Certified Management Accountant Practice Exam 2026 - Free CMA Practice Questions and Study Guide

The over-the-counter (OTC) market is characterized by the trading of stocks of nonlisted corporations through a decentralized network of dealers rather than on a formal securities exchange. This means that these stocks are traded directly between parties rather than through a centralized system. OTC trading provides companies that may not meet the listing requirements of formal exchanges the opportunity to raise capital by offering their shares, making it an important avenue for smaller or emerging companies.

In contrast, stocks exchanging on a formal securities exchange represent transactions that take place on established platforms such as the New York Stock Exchange or NASDAQ, where securities are traded following specific regulations and structures. Securities traded exclusively by government agencies pertain to specific bond markets or instruments issued by governmental bodies, which do not reflect the broader scope of the OTC market. Lastly, a marketplace for physical commodities only refers to markets where physical goods like oil, gold, or agricultural products are traded, which is not the focus of the OTC market that deals primarily with financial instruments. Therefore, the defining characteristic of the OTC market is indeed the trading of stocks from nonlisted corporations through a network of dealers.