Financial Results (Directors' Report)

Directors’ Report

 

Your Directors are pleased to present the 16th Annual Report of the OTC   Exchange of   India together   with the audited Statements of Accounts for the year ended March 31, 2006.

 

Financial Results

 

The financials of your Exchange for the year 2005- 2006 are as follows:

                          

                                                                                   (Rs. in lakhs)

Particulars

As on 31st March

2006

2005

Income

227.02

229.58

Expenditure (Excluding Depreciation)

194.99

265.14

Surplus/(Deficit) Before Depreciation

32.03

(35.56)

Depreciation

63.14

100.43

Net Surplus/(Deficit) for the year

(31.11)

(135.99)

Surplus/(Deficit) brought forward from previous years

(4638.64)

(4502.65)

Accumulated Deficit carried forward to Balance Sheet

(4669.75)

(4638.64)

 

Your exchange has been able to bring down the total expenditure (excluding depreciation) for the seventh consecutive year. The savings in total expenditure is to the tune of Rs 70.15 lacs i.e. a 26.45% reduction over previous year. This has resulted into a surplus before depreciation of Rs.32.03 lacs as against a deficit of Rs.35.56 lacs in the                                          previous year.

 

A consistent financial discipline has helped the Exchange to reduce its expenses and the exchange has been able to report positive earnings in the year under review. The Company has not accepted any deposits from the public during the year. The Exchange has separate funds like the Investor Protection Fund (corpus Rs 260.27 lakhs), Investors Services Fund (corpus 39.07 lakhs) and Settlement Guarantee Fund (corpus 694.03 Lacs out of which Rs.345.58 lakhs is in cash) in place as per the SEBI Guidelines. The exchange has also set up a Settlement Contingency Fund (Rs.50 lakhs) for short-term shortages. These funds have been invested in earmarked fixed deposits with Banks.   

 

 

Economy & Capital Market

 

The Indian Economy, during the period under review, has clocked GDP Growth rate of more than 8.4% and thereby, emerging as one of the fastest growing economies of the world. During the year, the Indian stock market indices rose to their highest ever.  The stock market performance is being driven in part by the recognition that corporate governance and transparency standards in India are superior compared to most emerging markets. India also stands ahead in the protection of minority shareholders rights.  Moreover the initiatives taken in recent years to enhance capital market integrity by tightening regulations and oversight as well as promoting disclosures and reducing operational risk are also beginning to pay rich dividends.  The period, under review, also saw large number of mega primary issues and an overwhelming response of the retail and institutional investors to such issues.   

 

Operations at OTC Exchange of India

 

Pursuant to the Securities Contract Regulation (Amendment) Act, 2004, SEBI has notified OTCEI as a Corporatised & Demutualised Exchange u/s 4(B)(1) of the Securities Contract (Regulation) Act, as amended.

 

The Exchange, like most other exchanges in the country, witnessed negligible volumes this year too.  During the year SEBI set up a committee to study the role and relevance of Regional Stock Exchanges.  The Exchange made its presentation before the Committee listing out the various options available to the Exchange as well as seeking certain regulatory approvals.  The Committee has submitted its report and SEBI has invited public comments on the same.  The Exchange has also submitted its comments on the Report for the consideration of SEBI.

 

The Subsidiary Company, OTCEI Securities Ltd. has for the second consecutive year reported Net Profit before tax of Rs.7.28 lacs and after tax of Rs.2.94 lacs. The turnover on the Subsidiary Company was Rs. 1708.26 crores. OTCEI members are now taking advantage of trading on Capital Market segment of NSE through OSL. It is trying to enroll new sub-brokers in the current year.

 

Subsidiary Company

 

A statement pursuant to Sec. 212 of the Companies Act, 1956, in respect of OTCEI Securities Limited (OSL), the wholly owned subsidiary of your company and its Accounts for the year 2005- 2006 together with the Report of the Directors and the Auditors thereon, are attached to the Accounts of the Company.

 

 

 

Listings

 

Due to continued low volumes, your Exchange could not find any new issuers in the equity segment this year. The number of listed companies on the Exchange stands at 104 as on March 31, 2006.

 

Technical Infrastructure

 

Technology is the key requirement of any Stock Exchange. Keeping this in mind, OTCEI follows a policy of up-grading technology from time to time to provide the best to our members and customers. The Exchange employs a fault tolerant Stratus Continuum C618 server for trading in listed and permitted segment and Stratus Polo C425 server supports its databases. The trading system of the Exchange i.e. OASIS (OTCEI Automated Securities Integrated System) is based on TCAM application licensed by OM, Sweden.  

 

Personnel and HRD  

 

There are no employees within the purview of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975. The Exchange has 29 employees as on March 31,2006. During the year 7 employees were sent for various training programmes and seminars. During the year 4 employees passed 6 number of NCFM courses conducted by NSE.

 

 

Auditors

The Company has received a notice under Section 225 of the Companies Act,1956 from one of the shareholders i.e. “Administrator of the Specified Undertaking of the Unit Trust of India” indicating the intention to move a resolution for appointment of M/s. Mittal & Associates, Chartered Accountants, Mumbai in place of M/s. K.S Aiyar & Co.  The Board of Directors recommends their appointment as Statutory Auditors.

 

 

Directors

In accordance with the provisions of the Companies Act, 1956 and pursuant to the Articles of Association of the Company, our Directors Shri D G Chaudhury, [IFCI], Shri S B Mainak, [LIC], Shri S C Bhargava (SUUTI) and Shri A. Manickavelu – Officiating Managing Director retire at the Sixteenth Annual General Meeting of the Company and are eligible for re-appointment.

