Question

Part II - Short Answer Problems (64 pts) Question is on 115 pts: What are the differences between Exchanges and OTC markets

Answer 1

Secondary market is a market in which securities and financial instruments that have already been issued are traded. This encompasses both the exchanges and the demand for OTC. Exchange refers to the formally formed stock exchange in which shares are exchanged and in which participants have a fixed set of rules. Once trading is conducted through the exchange, it is under the oversight of the exchange and thus guarantees compliance with all the rules and regulations. On the other hand, Over the Counter, soon known as OTC, is a securities dealer-oriented market, which is a decentralized and unorganized market where trading takes place by phone, email, etc.

OTC or Over the counter market is a global market for non-listed shares that does not have a specific physical location, but rather companies / persons involved in trading communicate directly over a communication network such as telephone lines, emails, computer terminals, etc. Trading Over the counter, due to the absence of a structured exchange, is also called off-exchange trade. Exchange refers to the exchange-traded market, which refers to a centralized and controlled financial market, where listed companies ' shares, commodities, derivatives, etc. are acquired and exchanged between stockbrokers and traders.

The dealers play the role of market makers in an over-the-counter market as they quote the price at which the participants buy and sell securities and other financial instruments. In comparison, the trading firm is the market maker in the case of an auction, as the rates are dictated by the demand and supply powers.
Companies that do not follow the guidelines or meet the exchange standards also sell their OTC shares, which are usually small companies. Big business houses, on the other hand, typically go through an exchange to list and trade their stocks.

One of the main difference between these two is the physical presence of an exchange in which the form of open outcry is used. OTC, on the other hand, has no physical location, it's all mobile and computer-based.
In the case of an exchange only generic goods will be dealt with in terms of quality and quantity, while in the case of an OTC the contracts will be tailored according to the specification.