Over-the-Counter (OTC) Trading

What is Over-the-Counter (OTC) trading?

The trading of commodities, contracts, or other instruments not listed on any exchange. OTC transactions can occur electronically or over the telephone. Also referred to as Off-Exchange. (Source: CFTC)

Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futures exchanges or stock exchanges.

An over-the-counter contract is a bi-lateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives, these agreements are usually governed by an International Swaps and Derivatives Association agreement. (Source: Wikipedia)

What is the OTC Bulletin Board? (OTCBB)

In the U.S., over-the-counter trading in stocks is carried out on the OTC Bulletin Board (OTCBB). The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information for various types of equity securities. The OTCBB was founded in 1990 and currently provides access to more than 3300 securities with over 230 market makers. It is not regulated as a stock exchange. (Source: Wikipedia)

The OTC Bulletin Board (OTCBB) is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many over-the-counter securities that are not listed on The Nasdaq Stock Market or a national securities exchange. Brokers who subscribe to the system can use the OTCBB to look up prices or enter quotes for OTC securities. Although the National Association of Securities Dealers, Inc. oversees the OTCBB, the OTCBB is not part of The Nasdaq Stock Market. Fraudsters often claim that an OTCBB company is a Nasdaq company to mislead investors into thinking that the company is bigger than it actually is.

Under the OTCBB's eligibility rule, companies that want to have their securities quoted on the OTCBB must file current financial reports with the SEC or with their banking or insurance regulators. (Source: SEC)