1. PROCEDURE OF LISTING AND TRADING
ON OTC
PRESENTED BY: GAURAV KUMAR SINGH
RAJESH KUMAR
GOLU KUMAR GOUND
ABHISHEK KUMAR
PRESENTED TO: DR VAIBHAV SIR
2. What is OTC Trading?
Over-the-counter (OTC) trading refers to
the buying and selling of financial
instruments directly between two parties,
without the supervision of a centralized
exchange. This allows for more flexibility
and personalized transactions compared
to exchange-traded markets.
3. Understanding the OTC Market
The over-the-counter (OTC) market refers to the decentralized financial
market where trading occurs directly between two parties, without the
oversight of an exchange. This allows for greater flexibility and customization
in transactions, but also less transparency and regulation compared to
exchange-traded markets.
In the OTC market, participants can negotiate the terms of their trades, such
as the price, quantity, and settlement details. This contrasts with exchange-
traded markets, where standardized contracts are bought and sold on a
centralized exchange platform.
5. Key Differences Between OTC and Exchange-
Traded Markets
Price Discovery
OTC markets
rely on dealer-
negotiated
prices, while
exchange-
traded markets
have
centralized
order books
that determine
market prices.
Transparency
OTC markets are
generally less
transparent, with
limited public
information on trade
sizes and prices.
Exchange-traded
markets offer more
transparent pricing
and trade data.
Liquidity
OTC markets may
have lower liquidity,
as trading occurs
directly between
dealers and
counterparties.
Exchange-traded
markets typically
have deeper liquidity
with more buyers
and sellers.
Regulation
OTC markets are
subject to less
stringent regulation
compared to heavily
regulated exchange-
traded markets with
strict trading rules
and surveillance.
6. Benefits of OTC Trading
Flexibility
OTC markets offer customizable contracts
and trading terms that can be tailored to the
specific needs of buyers and sellers,
providing greater flexibility than exchange-
traded markets.
Access to Unique Assets
OTC trading allows access to niche or
specialized financial instruments that may not
be available on traditional exchanges,
expanding investment opportunities.
Enhanced Liquidity
The decentralized nature of OTC markets
can provide better liquidity for certain assets,
especially for large or complex transactions.
Reduced Counterparty Risk
OTC trades are often executed directly
between parties, reducing the risk associated
with a central clearing house or exchange.
7. Risks and Considerations in OTC
Trading
OTC trading carries unique risks compared to exchange-traded markets.
Counterparty risk is heightened, as there is no central clearinghouse.
Liquidity can be variable, and price transparency is lower. Leverage and
complex derivatives also amplify the potential for losses.
Proper due diligence, risk management, and understanding the regulatory
environment are crucial in navigating the OTC landscape effectively.
Investors must carefully weigh the benefits against the increased risks
before participating in OTC markets.
8. OTC trading presents various risks
and considerations that
participants should be aware of:
1. Counterparty Risk
2. Lack of Regulation
3. Price Transparency
4. Liquidity Risk
5. Operational Risks
6. Market Access
7. Credit Risk
8. Market Concentration
9. Popular OTC Financial Instruments
Stocks
Over-the-counter
(OTC) stocks are
securities that trade
directly between
buyers and sellers,
often for lesser-known
or more volatile
companies.
Bonds
OTC bond trading
allows for customized
terms and negotiated
prices, offering more
flexibility compared to
exchange-traded
bonds.
Derivatives
OTC derivatives like
swaps, forwards, and
options provide
tailored risk
management solutions
not available on
exchanges.
Currencies
The vast foreign
exchange (forex) OTC
market facilitates
cross-border
transactions and
speculation on
currency price
movements.
10. OTC Trading Platforms and Brokers
Diverse OTC Platforms
A wide range of electronic
trading platforms facilitate OTC
transactions, offering tailored
tools and access to a global
network of dealers and liquidity
providers.
Specialized OTC
Brokers
Experienced OTC brokers
leverage their industry
knowledge and connections to
help clients access the best
prices and execute complex
OTC trades efficiently.
Mobile OTC Trading
Innovative mobile trading apps
allow OTC market participants
to monitor positions, execute
trades, and manage their
portfolios on-the-go from
anywhere in the world.
11. The Future of OTC Trading
1
Increased Transparency
Regulatory push for more disclosure and reporting in the OTC
markets.
2
Technological Innovation
Adoption of blockchain, AI, and automated trading to
enhance OTC transactions.
3
Global Connectivity
OTC markets becoming more interconnected
across regions and asset classes.
The future of OTC trading is poised for significant transformation. Increased transparency through
regulatory reforms, technological advancements, and greater global connectivity will reshape the
landscape. Innovative solutions will enhance liquidity, price discovery, and risk management in the
OTC ecosystem.
12. Regulatory Landscape for OTC Trading
The OTC trading market operates with less regulation compared to exchange-traded markets. However, there
are still important regulatory frameworks that govern OTC transactions. Key regulators include the SEC, CFTC,
and FINRA in the US, and similar bodies in other countries.
Regulatory Oversight OTC trading is subject to oversight by regulatory
agencies, but with more flexibility and less
stringent rules than exchange-traded markets.
Transparency The OTC market is generally less transparent
than exchange-traded markets, with fewer
reporting requirements.
Investor Protections OTC investors may have fewer protections, such
as limits on leverage and mandatory disclosure
requirements.
Navigating the regulatory landscape is crucial for OTC traders to ensure compliance and mitigate legal risks.
Understanding the applicable rules and working with reputable OTC brokers can help manage regulatory
challenges.
13. Strategies for Successful OTC Trading
Understand the Market
Research the unique characteristics of the OTC market, such as pricing
dynamics, liquidity, and counterparty risks.
Develop a Trading Plan
Establish clear objectives, risk management protocols, and order execution
strategies to guide your OTC trading activities.
Leverage Research and Analysis
Conduct thorough fundamental and technical analysis to identify opportunities
and make informed trading decisions in the OTC space.
