How the OTC Market Works?



OTC markets solve the problem of the turnover of shares of small and medium-sized businesses. With the help of an OTC market, you can choose and buy promising shares at a much cheaper price than the cost after the IPO. 


Trading in the OTC market comes with an extremely high risk, but the potential profit is even higher. Here we will talk about what OTC Markets is, unlisted company shares, and their advantage to traders and investors.


What is the OTC Market?


OTC is an abbreviation for Over The Counter, which literally means pre ipo stock purchase and sell outside of centralized sites ( National Stock Exchange ).


Listing on a stock exchange is not easy. For example, the requirements for listing on the NSE :

  • The company must have net tangible assets of at least Rs. 3crores in each of the preceding three full years.
  • They should have a minimum of Rs. 15 crore as average pre-tax operating profit in the last three years.
  • The net worth of at least Rs. 1 crore in each of the preceding three complete years.
  • If the organization has recently changed its name, at least 50% of the revenue for the preceding year should be from the new project denoted by the same name.


A new organization can not meet these requirements. For completing these requirements, the company must already be “settled.” Taking a loan for business development is also not an option. Even banks hesitate to give loans to these types, and they are more attracted by collateralized lending to businesses whose financial future is easily predictable. In addition, loans become unprofitable in the long run due to overpayment and the addition of extra EMI’s and other charges.


Entrepreneurs need money. One of the easiest ways to attract them for any startup is to sell shares, but the exchange is closed for them. As a result, trading occurs outside the stock exchange, directly between the dealer and the investor. 


OTC trading benefits:


  • Availability for poor small and medium sized companies;
  • Simplicity and reliability of information technologies that ensure the cooperation between trading floors;
  • High turnovers and multiple types of protection due to the participation of not only large but also small, new businesses;
  • Without any restrictions on the number of shares trading;
  • Legislative management of the actions of investors in the regulated market, including requirements for transparency of financial statements of businesses- but not in all sections;
  • On the organized over-the-counter market, open trading, the ability to draw up applications, the participation of unlisted shares dealer, IPO shares dealers, other conditions and norms are provided to the users;
  • High potential of profitability


Stages of buying pre IPO stock through Unlisted Assets: 


  • Register with the, and they will provide access to the stock exchange for investors, 
  • Sign the contract electronically or in paper form, 
  • Now you can check out the list of shares and bid on those that look promising to you after opening a brokerage account, 
  • Deposit money and make your payment effortlessly through an Escrow Bank Account of a SEBI registered Trustee., 
  • Make transactions to buy shares,
  • Soon you will receive shares in your Demat account. The unlisted assets will automatically send you all the necessary information to your registered email.


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