OTCEI will set up a subsidiary which will enable its members to trade on the NSE. Besides, the exchange has decided to tap the growing IPO market for knowledge-based industries. A committee of the exchange will work out the new listing norms for IPOs.

OTCEI managing director JH Bosco expects most of the exchange's members to be activated once the NSE membership is acquired. ``As many as 300 out of the 1,000 members our exchange are also members of other exchanges. In terms of costs, we have the advantage of link-up with NSE and the trading system is in place,'' he points out.

According to Bosco, the exchange has been registering an average turnover of Rs 8 to Rs 12 crore (single side) and ``Our move to seek NSE membership is a preparatory to help our members takeadvantage of the growing market for start-up companies especially IPOs in knowledge-based industries.'' To enhance liquidity in the exchange, it is also going in for a complete revamp of the existing market-making mechanism. The new rules, to be operational next month, is intended to cushion the market-maker from dumping of scrips during adverse market conditions. This will be done through a system of bandwidth for inventory level. Inventory is the difference between the cumulative buy transaction volume and cumulative sell transaction volume for the counter. Once the market maker reaches the ceiling limit of five per cent for a given scrip, the system deactivates the bid quotation for market maker. When the market maker's inventory position is between five and three per cent, he/she has the right to put in a buy quote, but not the obligation to offer the quote. The system will prompt him to compulsorily offer a buy quote on reaching the 3 per cent level.

The greatest advantage for OTCEI is its nationalreach which will enable the members to reactivate through their link-up with the NSE. It will be a win-win situation for both the exchanges - NSE will get a significantly wider national reach, while OTCEI will be able to put in place an effective survival strategy.

The subsidiary company of OTCEI will follow the exposure limits and other margining system applicable to NSE members.

INSIGHT
NSE step to aid inactive dealers

The measures taken by the OTCEI are the latest in a series of steps taken to revive the exchange. The move to list as a member of the NSE and offer dealers connectivity (through individual NSE members) will be a big boost towards reviving inactive dealers. This revival in active dealers will also be used in then selling the exchange to IT and other small companies with IPO aspirations. The other negatives of the OTCEI have been addressed by the exchange by introducing weekly settlements, short selling etc. While the positive aspect of market making stillremain.

Aaron Chaze