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What is Over the Counter Exchange of India (OTCEI)?

Last Updated : 06 Apr, 2023
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Over the Counter Exchange of India (OTCEI) is an organisation which was incorporated in 1990 under the Companies Act 1956. The trading in OCTEI commenced in 1992 and is a fully computerised, single window, and transparent exchange. OTC Market or Over the Counter can be defined as a place where sellers seek buyers and buyers seek sellers, and then tries to arrange some terms and conditions for the sale and purchase which is acceptable to both parties. 

The two basic purposes behind the setting up of OTCEI are as follows:

  • For providing access of capital market to small and medium companies, so they can raise finance in a cost-effective manner.
  • For providing the investors with a convenient, efficient, and transparent avenue for capital market investment.

Trading through Over the Counter does not take place from a specific geographical location. Instead, the trading Procedure of OTC (Over the Counter) includes the following three steps:

1. Go to an OTC (Over the Counter) Counter.

2. Look for the quotes on the computer screen.

3. Lastly, make a sale or purchase, if the price shown meets the target. 

Over the Counter Exchange of India (OTCEI) is established on the lines of the National Association of Securities Dealers Automated Quotations (NASDAQ). NASDAQ is the OTC exchange in the USA and has been promoted by ICICI, IDBI, LIC, SBI, IFCI, GIC Capital Markets and Bank Financial Services.

Objectives of Over the Counter Exchange of India (OTCEI)

The objectives of OTCEI are as follows:

1. Provide quicker liquidity to the securities at a fair and fixed price.

2. Provide easy and cheaper means to the traders to make public sale of new issues.

3. Provide liquidity for the less traded securities or the securities of small companies.

4. Provide a simple process of buying and selling to the traders.

Advantages of Over-the-Counter Market

1. The OTC Market provides the smaller and less liquid companies with a trading platform. This platform cannot be listed on a regular stock exchange.

2. The OTC Market helps family concerns and closely held companies to go public through it.

3. Investors, with the help of the OTC Market can freely choose stocks by dealers for market making in primary as well as secondary markets.

4. OTC Market is cheaper because the cost of issuing securities and the expenses of servicing the investors of the country through it is much less.

5. The dealers can also freely operate in new issues as well as a secondary market.

6. The OTC Market provides traders with transparent trading without any problem of short or bad deliveries.

7. It also gives an advantage of free flow of information between the market makers and customers because of the close contact between them.

Over the Counter Exchange of India (OTCEI) is similar to the National Stock Exchange of India (NSEI). The common features between them are as follows:

1. Incorporate Entities: The National Stock Exchange of India and Over the Counter Exchange of India, both have been established as companies which are promoted by the leading banks, financial institutions, insurance companies, and other financial intermediaries.

2. Transparent Market: As the transactions taking place are screen-based, both NSE and OTCEI provide the traders with a transparent market. Besides, the investors can check the exact price of the securities at which the transaction has taken place.

3. Nationwide Coverage: The NSEI and OTCEI, both have nationwide coverage. It means that there are no geographical and distance barriers in the National Stock Exchange of India and the Over the Counter Exchange of India.

4. No Trading Floor: The NSEI and OTCEI both don’t have a trading floor. In other words, the trading in both exchanges takes place through a computer network.

5. Screen-Based Trading: The transactions under NSEI and OTCEI are conducted electronically through computers by using a satellite link. 

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