Fun fact: the New York Stock Exchange’s nickname is The Big Board. (It was also the nickname of the principal's favorite educational tool in the '50s, but we digress.) We guess it’s not bad, as far as nicknames go. We’ve definitely heard worse. Anyway, when trades aren’t conducted on major exchanges like the NYSE, they get a sweet little nickname of their own: “off board” transactions. Get it? Because they aren’t on the Big Board? Man, where do they come up with this stuff, right?
So why would trades happen this way? There are two reasons. The first would be if they are OTC transactions, because those don’t happen on major exchanges anyway. The second reason might be because an investor or institution wants to trade a large amount of a listed stock without impacting general consumer confidence in said stock.
For example, let’s say Banks N Stuff, Inc., a big financial institution, wants to sell 25,000 shares of a certain stock to Fun Funds, an investment firm. A big sell-off like that can have a big impact on investor confidence in the stock, so companies sometimes opt not to conduct big trades like that on a large exchange. They’d rather do it off board, so they don’t unnecessarily or unintentionally impact the value of the stock.
Related or Semi-related Video
Finance: What is Over The Counter (OTC)?3 Views
finance a la shmoop what is over the counter or OTC alright buy drugs LVM
non-prescription kind yeah those nyquil tylenol preparation-h well then you buy [Doctor filling out prescription]
them over-the-counter prescription drugs yeah those are different much more
highly inspected regulated structured and stocks work the same way when you
trade over-the-counter you're generally trading within a network of other
dealers all trading stocks think of it like everyone on Facebook had a trading [Facebook posts appear]
account nothing really is supervised door regulated or controlled it's just
the transaction happening among two strangers passing in the night [People walking around with smartphones]
exchanging glances get a fair deal on this trade well on the exchanges Amazon
was offered for fifteen hundred two dollars a share but on the OTC deck
network while it was offered at 1507 maybe you'll have overpaid five bucks a [Amazon share prices appear]
share for Amazon if you buy it here rather than on NASDAQ which is a normal
securities exchange well stocks bonds commodities derivatives they all trade
OTC and also on exchanges so why are there both methods of trading in the
first place well demand if everybody was happy with the trades they made from
9:30 to four New York time well then there wouldn't be a whole lot of demand [Stocks transferring from wall street]
for trading outside of those hours and in other places but there is so there is
an OTC trading accommodates after-hours trading as well which can be a really
big deal when a company announces earnings at 4:30 p.m. New York time and [Newspaper of record earnings for company appears]
the street either loves or hates the numbers that the companies printed the
stock can move a lot in a short period so a lot of investors are happy to be
able to either dump or scarf up positions in whatever calm at 4:32 p.m.
after the numbers have been published not wanting to wait the dozen in change [Clock rapidly ticks forward]
hours until the market opens again in the morning the basic idea behind OTC
trading is that the world of OTC is kind of the wild wild west of stock exchanges
unlike trading on the NYSE where companies have to meet very high
standards to be accepted for trading on the exchange qualify for OTC trading
while companies basically just have to spell their name properly fill out a few [Person signing a document]
forms and feel that belonging thing and even then
well you know there's a lot of flexibility
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