* OTC hopes to attract up to 18 Israeli companies in 2017
* OTC is cheaper alternative to a U.S. stock exchange listing
* Also seen as a stepping stone to Nasdaq
TEL AVIV, May 17 (Reuters) - U.S. financial trading platform OTC Markets said it hopes to attract up to 18 Israeli companies this year, double the number last year, as they seek a cheaper alternative to listing on traditional exchanges such as Nasdaq.
New York-based OTC Markets operates three markets - QX for larger companies, QB for venture companies and Pink, its open market - and companies such as Lufthansa, Roche and Air Canada use the OTC for their U.S. listings.
Last year, nine Israeli firms listed on OTC's top two markets, up from five in 2015. OTC Markets' Executive Vice President Jason Paltrowitz said that number "could double" this year as smaller companies increasingly realize there are other financing options besides staying private or going public on a national market such as Nasdaq.
"National exchanges in the U.S. underserve small cap companies," Paltrowitz told Reuters on Wednesday during a visit to Israel to promote OTC to Israeli businesses. "Companies in the early stage are not ready."
The average cost of listing on OTC is around $250,000, compared to about $2.5 million to list on Nasdaq, he said. "If you have a $20 million market cap that's a lot of money to spend."
Paltrowitz sees the OTC as a stepping stone to listing on bigger markets as well as a complement to the Tel Aviv bourse. About 500 companies have graduated from OTC to Nasdaq, including Israeli 3D printer maker Nano Dimension, he said.
Currently, around 70 Israeli firms trade on the trio of markets, 22 of them on QX and QB, while some of Israel's largest firms - telecoms group Bezeq, Bank Hapoalim and conglomerate Delek Group - trade on the pink exchange.
Paltrowitz said he was in talks with Hapoalim, Israel's largest bank, to "upgrade" to QX, which would provide a larger investor pool and only cost $20,000. He is also hoping to get other Israeli firms to move to QX, which requires a minimum market value of $10 million.
Unlike Nasdaq and the New York Stock Exchange, OTC would be a company's secondary market. It accepts foreign disclosure and reporting requirements such as those of the Tel Aviv Stock Exchange, keeping companies' costs low.
At the end of 2016, there were 9,620 U.S. and global securities traded on OTC Markets and 51 international firms listed on OTC markets in the first quarter of this year. (Reporting by Steven Scheer; Editing by Susan Fenton)