over-the-counter (OTC)

Dictionary of Banking Terms for: over-the-counter (OTC)
over-the-counter (OTC)
  1. market for trading securities that are not listed on an organized stock exchange, such as the New York Stock Exchange or a regional stock exchange. U.S. government securities, corporate bonds, mortgage backed securities, asset-backed securities, and municipal securities also are traded over-the-counter. Trading activity is carried out by broker-dealers who communicate with each other by telephone, and by computer-controlled networks of quotation terminals. In the OTC market, prices are determined by negotiation between buying and selling brokers, rather than auction bidding on the floor of an exchange. Most bank stocks are traded over the counter, although many are listed on major exchanges, as well as regional stock exchanges.
  2. market away from regulated exchanges where privately negotiated contracts are traded. Examples are foreign exchange forward contracts, currency swaps, and interest rate swaps. See also currency swap; derivative; forward exchange contract; interest rate swap.
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