OTC derivative markets operate at a lower degree of regulation and oversight than do exchange-traded derivative markets. In fact, until around 2010, it could largely be said that the OTC market was essentially unregulated. OTC transactions could be executed with only the minimal oversight provided through laws that regulated the parties themselves, not the specific instruments. Following the financial crisis that began in 2007, new regulations began to blur the distinction between OTC and exchange-listed markets. In both the United States (the Wall Street Reform and Consumer Protection Act of 2010, commonly known as the Dodd–Frank Act) and Europe (the Regulation of the European Parliament and of the Council on OTC Derivatives, Central Counterparties, and Trade Repositories), regulations are changing the characteristics of OTC markets.

When the full implementation of these new laws takes place, a number of OTC transactions will have to be cleared through central clearing agencies, information on most OTC transactions will need to be reported to regulators, and entities that operate in the OTC market will be more closely monitored. There are, however, quite a few exemptions that cover a significant percentage of derivative transactions. Clearly, the degree of OTC regulation, although increasing in recent years, is still lighter than that of exchange-listed market regulation. Many transactions in OTC markets will retain a degree of privacy with lower transparency, and most importantly, the OTC markets will remain considerably more flexible than the exchange-listed markets.