Over-the-counter (OTC) securities are financial instruments that are not listed on formal, centralized exchanges such as the New York Stock Exchange (NYSE) or NASDAQ. Instead, these securities are traded directly between parties, typically through a decentralized network of broker-dealers rather than on a centralized exchange platform.

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Key Characteristics

• Decentralized Trading: OTC transactions occur directly between two parties or through broker-dealer networks, without the oversight or infrastructure of a central exchange.
• Not Listed on Major Exchanges: OTC securities do not meet the listing requirements or choose not to be listed on major exchanges, often due to size, cost, or regulatory considerations.
• Types of Instruments: OTC markets handle a wide variety of financial instruments, including stocks (often penny stocks), bonds, derivatives (such as swaps and forwards), and currencies.
• Lower Regulation and Transparency: Compared to exchange-traded securities, OTC securities are subject to less stringent regulatory and disclosure requirements, which can increase risks such as lower liquidity and higher potential for fraud.

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Summary Table