Understanding corporate finance: derivative contracts: exchange-traded and ‘over-the-counter’ products
Exchange-traded and OTC contracts
Derivative products can be either exchange traded or bought and sold ‘over the counter’:
- Exchange-traded means that contracts are bought or sold on an established investment exchange, such as LIFFE (the London International Financial Futures and Options Exchange) (CFM13060).
- Over-the-counter (OTC) derivatives are normally bespoke contracts which are written by a bank or other financial institution to meet the requirements of a particular client. But the term can also include highly standardised derivative products traded off-exchange rather than under the rules of an investment exchange. (CFM13070).