Organized trading facility (OTF)

An OTF is a type of trading venue that facilitates the buying and selling of non-equity instruments like bonds, derivatives, and structured products. Unlike exchanges, which are generally more centralized and follow strict matching rules, OTFs offer more flexibility in how trades are executed. They can engage in discretionary trading, meaning the operator has the flexibility to choose how orders are executed within the confines of regulatory guidelines.

OTFs are regulated under MiFID II, which governs financial markets in the European Union. This regulation aims to increase transparency, fairness, and efficiency in the trading of financial instruments. OTFs are distinct from other venues like Multilateral Trading Facilities (MTFs) and Regulated Markets (RMs) because they primarily handle non-equity products and allow some degree of discretion in trade execution, making them particularly useful for institutional investors dealing in complex financial products.

This venue type was introduced to enhance the transparency and oversight of over-the-counter (OTC) derivatives and other instruments that were previously traded off-exchange.