Over-the-counter

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The over-the-counter (OTC) market refers to a marketplace which is conducted off-exchange. These derivatives are privately negotiated between two parties, compared to listed derivatives traded through an established exchange or other intermediary.

Decentralized trade is carried out over the telephone, electronically or over a fax machine. Dealers carry inventories of product and facilitate the buy and sell orders of market participants.

OTC trade is often viewed as being more risky than trades conducted on an exchange because transactions do not involve the use of a clearing house as do more traditional forms of trade.

According to the Bank for International Settlements, the total outstanding notional value of over-the-counter derivatives stood at $516 trillion as of June 2007[1].

References

  1. ↑ "Triennial and semiannual surveys on positions in global over-the-counter (OTC) derivatives markets at end-June 2007," 11/21/08. Bank for International Settlements. Retrieved on Jan. 28, 2008.
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