What best describes an OTC security?

An OTC security, or over-the-counter security, is primarily characterized by its trading method, which occurs directly between two parties rather than through a centralized exchange. This means that these securities are not listed on any formal exchange, which differentiates them from securities that are traded on platforms like the NYSE or AMEX.

OTC securities can include a wide range of financial instruments such as stocks, bonds, and derivatives, and many smaller companies that do not meet the listing requirements of the major exchanges often utilize this market for trading. The OTC market is typically organized through a network of dealers who negotiate directly with one another.

In contrast, being listed on the Pacific Exchange or traded on well-known exchanges like NYSE or AMEX signifies that a security has met specific regulatory and reporting standards, which is not the case for OTC securities. Additionally, while private transactions do occur, they do not adequately define the nature of OTC trading as it encompasses broader interactions not limited to private sales between customers.