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**is** done by telephone on the basis of prices displayed on computer screens by competing market makers."

Bygrave and Timmons (1985) studied the effect of the over-the-counter activity (among other explanatory variables) on the flow of venture capital funds in the U.S. They found that the health of the over-the-counter market, measured by both the number of IPOs and the NASDAQ Index, had a strong influence on the amount of funds to venture capital firms. In contrast, the results did not show a strong influence of the New York Stock Exchange market on those flows.

In the developing world one example of an over-the-counter market is the Stock Exchange of Singapore Dealing and Automated Quotation System (SESDAQ), which was modelled on NASDAQ and established to attract small and new companies. SESDAQ has less stringent listing requirements than the Big Board of the Stock Exchange of Singapore. Before a firm can go public and be listed on the Big Board, it has to satisfy quite a restrictive set of criteria, including a minimum of five years' operating experience, three successive years of profits, a SS4 million paid-up capital, a minimum of S$1.5 million or 25 percent in the hands of not less than 500 shareholders with minimum percentages ranging from 10 to 20 percent being placed with the 500 to 10,000 shares range. Beginning in 1987, for listing on the SESDAQ only a three-year track record is needed and the minimum amount of paid-up capital required is lower than on the Big Board (Saunders and Lim, 1989).

OTC markets however have a mixed performance record. In the U.K., for example, the OTC market is small and the promotions and activities of some of its market makers have been frequently questioned. In Japan, as a result of the recent revision of the law regulating the securities exchanges, the requirements for listing new firms on the second section of the Tokyo Securities Exchange and on the over-the-counter market have been eased. The second section of the Tokyo Securities Exchange can now list firme which have not yet declared dividends and the over-the-counter market can trade new issues of stocks. The subsiding problem is that the government still requires "relevant preparation for about two years prior to submission of the application of the listing" on the over-the-counter market (Nakamura, 1987). Despite the lack of popularity that the OTC market has traditionally had in Japan, at the end of 1989, it had four times the size of the unlisted securities market in London and was larger than the exchanges of New Zealand and Thailand (Sender, 1989).

Other exit-facilitatina Provisions. In the U.K., exit from venture capital investments has been further facilitated by the Companies Acts of 1981 and 1982 which: (i) allot. unauoted companies to buy back their owr shares<sup>45</sup> , and (ii) allow managers of a private company who wish to buy shares in that company from the existed owners to secure a loan for this purpose on the company's assets (leveraged buy-outs) (IFC, 1986).

4 The number of companies traded on NASDAQ is greater than on the New York Stock Exchange (Kitchen, 1989).

45 Repurchase of own shares is normally forbidden to avoid financial speculation.