What does OTC transaction represent? Is OTC transaction legal?

The cryptocurrency trading methods are diverse, in addition to exchanges, there are also over-the-counter trading (OTC). This article will explain the meaning, operation and legality of OTC transactions, and help novice investors understand their risks and opportunities.

What is OTC trading?

OTC, i.e. OTC, refers to cryptocurrency trading outside of cryptocurrency exchanges. Unlike centralized transactions on public exchanges, OTC transactions are completed directly and privately between buyers and sellers. This peer-to-peer trading method originated from the securities market in the United States in the early 20th century. It was originally conducted through banks or brokerage counters, so it is called "counter trading".

The traditional OTC market is scattered and invisible, and there is no fixed trading venue. It is usually market maker by investment banks and other institutions, contacting counterparties through telephone, fax or online and reaching transactions. Many non-standardized financial products, such as forwards, options and swap contracts, are traded through the OTC market.

The role of OTC market maker is:

• Improving liquidity: For new listings or new products, OTC market makers can help find the right investors, facilitate transactions, and improve product liquidity.
• Support large-value transactions: The scale of OTC contracts is usually larger than on-site contracts, which facilitates large institutions to conduct large-value transactions and effectively manage price fluctuations.
• Flexible trading: OTC trading contracts can be customized according to investor needs to meet personalized trading needs, especially suitable for complex financial products, and provide more flexible contract termination or rollover arrangements.

How is the legality of OTC transactions?

The legality of OTC transactions depends on the laws and regulations of the region. At present, China has not issued clear regulations on virtual currency OTC transactions, but this does not mean its legality. The Chinese government has strict supervision of virtual currencies and has banned the operation of virtual currency exchanges in 2017. Therefore, investors should be cautious when participating in virtual currency OTC transactions and pay attention to potential legal risks.

In other countries and regions, legal OTC transactions are subject to local financial and anti-money laundering regulations. For example, the United States requires OTC transactions to comply with the Bank Secrecy Act and the Financial Crime Enforcement Network, and dealers are required to register and implement strict KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures. Different countries have a great degree of regulation of cryptocurrencies. Some countries require OTC platforms to obtain licenses, while others strictly restrict or prohibit them. In addition, all cryptocurrency transactions, including OTC transactions, are subject to local tax regulations.

Risk warning:

Although OTC transactions provide flexible, private and efficient trading channels for large investors, their opacity and information asymmetry also bring higher default risk and credit risk. Investors should formulate complete risk management strategies, fully understand market information, and participate in OTC transactions with caution.

The above is the detailed content of What does OTC transaction represent? Is OTC transaction legal?. For more information, please follow other related articles on the PHP Chinese website!