A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems. An over-the-counter OTC market and an exchange market are the two basic ways of organizing financial markets.

Unraveling the Mystery of Over-the-Counter Trading | pupuzifecose.web.fc2.com

In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected. In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations.

OTC Frequently Asked Questions - General OTC Market FAQs - pupuzifecose.web.fc2.com

OTC markets are primarily used to trade bonds, currencies, derivatives and structured products. They can also be used to trade equities, such as the OTCQX, OTCQB and OTC Pink marketplaces previously the OTC Bulletin Board and Pink Sheets in the U.

Broker-dealers that operate in the U. OTC markets are regulated by the Financial Industry Regulatory Authority FINRA. OTC markets are typically bifurcated into the customer market — where dealers trade with their clients such as corporations and institutions — and the interdealer market, where dealers trade with each other.

The price a dealer quotes to a client may very well differ from the price it quotes to another dealer, and the bid-ask spread may also be wider in the case of the former than in the latter. While OTC markets function well 60 second binary options scalping vs forex normal times, their lack of transparency can cause a vicious circle to develop during times of financial stress, as was the case during the global credit crisis.

Mortgage-backed securities and other derivatives such as CDOs what does otc mean in stock market CMOs, which were traded solely in the OTC markets, could not be priced reliably as liquidity totally dried up in the absence of buyers. This resulted in an increasing number of dealers withdrawing from their market-making functions, exacerbating the liquidity problem and causing a worldwide credit crunch. Among the what does otc mean in stock market initiatives undertaken in the aftermath of the crisis to resolve this issue was the use of clearinghouses for post-trade processing of OTC trades.

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Over-The-Counter (OTC)

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