Unlisted Securities in India
An unlisted security is a financial instrument that is not traded on any of stock exchange, but through over-the-counter (OTC) market. Unlisted securities are called also OTC securities. Market makers facilitate the buying and selling of unlisted securities in the OTC market. Because they are not exchange traded, unlisted securities can be less liquid than listed security.
Securities must meet a number of requirements to be listed on an exchange. For example, to be listed on an exchange such as the NYSE or AMEX, a publicly traded stock must represent a company that surpasses an annual income of market capitalization threshold. The company also must have issued a number of shares and be able to afford the exchange’s listing fee, which often exceeds $100000. These requirements ensure that only the highest quality companies traded on exchanges. Thus, unlisted securities may be of lower quality and present a greater risk to investors.
For many investors, there is a little practical difference between OTC and major exchanges. Improvement in electronic quotation and trading have facilitated higher liquidity and better information. However, there are key differences between the transaction mediums. On an exchange, every party is exposed to offers by every other counterparty, which may not be the case in dealer networks. There is less transparency and less stringent regulation on these exchanges, so unsophisticated investors take on additional risk and could be subject to adverse condition.
Stocks are usually traded OTC because the company is small and cannot meet exchange listing requirements. Also known as unlisted stock, these securities are traded by broker-dealers, who negotiate directly with one another over computer networks and by phone. The dealers act as market makers, and the OTC Bulletin Board is an inter-dealer quotation system that provides trading information.
As this security is risky and harmful also, it has a huge market, worldwide.
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