What is the definition of the over-the-counter (OTC) market?

The over-the-counter (OTC) market is defined as a decentralized market for direct trading, which means that transactions occur directly between parties rather than through a centralized exchange. This structure allows for greater flexibility as it connects buyers and sellers through various communication methods like telephones, email, or electronic networks.

In the OTC market, securities can be traded without the stringent requirements and formalities of a centralized exchange, making it an essential venue for trading certain types of securities, including stocks not listed on major exchanges, as well as bonds, derivatives, and other financial instruments. This environment is particularly beneficial for smaller companies or those that do not meet the listing requirements of larger exchanges.

Understanding the decentralized nature of the OTC market is crucial because it reflects how trades are executed and regulated, differentiating it from more structured trading environments.