Panel Recommends Shift To T+5 Rolling Settlement
The panel, which unveiled its recommendations yesterday, has also suggested the waiving of the three-year dividend record requirement and the minimum shareholding norm, while endorsing the Malegam Committee recommendation that companies with post-issue equity under Rs 10 crore be granted listing only on a screen-based exchange with compulsory market-making facility.
The committee has made 16 recommendations in all to revive the ailing exchange. "The OTC Exchange offers some unique features which need to be capitalised on. They should not be given up even if it is at the cost of volumes," Dave said. "The idea is to offer a wider scope and increase the areas of activities, and on that basis the recommendations have been made."
The report has suggested that shares of unlisted companies be permitted to trade on the OTCEI in order to provide a source of valuation for mutual funds and facilitate placement of OTC-listed shares with foreign institutional investors, who are now allowed to invest in unlisted stocks.
It has recommended the listing of offers for sale exclusively on OTC for all bought-out deals which fail to meet the Sebi dividend track record, FI appraisal and participation criteria.
According to the committee, companies which fail to meet the norm of the post-issue equity of Rs 10 crore, the three-year dividend paying track record for the preceding five years and appraisal, and funding by a financial institution as also the minimum shareholding norm of five shareholders for every Rs 1 lakh may tap the OTCEI.
However, they would have to be sponsored by a member of the OTCEI and must appoint at least two market-makers - one compulsory and one voluntary - to provide continuous liquidity to the scrip.
It is also recommended that companies thus listed on the exchange not be permitted to delist for at least three years to prevent abuse of the concession.
The panel has recommended moving away from the T+3 to T+5 settlement cycle, allowing weekly netting of trades in the permitted securities segment in order to grant a level playing field and also giving the exchange a free hand in increasing the number of companies in the segment. The T+5 cycle has been proposed in view of the inadequate banking infrastructure.
The panel has suggested the grading of market-making inventory provisions for issues with a paid-up capital of up to Rs 10 crore.
For those below the Rs 5-crore market cap - 5 per cent initial market-making inventory between the compulsory and additional market maker; two per cent inventory for those between Rs 5 crore and Rs 10 crore, and one per cent inventory for those above Rs 10 crore.