OTC
Abbreviation for Over The Counter. An OTC market or trade is one conducted directly between dealers and principals via a telephone and computer network rather than via an exchange. In contrast to exchange trading, there is no automatic disclosure of the price of deals to other market participants and deals and traded instruments are not standardised. With a trade on an exchange a clearing house steps in when a counterparty defaults, ensuring that the transaction is completed. But most OTC trades are not cleared, exposing firms – and the financial system – to counterparty risk. As of 2009, there is increasing political pressure for OTC trades to move to public exchanges and be handled by clearing houses.