Over-the-Counter (OTC)
A decentralized market where securities are traded directly between parties through a dealer network rather than on a formal exchange.
What is OTC Market?
The over-the-counter (OTC) market is a decentralized trading network where securities are bought and sold directly between two parties — typically through a dealer or broker — rather than through a centralized exchange like the NYSE or Nasdaq. OTC markets exist for a wide range of instruments: smaller company stocks (traded on OTC Markets Group platforms such as OTCQX and Pink Sheets), most US corporate and government bonds, foreign exchange, derivatives, and many structured products. OTC equity markets have less stringent listing requirements than national exchanges, accommodating smaller or financially distressed companies, foreign stocks (as American Depositary Receipts), and newly issued securities. The lack of centralization means OTC markets typically have lower transparency, wider bid-ask spreads, and less regulatory oversight than exchange-traded equivalents.
Example
The vast majority of US Treasury bond trading happens OTC, with dealers quoting prices directly to institutional clients via phone and electronic systems like Bloomberg terminals. On any given day, trillions of dollars in Treasury bonds change hands OTC without ever touching an exchange — illustrating that OTC markets, while decentralized, handle far more dollar volume than formal exchanges.
Source: FINRA — OTC Markets