1.6 Over-the-Counter (OTC) Markets
The OTC market is a negotiated dealer market where transactions occur electronically over telephone and computer networks.
Key FINRA Exam Takeaways
- OTC is a decentralized, negotiated dealer network connected electronically; no physical trading floor.
- Nasdaq: Regulated electronic stock exchange operating as a negotiated dealer market with multiple competing Market Makers.
- OTC Pink & OTCQB/OTCQX: Unlisted equity trading tiers; generally higher risk, less liquidity, and minimal reporting.
- Bid/Ask Spread: Market makers quote a Bid (price they buy at) and Ask (price they sell at); spread is their compensation.
Knowledge Checkpoint • Section 1.6
How does a market maker in an Over-the-Counter (OTC) security earn compensation when facilitating client trades?