Investors Diary

Dear Investor,
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Saturday, September 22, 2007

Over The Counter Market Needed at NSE

Historically over-the-counter markets were established at the beginning of the 20th century and have grown by leaps and bounds to become important part of the current financial markets infrastructure. Kenya is however yet to fully appreciate and embrace this phenomenon that is likely to thrust capital markets trading a notch higher with increased listings and options for the investing public.

Over-the-counter (OTC) trading
This is to trade financial instruments such as stocks, bonds,commodities, or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futurews exchanges or stock exchanges.An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement.An over-the-counter market is a financial market where products are traded over-the-counter.

Role of OTC
The over-the-counter market has taken on a huge dimension especially in the USA, because there it has given room for other often also high risk issuers to enter the market, something which would have been impossible for them on a bourse.

In general
The reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements.
In Kenya this would ensure that many corporate entities that have often been shying away from listing at the bourse due to stringent listing requirements will have an opportunity to sell their shares for subscription by the public. This would enhance the number of options available to investors and eventually would enhance trade volumes, liquidity and widen the options available.

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