Welcome back to all on Financial Empires, today we are going to deal with an alternative form of securities trading, these are the OTC Italy markets. Let’s analyze together its definition, what they are, the functioning of OTC markets and the inherent risks.
Specifically, these markets deal in securities that are not subject to specific regulation relating to the organization and functioning of the market. They are therefore an alternative to the canonical securities market.
Origins of over the counter markets definition
The etymology of the word “otc markets” comes from Anglo-Saxon slang which refers to the phrase “Over The Counter” (which translated sounds like “behind the counter”).
In fact, the Over The Counter market is closely linked to the practice of continuing to trade in bars near the official counters after the stock exchange has closed.
Other translations refer to the term linked to certain medicines sold in pharmacies, which, not requiring a medical prescription and therefore not subject to price controls, were precisely defined as over-the-counter medicines.
According to other sources, the term “over the counter” derives from the Chicago Mercantile Exchange, where a large quotes stood in the center of the stock exchange, marking its operations.
In fact, it is rumored that, after the market closed, traders went to the room adjacent to the clock to continue trading, hence the term counter.
What are OTC markets?
After analyzing the history of the definition of over the counter markets, where it came from and what it meant at the time, let’s go to see specifically and on a practical level what OTC markets are.
Simplifying, the over-the-counter market means the process of how a share of a company not formally listed on a stock exchange can still be exchanged between financial operators and professionals.
The aforementioned shares traded on this type of OTC stock market are available through a broker dealer network, that is, a non-centralized trading network, and for this reason the shares of the stock market in question can be traded without complying with the access requirements required by the classic stock exchange regulations.
Basically, the OTC market allows investors to obtain company shares and make investments in financial instruments, which would otherwise not be accessible through these channels; in fact, unlisted companies can obtain capital by buying and selling shares of their company, as if they were actually listed on the stock exchange.
In this alternative financial world you can find stocks, bonds, swaps and derivatives with which to trade through agreements between the parties and are managed by a network of private dealers.
Features Over the Counter Markets
When it comes to OTC Italy markets, these are decentralized channels that do not operate according to the opening and closing times of the Stock Exchange, being in fact active 24 hours a day.
For this reason they are chosen by many companies who prefer to escape from the standard financial circuit, for a series of advantages, but who still manage to have excellent earnings in the stock markets with these alternatives.
To give an example of an OTC market:
Nasdaq and Forex are typical examples of Over The Counter Markets. Investing with these carriers brings advantages and risks OTC markets, let’s see below how it works and if it’s really worth it.
To be part of the Italian OTC markets, companies are not required to comply with the same requirements as for traditional markets. Here there is no entry price, there are no financial statements to present or mandatory communications to be given to shareholders, so as to avoid a good deal of paperwork.
This allows you to sell assets of any type, such as start-ups or small local companies, which in other cases could hardly access the standard stock market.
Furthermore, cryptocurrencies are a concrete expression of OTC markets, in which new crypto tokens are periodically proposed and which are gaining more and more success.
What are OTC markets?
OTC markets are very popular and are gaining momentum. But that doesn’t mean there aren’t rules in these financial channels as well.
The fact of being outside the canonical stock exchanges does not mean that transactions on the non-regulated OTC market are not equally authorized, controlled and monitored by the financial authorities.
In fact, the US OTC market operates through the Over The Counter Bulletin Board (OTCBB), an electronic listing service provided by FINRA (Financial Industry Regulatory Authority). This demonstrates what has been said above, on the quality of the controls that are carried out on these OTC markets 24 hours a day.
Also in the US OTC Market, OTC shares are traded through the “Pink sheets” service. Pink sheet listings include companies not listed on the New York Stock Exchange or Nasdaq. On these lists are the famous penny stocks, small companies whose shares have a very small nominal value of a few dollars.
But here there are not only small companies, but large multinationals looking for investors and cash to reinvest promptly such as:
- Bayer A.G.
- Allianz SE
- BASF SE
- Danone SA
- Nestle SA
They are all multinationals present as examples of OTC markets. This is because most companies prefer these channels to canonical exchanges, and the reason is easily understood.
Listing on the stock exchange is not free!
For example, to access the New York Stock Exchange you have to invest 500 thousand USD, while the Nasdaq is satisfied with 75 thousand USD. Considerable figures, if compared with the counterpart that does not require initial expenses to be able to be part of it. A big difference!
To be listed on the Milan Stock Exchange, however, there is a list of the corresponding prices updated almost daily, where they are calculated based on the value of the companies.
OTC Italy markets
In our country, the Over The Counter Italy markets are configured as Organized Trading System.
The CONSOB (Italian Authority for the Supervision of Financial Markets), a commission responsible for examining companies, can carry out periodic checks and solicit organizers and operators to provide data and financial statements.
In addition to this, to buy OTC assets, one must contact specialized companies and it is the custom in most cases on online broker platforms.
Disadvantages and risks OTC markets
The OTC market has greater flexibility and more variations than traditional exchanges.
Unfortunately, however, this method is not without risks, because transparency can be strongly compromised and the probability of insolvency is high, given that the real economic value of the companies involved is difficult to decipher, with the consequence, for example, that many securities are removed for excess of downside and the investor, in that case, does not have any type of protection.
It often happens with cryptocurrencies, where many of them end up turning out to be not very solid realities and artfully pumped up by a fraudulent marketing job.
Another aspect to consider is the high volatility of the OTC financial markets due to the small number of trades.
So, as we have seen, in these types of OTC Italy markets, you can make excellent profits, as you can risk making loud thuds.
Financial Empires, The Editorial Staff
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