OVER-THE-COUNTER MARKET

trading in stocks and bonds that does not take place on stock exchanges; such trading is most significant in the United States, where requirements for listing stocks on the exchanges are quite strict. It is often called the off-board market, and sometimes the unlisted market, though the latter term is misleading because some securities so traded are listed on an exchange. Over-the-counter trading is most often accomplished by telephone, telegraph, or leased private wire. In this market, dealers frequently buy and sell for their own account and usually specialize in certain issues. Schedules of fees for buying and selling securities are not fixed, and dealers derive their profits from the markup of their selling price over the price they paid. The investor may buy directly from a dealer willing to sell stocks or bonds that he owns or with a broker who will search the market for the best price. Bonds of the U.S. government (treasuries), as well as many other bond issues and preferred-stock issues, are listed on the New York Stock Exchange but have their chief market over-the-counter. Other U.S. government obligations, as well as state and municipal bonds, are traded over-the-counter exclusively. A third market has developed because of the increased importance of institutional investors, such as the mutual funds, who deal in large blocks of stock. Trading is done in shares listed on the exchanges but takes place over-the-counter; this permits large-quantity discounts not possible on the exchanges, where brokerage fees are fixed. Much of the regulation of the over-the-counter market is effected through the National Association of Securities Dealers, Inc., created in 1939 by an act of Congress to establish rules of conduct and protect members and investors from abuses. Although retail prices of over-the-counter transactions are not publicly reported, the NASD began publishing interdealer prices for the issues on its national list in February 1965.