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OTC

 

Over-the-counter (OTC) or “off-exchange trading” is  refer to financial instrument trades,  such as stocks, bonds, commodities or derivatives , directly regulate between two counter-parties outside the regulated markets.   The main difference with the formal Stock Exchange,  where trades are monitored and finalized via computer facilities dedicated to this purpose, is the absence of any type of surveillance authorities. So OTC securities are usually riskier than the other financial istruments due to their low liquidity and to the absence of rules.

An over-the-counter contract is a bilateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. The OTC contract is usually stipulated between an investment bank and its clients. Forwards and swaps are prime examples of such contracts.