Otcei Can Definitely Make A Comeback

Q: You are taking over the OTCEI at a particularly difficult time, as it seems to have been shunned by the market. As managing director of the exchange, how do you view the task ahead?

A: This responsibility has come to me at a time when the exchange is passing through a challenging phase. But, the way I look at it, is that it can definitely make a comeback and I am sure it will. My interaction with the promoters and regulators give me a positive feedback. I believe that it is a viable exchange and can with the proper backing, take off. I have been studying the various functions of the exchange and the impediments to the development of each, and feel that a solution is possible in each case. So, in that sense, I view the job as more of a challenge. The team at the OTCEI is very enthusiastic and co-operative and has already displayed their willingness to work towards the revival of the exchange and that I believe is a key advantage.

 

Q: What would you be focusing on in the immediate future, as part of your revival strategy?

A: We are clear on the focus for the exchange, it is to encourage volumes in all the segments. One immediate step that was needed, was an interface with all the dealers on the OTCEI and finding out the exact problems that they face while dealing. Also we needed to talk to the inactive dealers.

Hence, the first thing that I did after taking up this assignment was, that along with my team, I toured and met most of the dealers spread across the country. This has been a fruitful exercise. It has given me an idea about their exact problems and hence, solutions are being worked out accordingly.

In the long term, I believe that the recommendations of the Dave Committee would provide the panacea. However, that will happen only after the Securities and Exchange Board of India (Sebi) ratifies it. Till then we are in the process of preparing the necessary groundwork, to enable us to implement the recommendations as soon as they are approved and notified.

At the same time, we are also putting in place an internal core team to constitute a product development cell. The main objective of this cell is to look at new areas of operations for the OTCEI. I believe that the OTCEI must explore and widen its scope of operations and expand its product and service range, in order to survive and compete in the current market environment. Work has already commenced on this front and we have already identified a core team of three members.

Q: Coming to the other issues, the permitted segment on the OTCEI has not picked up. Despite this there is a Rs 2 lakh fee that dealers have to pay to be able to trade in the segment. Is this justified?

A: The permitted segment has not been doing well. But for this segment to pick up the vital and only feature that is required is the introduction of the weekly netting in the particular segment. Only then would it ensure a level playing field for the exchange. If that happens, then going by the interaction that I have had with dealers and members, I know that they are willing to pay the fee gladly. This is the only change that they are looking for.

However, this has yet to be cleared by Sebi. In case, the regulator does not permit it, I see very few dealers getting attracted to the exchange. Otherwise, it would hardly remain attractive compared to the other exchanges which have national coverage. In such a scenario I would obviously have to develop and push the other products that I spoke about. Our ongoing dialogues with the Association of Mutual Funds in India (Amfi) to persuade funds to utilise our network is one such thing.

Q: Are there any other measures that you are considering to bail out the dealers of the exchange?

A: One of the measures that we are close to finalising is concerning the clearing banks of OTCEI. We have been conducting dialogues in an attempt to improve the services of the clearing banks.

Besides, we are also working out a cost-effective fee structure, that would benefit our dealers and members.

Q: The OTCEI has the distinction of being the first exchange in the country to have a depository of sorts in place. Now that the depository ordinance is in place, is the exchange taking any steps to set up a full-fledged depository?

A: We have already begun work on that front, and soon we will commence paperless trading in the listed securities segment. We have already set up a depository committee to look into the details involved. Besides, Price Waterhouse is advising us on the project, they are very experienced in this field.

As I see it, it would be relatively simple, as we currently have a semi-depository functioning. In that sense, we already have an edge and the efforts required to be put in would be just 50 per cent of what any other entity who wishes to set up one would have to. Besides, it is also understood that the Sebi is likely to waive the Rs 100 crore minimum networth requirements for setting up a depository, hence we would like to take advantage of that edge. I believe, from various newspaper reports, that we can avail of this benefit because our depository was set up much before the ordinance came into effect, and hence, these rules do not become effective on a retrospective basis.

Q: How long do you think the entire process will take?

A: The options being considered at the moment are whether the OTCEI would set it up as an in-house division or whether it would be a separate subsidiary, performing the functions of a depository independently. Though it is difficult to mention any specific time schedule for all these plans and for the entire exercise to be completed, we would also have to look at the setting up of a clearing corporation. And then there is the issue of appointing a custodian.

Besides, there are various other details and options that would have to be explored, which is what the committee, which has been set up specifically for this purpose, is currently doing.

The committee is likely to arrive at a decision soon, on the final model to be adopted. Once that is done as per the indications available there would be a minimum period of six months required to put the entire thing into place.

Q: The financial institutions, particularly the principal promoters have been accused of not taking interest and neglecting the OTCEI, and there is a constant pressure on the OTC management to persuade them to become active on the exchange. Do you think that the fact that you belong to the UTI hamper any dialogues on this front with the institution in question?

A: Not at all. In fact to a large extent any institution including the UTI is justified in making its decisions about the stocks and exchanges that they wish to trade in or operate in. What one needs to keep in mind is the fact that the fund managers at the UTI, or, for that matter any fund manager, manages the investors money and is basically accountable to them and hence, they would take prudent investment decisions. What we need to tackle instead is the problem of making the exchange more attractive. We should offer various new instruments and products which appeal to these big promoting institutions.

This is something which I believe the OTCEI will soon be able to offer fund managers and in fact, that is what we are all striving for. Our product management team is currently designing instruments exclusively for the institutional segment and the same would be introduced subject to regulatory approval.

About my UTI background coming in the way, I believe that if the product or instrument is really good and can offer value to a fund manager, this should not come in the way. Not only for the UTI but for any institution for that matter.

What we need to tackle is the problem of making the exchange more

attractive. We should offer various new instruments and products which appeal to these big promoting institutions.