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What is meant by “over the counter”?

Stocks that trade in the over the counter (OTC) market are public issues that do not trade on a domestic stock exchange. It is also referred to as the“unlisted market”, the “street market”, and the “inter-dealer market”. Almost all bonds and debentures, as well as some stocks are traded over the counter in Canada.

These securities usually don’t meet the listing requirements of exchanges, but there is enough demand for them that they can be traded through brokers or dealers. They are traded over the telephone and computer. The term “over the counter” originated when bearer certificates were sold and literally passed over the counter. (Bearer certificates were not registered to one particular owner but to the “bearer”, meaning that possession was the only proof of ownership. While some securities, such as bonds, are still registered this way, most are registered to a specific owner.) In Canada, information on over the counter shares is available through the Canadian Dealing Network system (CDN). In the U.S., the NASD (National Association of Securities Dealers) represents the many dealers who trade OTC stocks. The NASDAQ (National Association of Securities Dealers Automatic Quotation System) reports the prices of OTC stocks. NASDAQ is the third largest market in the world. Typically, smaller companies tend to trade on the OTC market, since they cannot meet the more strict requirements of the exchanges. However, some larger companies that could trade on the exchanges choose instead to sell stock in the OTC market, preferring the less stringent disclosure and reporting rules.