Over-the-Counter Exchange of India (OTCEI): Lessons for Australia’s Capital Markets

Australia’s capital markets are on the cusp of significant change, with regulatory updates expected in 2026. As policymakers and investors consider how to make markets more accessible and supportive of small and medium enterprises (SMEs), it’s worth looking at international experiments for inspiration. One such example is the Over-the-Counter Exchange of India (OTCEI), which was launched in the early 1990s to help smaller companies raise capital and to modernise trading through electronic systems.

The OTCEI’s journey—its innovations, challenges, and eventual closure—offers valuable insights for Australia. By examining what worked and what didn’t, Australian stakeholders can better understand how to foster a more inclusive and dynamic financial ecosystem. This article explores the OTCEI’s approach, the lessons it provides, and how these can inform Australia’s evolving markets.

Before diving into the OTCEI’s history and its relevance to Australia, it’s important to clarify some key terms:

• Over-the-Counter (OTC) Market: A decentralised marketplace where securities are traded directly between parties, rather than on a centralised exchange. OTC markets can offer flexibility but may have less transparency and liquidity.

• Small and Medium Enterprises (SMEs): In Australia, SMEs are typically defined as businesses with fewer than 200 employees. They are a vital part of the economy, driving employment and innovation.

• Electronic Trading: The use of computerised systems to facilitate the buying and selling of securities. Electronic trading has become standard in Australia, improving efficiency and transparency.

The OTCEI was created to address a gap in India’s financial markets. At the time, smaller companies found it difficult to meet the listing requirements of major exchanges. The OTCEI aimed to:

• Lower Barriers to Entry: By simplifying listing requirements, the OTCEI made it easier for SMEs to access public capital.
• Introduce Electronic Trading: It was among the first in India to use a fully electronic, screen-based trading system, which improved transparency and efficiency.
• Support Market Liquidity: The OTCEI used a market-making system, where designated participants helped ensure there were always buyers and sellers for listed shares.

These features were designed to help SMEs grow and to give investors more opportunities to participate in emerging businesses.

Initially, the OTCEI was seen as a promising innovation. It attracted a number of SME listings and introduced technology that would later become standard in larger exchanges. However, over time, several challenges emerged:

Regulatory Complexity

The OTCEI operated in a regulatory environment that became increasingly complex. As rules changed and oversight increased, some of the original advantages for SMEs were eroded. For Australia, this highlights the importance of clear, stable, and supportive regulations—especially as the Australian Securities and Investments Commission (ASIC) considers reforms.

Competition and Technology Adoption

Larger exchanges in India eventually adopted electronic trading and other innovations pioneered by the OTCEI. This reduced the OTCEI’s unique appeal. The lesson for Australia is that continuous investment in technology and infrastructure is necessary to maintain a competitive edge.

Liquidity Concerns

Despite the market-making system, many OTCEI-listed shares suffered from low trading volumes. Without enough active buyers and sellers, investors found it difficult to enter or exit positions. This experience underscores the need for robust investor engagement and mechanisms to support liquidity—issues that are also relevant to Australia’s smaller company markets.

Closure and Legacy

After years of declining activity, the OTCEI ceased operations in 2015. While it did not endure, its innovations influenced the broader market and provided important lessons for future policy and market design.

Australia’s financial system is already advanced in many respects, but the OTCEI’s story offers several practical takeaways:

1. Alternative Capital-Raising Platforms

The OTCEI demonstrated the value of having alternative venues for SMEs to raise capital. In Australia, the growth of fintech platforms, crowdfunding, and secondary trading venues reflects a similar need. These alternatives can complement traditional exchanges and help more businesses access funding.

2. Balancing Access and Investor Protection

Simplifying listing requirements can make it easier for SMEs to go public, but it’s important to maintain investor protections. The OTCEI’s experience shows that transparency, clear disclosure, and ongoing oversight are essential to build and retain investor trust.

3. Importance of Liquidity

A market is only as strong as its liquidity. Mechanisms such as market makers or incentives for active trading can help ensure that investors are able to buy and sell shares when they need to. Australia’s smaller company markets can benefit from exploring ways to encourage more consistent trading activity.

4. Ongoing Policy Support

Innovative market structures need ongoing support and adaptability. Regulatory frameworks should be reviewed regularly to ensure they remain fit for purpose as technology and market needs evolve.

To illustrate how these lessons might apply, consider the following examples:

Simplified Listing for SMEs

Suppose an Australian SME wants to raise capital but finds the main exchange’s requirements too complex or costly. If there were an alternative platform with streamlined listing rules—similar to the OTCEI’s original model—more businesses could access public funding, supporting economic growth.

Electronic Trading and Efficiency

Australia’s adoption of electronic trading has already improved efficiency. Continuing to invest in technology can further reduce costs and make markets more accessible, especially for smaller investors and companies.

Supporting Market Liquidity

Introducing or enhancing market-making models in smaller company markets could help address liquidity challenges. This would give investors greater confidence that they can enter and exit positions as needed.

• Stay Informed on Regulatory Changes: With reforms expected in 2026, understanding new rules will be important for both investors and businesses.
• Diversify Investment Approaches: Consider opportunities beyond the main exchange, including emerging platforms and alternative markets.
• Prioritise Transparency and Due Diligence: Especially in SME markets, reviewing company disclosures and understanding liquidity risks is essential.
• Support Ongoing Innovation: Policymakers and market participants should encourage technological advancements and flexible market structures.

1. What is the main lesson from the OTCEI for Australia?

The OTCEI shows the importance of making capital markets accessible to smaller companies while maintaining investor protections and supporting liquidity.

2. How might upcoming reforms affect SMEs in Australia?

Anticipated regulatory changes could simplify the process for SMEs to raise capital, potentially making it easier for them to list and attract investors.

3. Why is liquidity important in smaller company markets?

Liquidity ensures that investors can buy and sell shares easily. Without it, markets can become less attractive and more volatile.

4. Are alternative trading platforms likely to grow in Australia?

Yes, there is increasing interest in alternative platforms that can provide more flexible funding and investment opportunities, especially for SMEs.

The Over-the-Counter Exchange of India was a bold attempt to modernise capital markets and support smaller businesses. While it ultimately closed, its innovations in electronic trading and simplified access left a lasting impact. As Australia prepares for financial reforms in 2026, the OTCEI’s story serves as a reminder of the value of ongoing innovation, balanced regulation, and the need to support both companies and investors. By learning from international experiences, Australia can continue to build a financial system that is inclusive, dynamic, and resilient.