What OTC market means? At the capital market of securities there are being made transactions of medium and long term capitals. With some simplification it can be assumed that this type of capital is essentially financing medium-and long-term investments.
Capital market instruments of the securities market are mainly bonds and equities: long-term and medium-term securities.
The capital market therefore consists of two main segments :
– The stock market,
– The bond market.
As mentioned, the capital market is divided into primary and secondary. The primary market includes the issuance, which is the first sales of values to the first investors. Secondary market, due to the mode of the transaction, can be divided very simply into two parts. This division looks as follows:
– The first segment of the secondary market of very high importance is the stock exchange.
– The second segment of the secondary market is a “trade outside the counter” or free cash trading.
Another popular name of the segment is “over-the-counter market” ie, in a nutshell OTC market. This is a securities trading outside the stock exchange.
OTC market is an important part of the secondary market and supplement to the capital stock exchange, because there are mainly (not approved for trading) securities traded on the OTC system. The stock market is a centralized market, OTC – decentralized. OTC markets are becoming increasingly important.
Turnover of these markets are growing steadily. The increase also indicates the importance of the emergence and development of NASDAQ (since 1971) in the United States (National Securities Dealers Automated Quotation) or British (formed in 1986) Automated Quotation Stock Exchange – SEAQ. There is no specific location of the transaction here, as they are concluded electronically.
A system such as the NASDAQ is also referred to as a fully-fledged electronic marketplace. It is worth remembering these nuances. This is another example that the simple classifications are generally quite superficial.
Prices of transactions in the OTC market are somewhat different from the stock market (if they relate to securities, which are traded and stay at the stock market), but oscillate around them. At OTC the contact between buyer and seller is associated somehow individually. Transactions occure in the course of direct, rapid, telephone, electronic negotiation of seller and buyer broker. At traditional stock market there are aspects such as a specific place (parquet) and the time of the transaction. Electronic Market – OTC is much more flexible.
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