Over-the-counter (OTC)

.Note: Do not confuse this with OTC Markets Group, Inc., which is a company that facilitates trading in OTC stocks. Though it specializes in OTC trading, it could, in theory, start an exchange.

Certain asset classes are predominantly traded over-the-counter, such as cash treasuries, swaps, corporate bonds, and spot FX. With the rise of electronic trading, Electronic Communication Networks (ECNs) often facilitate OTC trading, but ECNs should not be confused with exchanges. To refer to all trading environments—whether they be exchanges, ECNs, ATS, or SEFs—it's useful to use the term "trading venue" (venue) or "market."

In U.S. equities, "OTC" can mean three different things:

1. • OTC equity securities (unlisted securities)
2. • OTC trading (off-exchange trading)
3. • OTC Markets Group, Inc. (the company that operates OTCQX, OTCQB, and Pink Markets)

• OTC equity securities are not listed on national exchanges and are often stocks of large foreign companies, such as Nestlé (NSRGY) or Tencent (TCEHY).
• NMS equity securities are exchange-listed stocks like Apple (AAPL) or the SPDR S&P 500 ETF (SPY).

It’s common to refer to these as "OTC stocks" or "NMS stocks" in casual conversation, without strictly distinguishing between stocks and ETFs, since the context often makes it clear.

OTC trading refers to any trades that happen off-exchange, which could involve either NMS stocks or OTC stocks. For instance:

• OTC trading in NMS stocks is reported to FINRA’s TRFs.
• OTC trading in OTC stocks is reported to FINRA’s ORF.

Since OTC stocks are, by definition, unlisted and traded off-exchange, it’s unnecessary to use the term "OTC trading in OTC stocks."

Adding to the confusion is OTC Markets Group, Inc., which operates venues like OTCQX, OTCQB, and Pink Markets for trading OTC equity securities in the U.S. Today, the term "OTC stocks" is often used interchangeably to refer to stocks available on these three venues

Historically, the term "OTC stocks" could also refer to stocks traded on FINRA’s OTC Bulletin Board (OTCBB), which no longer operates. This historical context adds to the confusion, as OTC Markets Group, Inc. was previously known as "Pink Sheets" or "Pink OTC Markets," making the term "OTC stocks" more ambiguous in the past.