over-the-counter

1. Not listed or available on an officially recognized stock exchange but traded in direct negotiation between buyers and sellers: over-the-counter stocks.
2. That can be sold legally without a doctor's prescription: over-the-counter drugs.

A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" can be used to refer to stocks that trade via a dealer network as opposed to on a centralized exchange. It also refers to debt securities and other financial instruments such as derivatives, which are traded through a dealer network.

Investopedia Says:
In general, the reason for which a stock is traded over-the-counter is usually because the company is small, making it unable to meet exchange listing requirements. Also known as "unlisted stock", these securities are traded by broker-dealers who negotiate directly with one another over computer networks and by phone.

Although Nasdaq operates as a dealer network, Nasdaq stocks are generally not classified as OTC because the Nasdaq is considered a stock exchange. As such, OTC stocks are generally unlisted stocks which trade on the Over the Counter Bulletin Board (OTCBB) or on the pink sheets. Be very wary of some OTC stocks, however; the OTCBB stocks are either penny stocks or are offered by companies with bad credit records.

Instruments such as bonds do not trade on a formal exchange and are, therefore, also considered OTC securities. Most debt instruments are traded by investment banks making markets for specific issues. If an investor wants to buy or sell a bond, he or she must call the bank that makes the market in that bond and asks for quotes.

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1. security that is not listed and traded on an organized exchange.

2. market in which securities transactions are conducted through a telephone and computer network connecting dealers in stocks and bonds, rather than on the floor of an exchange.

Over-the-counter stocks are traditionally those of smaller companies that do not meet the Listing Requirements of the New York Stock Exchange or the American Stock Exchange. In recent years, however, many companies that qualify for listing have chosen to remain with over-the-counter trading, because they feel that the system of multiple trading by many dealers is preferable to the centralized trading approach of the New York Stock Exchange, where all trading in a stock has to go through the exchange Specialist in that stock. The rules of over-the-counter stock trading are written and enforced largely by the National Association of Securities Dealers (NASD), a self-regulatory group. Prices of over-the-counter stocks are published in daily newspapers, with the National Market System stocks listed separately from the rest of the over-the-counter market. Other over-the-counter markets include those for government and municipal bonds. See also Nasdaq.

1. Market for trading securities that are not listed on an organized stock exchange, such as the New York Stock Exchange or a regional stock exchange. U.S. Government securities, corporate bonds, mortgage backed securities, asset-backed securities, and municipal securities also are traded over-the-counter. Trading activity is carried out by broker-dealers who communicate with each other by telephone, and by computer-controlled networks of quotation terminals. In the OTC market, prices are determined by negotiation between buying and selling brokers, rather than auction bidding on the floor of an exchange. Most bank stocks are traded over the counter, although many are listed on major exchanges, as well as regional stock exchanges.

2. Market away from regulated exchanges where privately negotiated contracts are traded. Examples are foreign exchange forward contracts, currency swaps, and interest rate swaps. See also Currency Swap; Derivative; Forward Exchange Contract; Interest Rate Swap.

Over the counter.