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Over-the-counter trading arranged away from a public book, used by large tickets that would move a screen.
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영어 원문 읽기 →Over-the-counter (OTC) or off-exchange trading or pink sheet trading is done directly between two parties, without the supervision of an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price is not necessarily publicly disclosed.
OTC trading, as well as exchange trading, occurs with commodities, financial instruments (including stocks), and derivatives of such products. Products traded on traditional stock exchanges, and other regulated bourse platforms, must be well standardized. This means that exchanged deliverables match a narrow range of quantity, quality, and identity which is defined by the exchange and identical to all transactions of that product. This is necessary for there to be transparency in stock exchange-based equities trading.
The OTC market does not have this limitation. Parties may agree on an unusual quantity, for example in OTC, market contracts are bilateral (i.e. the contract is only between two parties), and each party could have credit risk concerns with respect to the other party. The OTC derivative market is significant in some asset classes: interest rate, foreign exchange, stocks, and commodities.
In the United States, over-the-counter trading in stock is carried out by market makers using inter-dealer quotation services such as OTC Link (a service offered by OTC Markets Group).
Although exchange-listed stocks can be traded OTC on the third market, it is rarely the case. Usually OTC stocks are not listed nor traded on exchanges, and vice versa. Stocks quoted on the OTCBB must comply with certain limited U.S. Securities and Exchange Commission (SEC) reporting requirements.
The SEC imposes more stringent financial and reporting requirements on other OTC stocks, specifically the OTCQX stocks (traded through the OTC Market Group Inc). Other OTC stocks have no reporting requirements, for example Pink Sheets securities and "gray market" stocks. However, in 2021, the pink sheets market came under the spotlight of greater regulatory scrutiny.
An over-the-counter is a bilateral contract in which two parties (or their brokers or bankers as intermediaries) agree on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its clients directly. Forwards and swaps are prime examples of such contracts. It is mostly done online or by telephone. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement. This segment of the OTC market is occasionally referred to as the "Fourth Market".
Critics have labelled the OTC market as the "dark market" because prices are often unpublished and unregulated.
Over-the-counter derivatives are especially important for hedging risk in that they can be used to create a "perfect hedge". With exchange traded contracts, standardization does not allow for as much flexibility to hedge risk because the contract is a one-size-fits-all instrument. With OTC derivatives, though, a firm can tailor the contract specifications to best suit its risk exposure.
OTC derivatives can lead to significant risks. Especially counterparty risk has gained particular emphasis due to the 2008 financial crisis. Counterparty risk is the risk that a counterparty in a derivatives transaction will default prior to expiration of the trade and will not make the current and future payments required by the contract. There are many ways to limit counterparty risk. One of them focuses on controlling credit exposure with diversification, netting, collateralisation and hedging.
Central counterparty clearing of OTC trades has become more common in recent years, with regulators placing pressure on the OTC markets to clear and display trades openly.
In their market review published in 2010, the International Swaps and Derivatives Association examined OTC Derivative Bilateral Collateralization Practice as one way of mitigating risk.
As of 2022, The Vanguard Group no longer permits purchases and transfers in of most over-the-counter securities, noting that they "are prone to high risk, low liquidity, and potential fraud."
OTC derivatives are a significant part of the world of global finance. The OTC derivatives markets grew exponentially from 1980 through 2000. This expansion has been driven by interest rate products, foreign exchange instruments and credit default swaps. The notional outstanding of OTC derivatives markets rose throughout the period and totalled approximately US$601 trillion at December 31, 2010.
다음 자료에서 선별하고 재구성했습니다: Over-the-counter (finance), 기여자들이 작성했으며 적용 라이선스는 CC BY-SA 4.0. 개정판 1375178492. 섹션과 서식을 줄였습니다. 연결된 개정판에서 전체 맥락과 기여 기록을 확인할 수 있습니다. 이 참고 문서는 동일한 라이선스를 유지합니다. 추가 인용 링크는 해당 개정판에서 가져왔으며 여기서 별도로 확인하지 않았습니다.