Competition hots up as OTC joins BSE-NSE league

Simultaneously, the Inter-Connected Stock Exchange of India (ICSE), floated by 12 regional stock exchanges, has sought SEBI permission to start operations. If approved by the SEBI, ICSE will also join the race to attract investors.

OTC Exchange, which was against allowing trading in shares listed on other stock exchanges, will start trading in shares of top 100 companies – they constitute around 98 per cent of the trading volume on the NSE – under the permitted scrips category within a month. Sebi has already allowed OTC to change the maximum capital base requirement of Rs 25 crore in the case of companies traded on the exchange.

Like the NSE and BSE, settlement (starting from Thursday and ending Wednesday) will be on a weekly basis. The NSE (Wednesday to Tuesday) and BSE (Monday to Friday) also follows the weekly settlement.

The OTC move to start the permitted scrips trading will also boost arbitrage business, taking advantage of the different settlement period on various stock exchanges. The arbitrage business is already thriving on the NSE and BSE.

The OTC move is primarily aimed at pushing up trading volumes on the exchange. While the NSE normally clocks a turnover of around Rs 2,000 crore and the BSE around Rs 900-1,000 crore, the OTC turnover rarely crosses the Rs one crore mark. OTC recorded a turnover of meagre Rs 4.14 lakh on Wednesday. “We hope to increase the business volume on the exchange after starting the permitted segment on a weekly settlement basis,” said M Pushpangadan, managing director of OTC Exchange.

With the latest changes, there is no difference is trading on any of the three exchanges (BSE, NSE and OTC). OTC will be initially using the clearing facility of the NSE for the weekly settlement of the trades.

OTC which started operations before the NSE has already expanded to all parts of the country. However, as trading norms were strict and only small-cap companies were listed, brokers and investors were not taking active interest in operating on the OTC.

“The new facility OTC will allow brokers to speculate in leading shares on the OTC. Trading will be same as like the BSE or NSE. Some business will be diverted from the BSE and NSE to the OTC because of its reach,” said an OTC dealer.

There is also opposition from a section of the market about OTC becoming just another stock exchange. OTC was promoted to facilitate small companies to list their shares and allow trading in a transparent manner using the market-making system. “But now it has been converted into an ordinary exchange. Do we need so many exchanges? The markets are being fragmented,” said a market observor.