Over-the-Counter Market

In an OTC market, there is no central marketplace. Trades are agreed directly between buyers and sellers, often through dealer networks and electronic platforms.

Many important markets are mainly OTC. Most bonds, including corporate and many government bonds, trade OTC. The foreign exchange market is largely OTC. Many derivatives, such as interest rate swaps and customised forward contracts, are traded OTC. Shares of smaller companies that do not meet exchange listing requirements can also trade OTC.

OTC markets offer flexibility. Contracts can be tailored to the specific needs of the two parties, rather than following an exchange's standard terms.

The trade-offs are less transparency and, traditionally, more risk. Prices may not be publicly visible, and each party is exposed to the risk that the other will not meet its obligations. After the 2008 financial crisis, regulators in many countries introduced rules requiring more OTC derivatives to be reported, and many to be cleared through central clearing houses, to reduce these risks.