Sunday, June 14, 2009

financial jargon: over the counter markets

(see link.)

In many contexts, OTC contracts (swaps, options, forwards...) means bilateral contracts not backed by exchange. Not transferable. Usually large, custom contracts not available on any exchange. I feel these OTC securities could trade on an ECN.

Key points:

#1 aka off-exchange. these "things" are not on nasdaq or nyse or other things.
* an instrument can be traded in an exchange, or on an otc market, or both
* market makers -- usually required.
* ECN are probably a necessary link between the counterparties.
* swaps are usually on OTC

un-listed -- The market is for securities not listed on a stock or bond exchange.

un-listed -- OTC is Antithesis of listed.

non-exchange -- The market is for securities not listed on a stock or bond exchange.

NASDAQ -- The NASDAQ market is an OTC market for US stocks, but sometimes people say otc stocks are't on nasdaq.

small -- OTC stocks are very small and do not trade on an exchange because they do not meet market capitalization requirements. OTC securities may theoretically be traded informally (one may stand on a street corner and sell his/her stocks), but the term usually refers to securities traded through a dealer network.

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