies were not able to enter the capital market, due to the listing requirement of the Securities Contract (Regulation) Act, 1956. The Act specified that a minimum issued equity capital of Rs. 3 crores and maximum 25 crores for issuing.

The OTC Exchange provides an ideal opportunity to these companies to enter the Capital market. In fact, any company with an issued capital of more than Rs. 30 lakhs and less than Rs. 25 crores can raise finance from the capital market through the OTC Exchange.

15. Bought-Out Deals:

Through the concept of bought-out deals, OTCEI allows companies to place their equity meant to be offered to the public with the sponsor -member at a mutually agreed price. This ensures swifter availability of funds to companies for timely completion of projects and a listed status at a later date.

Participants of OTCEI:

1. Companies which list their shares on OTCEI.
2. Members, dealers who operate OTCEI counters.
3. Registrars who transfer and keep share certificates.
4. Investors.
5. Settlement bank
6. SEBI and government.