Definition of over-the-counter OTC

A stock that is not listed on an exchange. Trading is carried out directly between dealers over the telephone or by computer. [1]

Over-the-counter derivatives stem from deals negotiated bilaterally and privately between two parties rather than traded on a formal securities exchange.

These derivatives offer companies more flexibility because, unlike the “standardised” exchange-traded products, they can be tailored to fit specific needs, such as the effects of a particular exchange rate or commodity price over a given period. Companies say such derivatives play a big part in helping them to provide consumers with stable prices in everything from airline tickets to electricity bills. [2]

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