Sebi Panel Solutions For The Beleaguered Otc Exchange

The panel is of the opinion that while retaining the exclusive features of the exchange, its trading system needs to be promoted in the interest of healthy development of the capital market. There are certain areas in which the use of the bourse system may impart liquidity and depth.

The panel recommends that the following steps would facilitate listing of select companies on the OTCEI and would provide benefit to market from the most modern trading systems and special features of the exchange.

Under the present dispensation, due to the recent notifications and clarificactions issued by Sebi, several companies have found it difficult to raise funds from the capital markets unless they fulfill stringent criteria.

 

With a view to helping such companies raise resources through the capital market, to prevent price rigging, to improve the quality of paper and to fulfill its role as a stock exchange set up to provide internationally accepted trading systems in India, the committee is of the opinion that the following niche areas of operations be given to the OTCEI: a) Initial Public Offering (IPOs) by companieswithout a 3-year dividend paying record: The existing Sebi guidelines (clarification XV dated April 16, 1996) may prescribe that only the following companies can raise funds from the primary market:

i) Companies with a 3-year dividend paying record in the last 5 years; &, ii)Companies which have been appraised and funded by FIs.This has resulted in considerably hardship for a) existing, closely held profit-making companies which might even be able to raise funds at a pemium due to their past profitability record, but are unable to have an IPO in the absence of a 3-year dividend paying record, & b) full equity funded greenfield projects which have no appraisal and no funding (or funding insufficient to fulfil the 10 per cent of project cost criteria laid down by Sebi) by FIs.

Prime Database data indicates that if Sebi's new formula of allowing public issues to enter the primary market is worked out for 1995-96, hardly 28 per cent of the 1,419 public issues would have materialised. However, these 399 issuers would have accounted for 70 per cent of the Rs 10, 981 crore raised in 1995-96.

Recommendation 1:

The committee recommends that all such companies which do not fulfill the conditions in (i) and (ii) above be allowed to raise funds by listing on the OTCEI provided that they fulfill the listing criteria laid down by the OTCEI rules and regulations. These would include: 1) Being sponsored by a member of the OTCEI, and 2) appointing at least two market makers to provide continuous liquidity to the stock -- one compulsory and one additional market maker.

Recommendation 2:

The panel reiterates the recommendation of the Malegam Committee that henceforth, all companies which have a post-issue equity of less than Rs 10 crore should fulfil the following criteria for listing: a) Be listed on an exchange which has screen-based trading, b) appoint 2 market makers to provide liquidity.

Recommendation 3:

The committee recommends that Sebi remove the upper limit of Rs 25 crore and allow all companies, irrespective or>