A bilateral derivatives transaction, such as a swap, that is not traded on a regulated exchange or cleared through a clearinghouse. OTC derivatives are customized, bespoke, privately negotiated contracts, which, as a result, can be less liquid than standardized exchange-traded derivatives such as futures and options.

While OTC derivatives have historically included most credit default swaps (CDS) and interest rate swaps, many of these transactions must now be cleared and exchange traded under Title VII of the Dodd-Frank Act and related rulemaking (see Legal Updates, Final Clearing Determination for CDS and Interest Rate Swaps Issued by CFTC and Mandatory Exchange Trading of Interest Rate Swaps to Begin on February 15, 2014), as well as similar rules in other jurisdiction ,which has reduced the size of the OTC derivatives markets globally.