Over the Counter (OTC) is a decentralized market, without a fundamental substantial location, where market participants trade with one another through different communication modes such as the telephone, email and proprietary electronic trading systems. It is a negotiated market place that exists anywhere as opposed to the auction market place, represented by the activity on securities exchanges. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency.
Stocks are typically traded OTC because the company is small and cannot meet exchange listing requirements. Also known as unlisted stock, these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.
Special features of OTC:
- Use of Modern technology
- Restrictions for other stocks
- Minimum issued capital requirements
- Restrictions for large companies
- Base Capital requirement for members
- Computerization of transactions