Otc trading system

Over-The-Counter Market.

What is an 'Over-The-Counter Market'

A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, and proprietary electronic trading systems. An over-the-counter (OTC) market and an exchange market are the two basic ways of organizing financial markets. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected. In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations.

BREAKING DOWN 'Over-The-Counter Market'

OTC markets are primarily used to trade bonds, currencies, derivatives and structured products. They can also be used to trade equities, such as the OTCQX, OTCQB and OTC Pink marketplaces (previously the OTC Bulletin Board and Pink Sheets) in the U. S. Broker-dealers that operate in the U. S. OTC markets are regulated by the Financial Industry Regulatory Authority (FINRA).

OTC markets are typically bifurcated into the customer market – where dealers trade with their clients such as corporations and institutions – and the interdealer market, where dealers trade with each other. The price a dealer quotes to a client may very well differ from the price it quotes to another dealer, and the bid-ask spread may also be wider in the case of the former than in the latter.

While OTC markets function well during normal times, their lack of transparency can cause a vicious circle to develop during times of financial stress, as was the case during the 2007-08 global credit crisis. Mortgage-backed securities and other derivatives such as CDOs and CMOs, which were traded solely in the OTC markets, could not be priced reliably as liquidity totally dried up in the absence of buyers. This resulted in an increasing number of dealers withdrawing from their market-making functions, exacerbating the liquidity problem and causing a worldwide credit crunch. Among the regulatory initiatives undertaken in the aftermath of the crisis to resolve this issue was the use of clearinghouses for post-trade processing of OTC trades.

OTC (ATS & Non-ATS) Transparency.

FINRA publishes over-the-counter (OTC) trading information on a delayed basis for each alternative trading system (ATS) and member firm with a trade reporting obligation under FINRA rules. Information for firms with “de minimis” volume outside of an ATS is aggregated and published on a non-attributed basis.

The trading information is derived directly from OTC trades member firms report to FINRA’s equity trade reporting facilities.

For details on the information published and the publication schedule, please refer to Rules 6110 and 6610; see also Regulatory Notices 15-48 & 16-14.

IND - OTC - Links.

View aggregated trade data reported by ATSs to FINRA equity reporting facilities.

Keep track of service alerts, changes to documentation and system upgrades.

Download data site user guide and API specifications.

Find answers to commonly asked questions regarding OTC.

ATS data has been aggregated on a quarterly basis to display total shares, total trades and average trade size per ATS.

A list of Fixed Income Alternative Trading Systems (ATSs) that currently have a Form ATS on file with the SEC.

A list of Equity Alternative Trading Systems (ATSs) that appear in the OTC Transparency data that either currently have a Form ATS on file with the SEC or did at one time.

OTC Notifications.

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Related Links.

CONTACT OTC.

Mr. Michael McGuire.

Chief Compliance Officer.

Tradeweb Direct LLC.

1177 Avenue of the Americas.

New York, NY 10036.

Re: Application for Exemptive Relief from Trade Reporting Obligation for Certain Transactions on an Alternative Trading System.

Dear Mr. McGuire:

System Status.

The OTC Transparency Data system is operating normally.

Over-The-Counter - OTC.

What is 'Over-The-Counter - OTC'

Over-the-counter (OTC) is a security traded in some context other than on a formal exchange such as the New York Stock Exchange (NYSE), Toronto Stock Exchange or the NYSE MKT, formerly known as the American Stock Exchange (AMEX). The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments, such as derivatives, which are traded through a dealer network.

BREAKING DOWN 'Over-The-Counter - OTC'

Popular OTC Networks.

The OTC Markets Group operates some of the most well-known networks, such as the OTCQX Best Market, the OTCQB Venture Market and the Pink Open Market. These markets include unlisted stocks that are known to trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. Conversely, OTCBB stocks are often either penny stocks or are offered by companies with bad credit records.

Securities on OTC Networks.

Stocks are usually 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. The dealers act as market makers, and the OTC Bulletin Board is an inter-dealer quotation system that provides trading information.

American depository receipts, which represent shares in an equity that is traded on a foreign exchange, are often traded OTC, because the underlying company does not wish to meet the stringent exchange requirements. Instruments such as bonds do not trade on a formal exchange and are also considered OTC securities.

Most debt instruments are traded by investment banks making markets for specific issues. An investor must call the bank that makes the market in that bond and asks for quotes to buy or sell a bond.

Over-the-Counter Market.

The Financial Industry Regulatory Authority (FINRA) regulates broker-dealers that operate in the over-the-counter (OTC) market. Many equity securities, corporate bonds, government securities, and certain derivative products are traded in the OTC market. The OTC Bulletin Board (which is a facility of FINRA), and OTC Link LLC (which is owned by OTC Markets Group, Inc., formerly known as Pink OTC Markets Inc.), for example, operate within the OTC market, particularly with respect to OTC equity securities.

OTC Bulletin Board.

The OTC Bulletin Board (OTCBB) is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information for many OTC equity securities that are not listed on a national securities exchange. Securities quoted on the OTCBB include domestic, foreign and American depository receipts (ADRs).

Only broker-dealers qualified with FINRA as market makers can apply to quote securities on the OTCBB. Under the OTCBB's eligibility rule, companies that want to have their securities quoted on the OTCBB must seek the sponsorship of a market maker as well as file current financial reports with the SEC or with their banking or insurance regulator. For more information, you may view the OTCBB's website at otcbb.

OTC Link LLC.

OTC Link LLC (OTC Link) is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information in exchange-listed securities, OTC equity securities, foreign equity securities and certain corporate debt securities. In addition to publishing quotes, OTC Link provides, among other things, subscribers the ability to send and receive trade messages, allowing them to communicate for the purpose of negotiating trades.

All subscribers to OTC Link are broker-dealers that are members of FINRA. Subscribers are permitted to quote any OTC equity security eligible for quoting under Exchange Act Rule 15c2-11 or the applicable exemptions to Rule 15c2-11. OTC Link does not require companies whose securities are quoted on its system to meet any eligibility requirements. With the exception of some foreign issuers, the companies quoted on OTC Link tend to be closely held, very small and/or thinly traded. Most issuers do not meet the minimum listing requirements for trading on a national securities exchange. Many of these companies do not file periodic reports or audited financial statements with the SEC, making it difficult for the public to find current, reliable information about those companies.