“A multilateral system which is not a regulated market (RM) or multilateral trading facility (MTF) and in which multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract.”

The parameters of OTF’s were established by the European Securities & Markets Authority (ESMA) within MiFID II. The goal in this was to enable ESMA to regulate multilateral trading in non-equity instruments, currently taking place outside of RM’s and MTF. The facility of the OTF is to act as a new space for monitoring these actions.

The OTF is notably similar to the Dodd Frank Swap Execution Facility (SEF) but with greater flexibility of execution and capable of facilitating more types of trades (multiple forms of derivatives are covered, in addition to swaps).

MiFID II Text

Unlike RMs and MTFs, operators of OTFs will have discretion as to how to execute orders, subject to pre-transparency and best execution obligations.

The strongest impact will be on dealer banks but all financial institutions that participate in trading will also be affected.

http://www.marketswiki.com/wiki/Organized_Trading_Facility