The over-the-counter market, also known as the over-the-counter market or OTC market, generally refers to trading conducted outside the exchange. The OTC market originated from the securities market in the United States in the early 20th century. At that time, there were already many securities that were not traded on stock exchanges in the United States. Investors bought and sold these securities through the counters of banks or securities firms, hence the name "over the counter trading".

In the 1980s, the OTC market for financial derivatives rapidly emerged. In the 1990s, over-the-counter trading of commodity derivatives led by energy gradually developed. At present, the derivatives traded in the OTC market can be roughly divided into five categories: interest rate, foreign exchange, credit derivatives (interest rate default swaps), stock indices, and commodity derivatives. Among them, the trading volume of interest rate derivatives accounted for more than 80% of OTC derivatives transactions, Foreign exchange derivative accounted for about 10%, and commodity derivatives accounted for less than 1% of the market share of 0TC. As of the end of June 2014, the nominal value of global open OTC derivative contracts was $691 trillion (data source: BIS 2014 quarterly report).

Unlike electronic trading that focuses on central matching in the open market, OTC is a non-public market trading conducted off the exchange floor. The typical trading mode is that an over-the-counter trading broker (IDB) acts as an intermediary and uses communication methods such as telephone and instant messaging to inquire about buying and selling prices to customers. Finally, the broker manually matches the transactions between the buyer and seller, and the buyer and seller pay commissions to the broker as compensation. It can be seen that OTC transaction is a one-to-one transaction conducted in the private market. Its advantages are that the transaction mode and transaction object can be very flexible, and it is very conducive to the one-time conclusion of Block trade.
However, accompanied by the flexible trading method of OTC, there is a relatively opaque and asymmetric information in transactions, as well as a very high risk of default. Unlike standardized contracts for exchange trading clearing, OTC trading contracts are often non standardized, and there is no exchange as the central counterparty for central clearing after trading, nor is there a strict margin mechanism to ensure contract performance. This leads to OTC trading implying very high credit risks.

In 2001, the bankruptcy of Enron, the world's largest energy and Naturgy, caused widespread concern on OTC derivatives risk in the market. Given the long-standing default risk associated with OTC trading, several major global derivatives exchanges within Zhishang have launched clearing services for over-the-counter trading products to improve the security of over-the-counter trading.
In 2002, Chishang Exchange launched the over-the-counter trading platform ClearPort, which allows investors to register contracts traded off the exchange with Chishang Exchange. Chishang Exchange collects deposits for registered and cleared contracts for central clearing. This measure effectively controls the default risk of over-the-counter trading, realizes the over-the-counter and over-the-counter clearing modes of OTC trading, and gradually integrates traditional OTC trading with exchanges. After the financial crisis in 2008, in order to control the Systematic risk of the Global financial system, the U.S. regulators introduced the Dodd Frank Financial Act, which proposed the requirements for OTC derivatives to be cleared on the exchange floor, promoting the further central clearing of OTC transactions.
In order to facilitate clearing and risk control, exchanges need to standardize OTC products. The standardized OTC derivative contracts launched by exchanges are more similar to those publicly traded in the electronic market in terms of contract specifications and margin requirements, but there are still significant differences in trading modes, market participants, and other aspects compared to electronic trading. The summary is as follows:

Most commodity OTC contracts cleared by exchanges are settled in cash rather than physical delivery at the expiration of the contract. Therefore, the calculation of cash settlement price becomes a key aspect of contract design. Generally speaking, there are two ways to determine the final settlement price for cash settled OTC contracts:
Use the settlement price of existing electronic futures contracts for settlement
When an OTC contract already has an electronic futures contract with the same underlying object, and the trading of this futures contract is active, the OTC contract may use the settlement price of the existing electronic futures contract for settlement, or make certain adjustments to the settlement price of the electronic futures contract as the settlement price of the OTC contract. For example, the final settlement price of the Zhishang Exchange palm oil calendar month swap contract is calculated based on the adjustment of the electronic palm oil contract futures price on the Malaysia Derivatives Exchange.
Using authoritative market price indices for settlement
For products without active electronic futures contracts, the cash settlement of their OTC contracts often uses the authoritative market index price of the underlying product for settlement. The price index is generally calculated and published by an independent third-party index institution according to the transactions in the Spot market. For example, the TSI 62% iron ore futures contract traded off the exchange by Chishang Exchange uses the authoritative TSI iron ore index for cash settlement. TSI will publish the iron ore index of the day according to the Spot market transactions every day. When the iron ore contract of a certain month expires, the average price of all TSI iron ore price indexes published in this month will be used as the final settlement price for cash settlement. Choosing the monthly average price instead of the daily index price on the last trading day as the settlement price is to ensure the fairness of the index price and prevent individual institutions or individuals from interfering with the settlement price through short-term manipulation of the index price on a certain day or days.