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A maturing OTC market is resulting in narrowing spreads

Over the counter (OTC) trading is generally used to facilitate large ($100k+) orders for market participants. Using OTC desks for sizable orders, as opposed to exchanges, saves customers the headache associated with price slippage or having to split up an order into several smaller batches. OTC desks work with customers directly to find an appropriate price at which to trade. These businesses can be split into two major categories:

  1. Principal model – The desk uses its own funds to fulfill the customer’s order, causing the desk to assume market risk until it’s able to source the assets needed to offload the customer’s order.

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