Over-the-Counter (OTC)

Over-the-Counter (OTC) refers to the trading of securities, derivatives, and other financial instruments directly between two parties — typically through a dealer network or bilateral negotiation — without the involvement of a centralised exchange such as NSE or BSE. OTC markets are characterised by greater flexibility in contract terms, larger transaction sizes, and less transparency compared to exchange-traded markets. In India, the OTC market is significant for government securities (G-Secs traded through the NDS-OM platform), interest rate swaps, foreign exchange forwards, and corporate bonds. SEBI has progressively pushed more OTC products onto exchanges to improve price transparency and reduce counterparty risk. Unlike exchange-traded instruments that are guaranteed by the clearing corporation, OTC transactions carry direct counterparty risk — the risk that the other party defaults on its obligation. SEBI and RBI jointly regulate different segments of India's OTC market.