 

During the year, Shri S C Bhargava, representative of SUUTI was appointed as Director on the Board of the Company. Since he was appointed as an Additional Director, the term of his appointment as Additional Director would come to an end at the ensuing Annual General Meeting. In pursuance of section 257 of the Companies Act 1956, he is required to be appointed as a Director.

 

Shri A Manickavelu was appointed as Officiating Managing Director of the Company from 13th October, 2005. Since he was appointed as an Additional Director, the term of his appointment as Additional Director would come to an end at the ensuing Annual General Meeting. In pursuance of section 257 of the Companies Act 1956, he is required to be appointed as a Director and accordingly Shri Manickavelu has conveyed his intention to be elected as a Director.

 

The Board records its appreciation of guidance and support provided by                       Shri I D Agarwal, former Chairman of OTCEI, Shri Dipak Shah, former Managing Director of OTCEI and also Shri Girish Dave, Shri P B Nimbalkar, Shri Viraf Rustom Mehta, Directors, during their tenure on the Board.

 

DIRECTORS RESPONSIBILITY STATEMENT

 

The Directors confirm that:

a.      in the preparation of the annual accounts, the applicable accounting standards have been followed, along with proper explanation relating to material departures, if any;

b.      they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the surplus and deficit of the Company for that period; 

c.       they have taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other                                      irregularities; and

d.      they have prepared the annual accounts on a going concern basis.

 

 

 

 

Corporate governance

 

The Exchange has persistently observed high standards of corporate governance. The Managing Director is in charge of day-to-day management of the affairs of the Exchange subject to the superintendence, control and directions of the Board of Directors. The Board consists of nominee directors of Promoter Institutions, SEBI nominees and Public Representatives. During the financial year 2005-2006, the Board met 5 times to review and evaluate the operations of the Exchange and decide on strategic issues.  

 

The names of members of the Board of Directors, their attendance at the Board meeting and the number of their other directorships are set out below:

 

Sr.No.

Name of Member

Board Meetings attended during the year

Attendance at the last AGM (Aug.8,

2005)

Number of other Directorships (Public/Other Companies)

 1

Shri I D Agarwal

(Till August 26, 2005)

2

Yes

  4

2

Shri S C Bhargava

(Since August 26, 2005)

4

No

11

3

Shri A V Rammurty 

6

No

 2

4

Shri M Raghavendra

4

No

 4

5

Shri D G Chaudhury

4

No

3

6

Shri S B Mainak

5

No

 Nil

7

Smt. Renu Challu

5

No

5

8

Shri V A Vijayan Menon

3

No

1

9

Shri Girish Dave 

(Till December 31, 2005)

3

No

 6

10

Shri Dipak Shah

(Till Aug. 29,2005)

3

No

 3

11

Shri Viraf Rustom Mehta

(Till December 31, 2005)

2

No

2

12

Shri P B Nimbalkar

(Till December 31, 2005)

4

No

3

13

Prof. Pushpa Trivedi

(Since July 7, 2005)

5

No

Nil

14

Shri A Manickavelu

(Since October 13, 2005)

3

Yes

1

 

The names of members of various Committees, number of meetings held during the year and attendance of members are set out herein below:

 

Delisting Committee: Meetings held during the year: 3

 

Sr.No.

Name of Member

Number of meetings attended during the year

1.

Shri S C Bhargava, Chairman

3

2.

Shri V A Vijayan Menon, SND

2

3.

Shri Anand R Prabhu, Appointed Actuary, New India Assurance Co. Ltd

2

4.

Shri Girish Dave, PRD

Nil

5.

Shri R Anand

(Till October 13,2005)

1

 

Shri Y Venkata Rao

(Since February 18,2006)

Nil

6.

Shri A Manickavelu

(Since October 13.2005)

1

 

Audit & Ethics Committee: Meetings held during the year: 3

 

Sr.No.

Name of Member

Number of meetings attended during the year

1.

Shri M Raghavendra, GIC

3

2.

Shri A V Rammurty, IDBI

3

 3.

Shri S B Mainak, LIC 

3

 

Investment Committee: Meetings held during the year : 2

Sr.No.

Name of Member

Number of meetings attended during the year

1.

Shri S B Mainak, LIC

2

2.

Shri D G Chaudhury, IFCI Ltd.

2

3.

Shri Dipak Shah

(Till  Aug. 29, 2005)

1

4.

Shri A Manickavelu

(Since October 13, 2005)

1

 

 

Acknowledgements

 

OTCEI expresses its wholehearted appreciation and sincere thanks to Ministry of Finance, all its Promoter Institutions, Securities and Exchange Board of India, Department of Company Affairs and Reserve Bank of India for their continued support and co-operation. OTCEI also likes to thank its Members and Dealers as well as the Companies which are listed on the Exchange for their support. OTCEI acknowledges their patronage and regards them as partners in progress.

 

The Exchange would also like to place on record its appreciation of the services of its technology service providers Tata Consultancy Services Ltd, CMC Ltd., CMS Computers Ltd. and HCL Comnet Systems & Services Ltd. It also acknowledges the services of its Clearing Bankers, Clearing House – NSCCL (National Securities Clearing Corporation Ltd.), its custodian SHCIL (Stock Holding Corporation of India Ltd.) and main corporate banker UTI Bank Ltd. The Directors also appreciate the teamwork and valuable contribution of all the employees of your Exchange. 

 

                                               For and on behalf of the Board

                         

                                                                            S C Bhargava

                                                                            Chairman

Mumbai

Date: August 12,2006  

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