Tagged: OTC market

Explosive Growth in the OTC Market

You might think “OTC” stands for “off the charts,” which is how we’d rate both the skiing in Winter Park last week and the 70-degree temperatures in Denver Sunday that allowed me to get a post-skiing tan on the back deck.

Actually, OTC stands for “over the counter.” It describes brokers doing business directly with each other, and it’s a big reason why NYSE Euronext and the Deutsche Bourse (everybody spells it differently) are merging.

Our friend David Weild, former vice-chair at the Nasdaq and current market-structure expert at Grant Thornton said of the impending deal: “Scale, scale, scale.” Duncan Niederauer, expected to lead the combined entity, said today: “This is an industry that lends itself to scale.” It seems that what began here in 1792 under the Buttonwood Tree at the foot of Wall Street is at an end of sorts. Why?

Businesses need scale when markets are commoditized and currencies debased. But beyond that, it’s the result of monumental revitalization of the over-the-counter market. Big brokers are trading with each other, avoiding exchanges. And because they are experts at managing risk, institutions choose them not just for execution but as counterparties for transferring risk from asset class to asset class. This is fast becoming the main reason that natural liquidity – trading lingua franca for shares not driven by high-speed intermediaries – moves around. (more…)