KARACHI, Aug 18: Managing Director, Karachi Stock Exchange, Moin M. Fudda invited potential issuers, especially of small capped companies to raise funds and avail the opportunity of listing their securities on the Over-The-Counter (OTC) market.
In a press release issued on Wednesday, the KSE MD said that the exchange had already developed software application and procedure for trading, clearing, settlement and risk management for trading on the OTC market and it was now ready to commence live operations.
"It would be in the interest of the issuers to seek listings of their securities in a very efficient, economical and transparent manner, at one of the best stock markets of the world," said the KSE MD.
He observed that international experience had shown OTC markets to be successful hub of raising funds in small quantum and that the KSE expected that over the period its OTC market would offer ample opportunities to the issuers of small-capped companies.
Mr. Fudda identified benefits and salient features for listing on OTC Market, which inter-alia, included:
1. The minimum capital requirement for a company to be listed on OTC Market was only Rs10 million. The minimum public offer would be of Rs5 million or 25pc of the capital, whichever was higher.
2. To handle the issue smoothly and efficiently, companies seeking listing would be able to appoint a sponsoring member, who would either be a Brokerage House or a Commercial Bank, Investment Bank, Discount House or any other financial institution.
3. Generally, IPOs require couple of months to complete the entire task and raise funds. Whereas, in OTC, where an issuer is in urgent need of funds, he could sell or issue securities to the sponsoring member and such sponsoring member could later sell the shares to the public.
4. The sponsoring member would make the market in the scrip by offering two-way quotes for buying and selling of securities. Accordingly, there would be continuous price discovery and liquidity in the scrip through the market making mechanism in the secondary market.
5. Through the bought out deal, even in a new company, shares could be issued either at a premium or discount to the sponsoring member, who would then off-load them to the public. The issuer can actually negotiate with the sponsoring member and get the best-negotiated price depending on the strength of the company.
6. The securities including equity shares, debt instrument, etc., can be listed on the OTC.
7. The companies listed on this counter are required to pay listing fee to the exchange at reduced rates as compared to listing on regular market.
"Moreover, the exchange would consider providing further benefits in respect of listing and trading fees to the OTC market issuers & participants, with the approval of SECP", the KSE MD said.
Recalling the initiative for the OTC market, Mr. Fudda said that in the year 2002, the Karachi Stock Exchange and Securities & Exchange Commission of Pakistan felt that there was a need to facilitate the issuers of small capped companies to raise funds through the stock market and also provide investors a new source of investment, being efficient and transparent, which could also assure them liquidity and continuous price discovery in such small capped issues.
"Keeping in view this objective, the exchange initiated development of necessary regulatory framework, in the 3rd quarter of 2002 and in December 2002, the SECP approved the regulations governing Over-The-Counter (OTC) market, which were subsequently notified through the official gazette," Mr.Fudda concluded.
