KARACHI, April 22: The Committee for Over-The-Counter (OTC) market (for securities) approved on Monday, a report covering modus operandi of OTC market in Pakistan.

The committee for OTC market formed by the SECP coordination committee is headed by the KSE chairman Salim Chamdia and includes KSE-MD Noman Ahmed, LSE-MD Samir Ahmed and chairman-LSE Omer Iqbal Pasha as members.

A press release issued by the KSE on Monday stated that the report has been sent to the SECP for final discussion and approval.

OTC market provides investors a convenient mode of investment and helps promoters to set up new projects or expand their activities by raising finance in a cost-effective manner in a listing regime. Unlike the regular market, the requirements under the OTC market are less stringent, such as smaller capital base, etc.

The Committee has recommended following features of the OTC market: The minimum capital requirement for a company to be listed on the OTC market should be Rs10 million as compared to Rs50 million for regular market. The minimum public offering should be Rs5 million or 25 per cent of the capital, whichever is higher.

Companies seeking listing should appoint a sponsor, who shall either be a brokerage house of the exchange or a commercial bank, investment bank, discount house, or any other financial institution approved by the exchange to be offered as “sponsoring member”. Provided that where a non-member financial institution is appointed as sponsoring member, he shall appoint member of the exchange for market-making. The report lists a series of functions to be performed by the sponsoring member by virtue of the sponsoring agreement.

Generally, Initial Public Offerings (IPOs) require at least 3 to 4 months. On the OTC, in case where a company urgently needs money, it can sell existing securities or issue new securities to the member who is willing to sponsor the company. The sponsoring member would later sell the shares to the public.

Other recommendations include those in respect of compulsory market making by sponsoring member; computerized trading; possibility of premium on issue of shares; the exchange will list securities including equity shares, debt instruments, units of open funds, etc; standard lot; the securities under OTC to be exempt form applicability of “The Regulations for short selling under Ready Market 2002” and certain other miscellaneous matters.

The committee’s recommendations end on a note: “Besides, OTC, we recommend formation of another counter where delisted companies can be traded to provide exit route to its security holders. In order to facilitate trading in such securities, the Securities and Exchange Ordinance 1969 needs changes to form a second-tier market,” the recommendations said, adding that in that regard, in section 8(2) of the said Ordinance, after the words “government security”, the words, “a security delisted by the Exchange”, may be added.