What is over-thecounter trading?

Kuwait is working to make its stock exchange, the oldest and fourthbiggest in the Arabian Gulf, competitive with other regional exchanges while meeting international standards to attract more liquidity. In broadening its product offerings, it has launched over-the-counter trading in shares of unlisted companies – a first in the region.

What is OTC?

The phrase is generally used for stocks that trade through authorised dealers as opposed to being executed through a formal exchange. OTC trading, which is prevalent in developed markets, usually involves trading shares in smaller companies, which may not meet stricter requirements of the main stock exchanges or may be reluctant to go public.

How is it different from regular trading?

There is little practical difference for investors between OTC and major exchanges as improvements in electronic quotation and trading have enabled higher liquidity and better access to information. However, on an exchange, every party is exposed to offers by every other counter-party, which may not be the case in OTC trades. The trades, however, are regulated and cleared through the system as though they are on a main exchange. Companies are required to keep all records of shareholders through authorised clearing companies. Under the OTC rule book, clients assume the responsibility for the risks that may result from such trades as they do in regular trading.

Do only stocks trade on OTC platforms?

Debt instruments such as bonds or derivatives are also traded through OTC dealer networks. The OTC derivative market is significant in some asset classes such as interest rates, foreign exchange and commodities, according to Investopedia, an educational website for finance and investment.

Why has Kuwait launched OTC trading? The main objective is to create a new, credible and transparent investment system. Previously, trading of unlisted securities in Kuwait was a manual process that lacked full transparency, which undermined the credibility of prices and made the clearance on executed trades difficult.

How will it help Kuwait? With an OTC market, Boursa Kuwait has broadened its product offering. The system simplifies procedures and gives opportunity to small companies and start-ups.