What is OTC Market? How is it traded?


OTC market is a system of trading through direct exchange without the involvement of price system like brokers in stock market trading. The trade through this is called OTC, or over the counter. Generally, shares are traded through OTC to protect the interest of general investors by maintaining liquidity in the securities of companies that have not been listed in Nepse, delisted and failed to meet the requirements for listing.

Earlier, such companies were being traded from the company registrar’s office. Recently, the regulatory body has instructed to trade from the OTC market. The company concerned must be registered to do business in the market. Registration is free. However, in case of purchase and sale of shares, a certain fee has to be paid to the Nepal Securities Board and the securities market. Similarly, capital gains tax should be paid to the Government of Nepal.

When trading up to Rs 25,000, a 2 percent fee has to be paid to the stock market. Similarly, 1.50 percent fee should be paid for transactions between 25,000 and 500,000 and 1 percent for transactions above 500,000. During the transaction, a fee of 0.15 percent should be paid to the Nepal Securities Board. Also, according to regulation 7 of the OTC market, if the seller is a natural person, 10 percent and if the seller is institutional, 15 percent capital gains tax should be paid to the government.

Companies that have not issued shares to the public can use this system to change their share ownership. To trade through OTC, the company is not obliged to issue shares to the public. Shares of Nepal Bank were bought and sold for the first time in 068 BS through OTC market.


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