overthecountermarkedet

The over-the-counter market, or OTC market, is a decentralized system for trading securities, commodities, and other financial instruments that are not listed on formal stock exchanges. In OTC trading, transactions are arranged directly or through broker-dealers rather than on a centralized venue.

OTC trading covers a wide range of assets, including equities of smaller or less liquid companies, corporate and government bonds, derivatives, and currencies. There are two main components: broker-dealer networks that facilitate trades and electronic quotation systems or dealer networks that provide price quotes. Pricing and execution often occur through negotiated quotes rather than through a single consolidated order book, and market makers commit to buying and selling to provide liquidity.

In equities, the OTC space is organized through dedicated marketplaces such as OTC Markets Group, which operates networks like OTCQX, OTCQB, and the Pink Open Market. These platforms categorize issuers by their disclosure practices and regulatory status, ranging from fully reporting companies to those with limited information. For other asset classes, OTC trading may occur through electronic platforms, telephone networks, or private dealer-to-dealer arrangements.

Advantages of the OTC market include easier access for smaller or new issuers, lower listing and ongoing compliance costs, and faster entry compared with exchange-listed markets. Disadvantages include generally lower liquidity, wider bid-ask spreads, and reduced transparency, which can increase price uncertainty and counterparty risk.

Regulation varies by jurisdiction but typically involves securities regulators and broker-dealer oversight. In the United States, OTC activity is overseen by the SEC and FINRA, with disclosure requirements differing by platform and instrument. Globally, OTC markets reflect a spectrum of regulatory rigor and transparency, often balancing flexibility with higher risk.