The OTC Exchange of India (OTCEI) is a stock exchange based in Mumbai, India. It was established as India's first screen-based, fully electronic and ringless stock exchange, designed primarily to provide small and medium-sized enterprises (SMEs) with access to organised capital markets at a time when listing on the larger exchanges was difficult for smaller companies.
Key facts
| Name | OTC Exchange of India (OTCEI) |
|---|---|
| Type | Stock exchange |
| Headquarters | Mumbai, Maharashtra, India |
| Country | India |
| Trading model | Screen-based, electronic, ringless |
| Regulator | Securities and Exchange Board of India (SEBI) |
Background
Until the late 1980s, the Indian securities market was dominated by regional, floor-based exchanges, with the Bombay Stock Exchange serving as the principal venue for equity trading. Listing requirements at these exchanges were often beyond the reach of smaller and emerging companies, leaving a significant gap in access to public capital for the SME segment. The OTC Exchange of India was conceived to address this gap, drawing on the model of over-the-counter markets in other countries, most notably the NASDAQ in the United States.
Establishment
The exchange was promoted by a consortium of leading Indian financial institutions, including the Unit Trust of India (UTI), the Industrial Credit and Investment Corporation of India (ICICI), the Industrial Development Bank of India (IDBI), the Industrial Finance Corporation of India (IFCI), the Life Insurance Corporation of India (LIC), the General Insurance Corporation of India (GIC) and SBI Capital Markets. It was incorporated under the Companies Act, 1956 and recognised as a stock exchange under the Securities Contracts (Regulation) Act, 1956.
Features and operations
OTCEI introduced several features that were novel in the Indian context at the time of its launch:
- Screen-based trading: Unlike the open-outcry system then prevalent at other Indian exchanges, OTCEI offered fully computerised trading from its inception.
- Ringless and nationwide: Trading was conducted through a network of counters spread across multiple cities, rather than at a central trading floor.
- Market makers: The exchange adopted a market-maker-driven model, in which sponsors and dealers provided two-way quotes to ensure liquidity in listed scrips.
- Sponsorship of issues: Companies seeking listing were required to be sponsored by a member of the exchange, who undertook due diligence and supported the issue.
- Focus on SMEs: Listing norms were tailored to allow smaller companies, including those that did not meet the eligibility criteria of the larger exchanges, to raise capital from the public.
Significance
OTCEI played an important role in the modernisation of Indian capital markets. By demonstrating the feasibility of electronic, screen-based trading on a nationwide basis, it influenced the design of subsequent market infrastructure in India, including practices later adopted more widely after the establishment of the National Stock Exchange of India. It also represented one of the earliest organised attempts in India to create a dedicated platform for small and medium enterprises to access equity capital, a theme that has continued through later SME-focused trading platforms operated by the major Indian exchanges.
Later developments
Over time, the relevance of OTCEI declined as the National Stock Exchange and the Bombay Stock Exchange expanded their reach, modernised their trading systems and launched their own SME platforms. Trading activity on OTCEI diminished significantly, and the exchange ceased to be a major venue for securities trading in India.