OTCEI to emerge as the Exchange for Technology and Growth Stocks-the key force behind intellectual Capital-led sectors in India.
The OTC Exchange of India announced moves that would enable it emerge as the key force behind the new entrepreneur-led economy in India in sectors where Intellectual Capital will be the primary driver.
The OTCEI's new initiatives, announced by its Chairman Mr. P.S. Subramanyam, included the introduction of new threshold requirements for IPOs seeking listings on the Exchange and the creation of an Unlisted Securities segment with Internet-based trading. The OTCEI's web-based business model for Unlisted Securities will be the first of its kind in India.
A "fast track" programme whereby "deserving and performing" companies listed on the OTCEI could be traded on the National Stock Exchange" (NSE) without having to fulfill the latter's base level entry requirements is also under consideration.
Mr. P.S. Subramanyam said, "The Exchange's new initiatives are designed to ensure that it emerges as the stock market of choice in the country for sectors like Information Technology, Pharma, Bio-tech and Media & Services, where Intellectual Capital assumes greater significance than Physical Capital Assets. The OTCEI will now be the premier Exchange for Technology and Growth stocks in India and is poised to emerge as the key mover behind these industries."
The new initiatives came close on the heels of a move last month by the OTCEI to form a subsidiary which would seek membership on the NSE, enabling its members gain access as sub-brokers to the latter's order book. This is expected to reactivate OTCEI brokers in the capital market. The subsidiary is expected to take membership on the NSE in about 3 months time.
In September 1999, the OTCEI had also announced a complete revamp of the Exchange's market making rules to create greater liquidity for stocks listed on the Exchange to provide better exit opportunities for the investors at all stages. The new market making system will be operational by the 4th week of October and will be integrated with the existing OASIS system.
Mr. Subramanyam said, "All these steps are a part of a drive towards initiating more investor friendly measures, designed to make OTCEI the ideal exchange for the new Intellectual Capital-led first generation entrepreneur, who requires constant capital infusion, especially in the initial years of operation. The OTCEI will concentrate on technology led segments, such as IT Enabled Services, which will see tremendous growth in India."
Mr. Joseph H. Bosco, the Exchange's Managing Director said the initiatives were aimed at supporting this growth and, alongside, offering the venture capital and private equity fund market a major boost. "Our new initiatives will create the ideal mechanisms for an attractive exit route for Venture Capital, Private Equity Funds, High Networth Individuals and Angel Investors. The introduction of the Unlisted Securities trading segment will introduce transparency and establish mechanisms for trading in unlisted securities and could be the ideal benchmark for potential IPOs," he said.
The NSE's Managing Director, Dr. R.H. Patil said that the OTCEI was now clearly poised to fulfill mandate as the primary Exchange for entrepreneurs in India. "The arrangement with the NSE, which we are currently examining, is particularly important in this context. It will enthuse companies to go through the OTCEI-IPO route immediately rather than wait for the higher capitalisation standards fixed by other Stock Exchanges. It will be the ideal exit and entry points for Venture Capital Firms and Angel Investors. We're happy to support the emerging Intellectual Capital-led Economy along with the OTCEI," he said
The OTCEI's new initiatives were based on two sets of recommendations received by the Exchange. The OTCEI set up an Informal Group to formulate guidelines for trading in unlisted securities and had also constituted a standing committee to define and explore alternatives for developing prudent listing norms for companies (IPOs) seeking listing on the Exchange.
The IPO Committee is headed by Mr. Pradeep Kar, Chairman, Microland Group. The other members of the Committee are, Prof. Manubhai Shah of CERC, Deputy Chairman of the Committee, Mr. Ravi Narain, Dy. Managing Director NSEIL, Mr. Prithvi Haldea, Prime Database, Mr. Kiran Nadkarni, Mananging Director, Draper International (I) Pvt. Ltd. Mr Vishnu Varshey, President GVFL, Mr. A.G. Kharkanis, India Law Services, Mr. B.S. Shashidhar, Mananging Director, Investmart India Pvt. Ltd and Mr J.H. Bosco, OTCEI's Managing Director.
The norms will ensure a rigorous scrutiny at the pre-listing stage so that only quality companies with a commitment to enhancing shareholder value will list on the OTCEI. Emphasis would also be on quality disclosures on a continuous basis. "This will ensure a sense of confidence among investors where their investments will not be squandered," said Mr. Bosco.
Among the new norms are
1. New threshold listing requirements for IPOs seeking listing on the OTCEI.
2. An arrangement with the NSE for parallel trading of OTCEI listed securities.
3. The appointment of a panel of chartered accountant/audit firms to undertake a due diligence exercise of companies seeking listing on the Exchange.
4. The constitution of a separate committee for screening companies prior to listing.
The committee also suggested that the OTCEI look into the introduction of an insurance cover to protect the investment of the investor in cases where the project is not completed or abandoned for any reason. Another suggestion also pertained to the introduction of an insurance cover to take care of the risks / uncertainty associated with refunds due to over subscription / under subscription / the issue's failure to get listed. The OTCEI is working with the regulatory authorities to finalise the modalities.
A suggestion to monitor the end-use of the funds a trustee banker in respect of Manufacturing and Infrastructure Projects has also been made.
Mr. Pradeep Kar said, "The Committee had a mandate to look at ways in which technology and high growth companies could make a smooth transition into the stock markets. Companies listed on the OTCEI do not require a 3-year profitability track record, unlike other stock exchanges. Technology sector entrepreneurs require capital infusion at varying stages of growth. The OTCEI is thus the ideal exchange for such start-up enterprises. Our recommendations will strengthen this positioning and create awareness and incentives for companies in the technology and growth sectors to list on the Exchange."
We've done an extensive study of both the OTCEI and the emerging market scenario in India. The OTCEI's systemic changes introduced over the last several months along with the new norms recommended by the Committee will enable the increase in volumes and liquidity on the Exchange," Mr. Kar added.
The creation of a web-based Unlisted Securities Trading segment on the OTCEI will provide an ideal platform and an exit opportunity for venture capital and private equity funds. The said market would bring about organised trading as well as transparency in Unlisted Securities trading in the country. "The objective of the web-based system is to provide a platform (Portal) for the financial community in India. This is expected to broad base the existing market and provide organised transactions through free interactions and information using the Internet medium," Mr. Bosco said.
As against the conventional continuous market such as the OTCEI's OASIS System for listed / permitted securities trading, the unlisted securities market would be essentially on the Internet screen based negotiations between the counter parties. The OTCEI is taking appropriate steps to ensure that transactions through the system are secure.
"The Pradeep Kar Committee's recommendations and the suggestions put-forth by the Informal Group, along with the systemic changes we've brought in over the last several months clearly mean that the OTCEI is now ready to fulfill its mandate to become the premier exchange for IPOs and new listings in the country," Mr. Bosco concluded.
October 21, 1999