The purpose of this primer is to clarify some of the key characteristics of the over-the-......... (OTC) derivatives markets.

A clearer picture of these markets will help legislators and regulators write better legislation and rules for the ......... regulation of OTC derivatives markets.

Derivatives are financial contracts whose value is linked to the price of an underlying commodity, asset, rate, index or the occurrence or ......... of an event.

The term 'derivative' is used to refer to the set of financial instruments that includes futures, forwards, options and swaps, and the combination of a derivative with a security or loan is called a hybrid instrument or alternatively a ......... security.

Exchanges have traditionally been defined by 'pit' trading through open ........., but exchanges have recently adopted electronic trading platforms that automatically match the bids and offers from market participants to execute trades in a multilateral environment.

The trading of derivatives (traditionally futures and options) on exchanges is conducted through ......... and not dealers.

The OTC markets are organized ......... several different lines: the first is called a 'traditional' dealer market, the second is called an electronically brokered market and the third is called a proprietary trading platform market.

The OTC markets have traditionally been organized around one or more dealers who '......... a market' by maintaining bid and offer quotes to market participants.

The quotes and the negotiation of ......... prices are generally conducted over the telephone, although the process may be enhanced through the use of electronic bulletin boards by the dealers for posting their quotes.

The trading process of negotiating by phone, whether end-user-to-dealer or dealer-to-dealer, is known as ......... trading because only the two market participants directly observe the quotes or execution.