12- Securities and Investment Banks

bring new issues of debt and equity to the financial markets (primary market)

facilitates trading and market making of securities after they are issued (secondary market)

retail side: purchase, sell, and brokerage of exisiting securities
- retail services to investors
- securities trading (brokerage or market making)

commercial side: origination, underwriting, and placement of the securities in money and capital markets for corporate or government issuers
- corporate finance activities

assist in trading of securities in the secondary markets and act as brokers-dealers to assist in the trading of existing securities

help corporations and governments raise capital through debt and equity security issues in the primary market and advise on mergers and acquisitions or corporate restructuring

assisting in issuing new securities

requires little investment in assets or liabililty funding and is an equity generating activity that does not require the FI investment in the security they trade or issue for their customers

Diviersified financial services that serve both retail customers and corporate costumers
act as;
1) broker - dealers and assist in the trading of existing securities (retail)
2) underwriting - assisting the issue of new securities (corporate)
example: Goldman Sachs

- largest of the full service investment banks
- extensive domestic and international operations (worldwide)
- offer advice, underwriting, brokerage, trading, and asset management services

specialized in corporate finance or primary market activities
- highly active in trading securities or secondary market securities
- less active in underwriting activities

- maintain more limited branch networks concentrated in major cities
- operate with institutional client bases
- many mergers and acquisitions

community bank, retail banking, regional/super regional banks, federal funds market, money center bank, wholesale banking

regional securities firm, specialized discount brokers, specialized electronic trading securities firm, venture capital firms, research boutique

activities related to underwriting and distributing new issues of debt and equity securities (either public or private offerings)
- IPO is the first time debt and equity issuing (to the public)
- seasoned security offerings are new issues from firms whos debt/equity is already traded
- private placement is when a security is placed with a few large institutional investors (unregistered issue)
- only act as agent is best efforts underwriting
- act as principals in firm commitments

professionally managed pool of money used to finance start ups and high risk firms
- purchase equity stake in a start up
- not passive investors
- institutional venture capital firms find and fund promising new firms

established for acting as partners in the firm

subsidiaries of investment or commercial banks

subsidiary of non financial corporation specialized in making investments in high tech start ups

wealthy individuals who make equity investments

differs from VC in terms of funds sources and types of investments
- raise funds by selling securities
- acquire established existing firms rather than start ups

creation of secondary markets for an issue of securities
agency transactions = two way transactions made on behalf of customer
principal transactions = market makers seek to profit for their own accounts

provide liquidity in given NYSE security by assuming risk and displaying quotes in the exchange limit order book

taking an active net position in an underlying instrument or asset

purchases of large blocks of securities and expecting favorable price move (long term view of market trends)

buying an asset in one market and selling it immediately in another at a higher price to profit

buying securities to profit by forecasting information releases

the simultaneous buying and selling of at least 15 different stocks valued at $1 million or more

trading of securities on behalf of customers

offers customers direct acces via internet to trading floor

managing pools of assets such as closed and open end mutual funds
as agents: for other investors
as principals: for themselves and stockholders

money market mutual funds sold by investment banks that offer check-writing priviledges
- example of investment banks offering traditional commercial banking services

- assist in finding merger partners
- underwrite any new securities to be issued
- assess the value of target firms
- recomend merger terms
- assist firms in preventing a merger

securities firm recieves a commission for handling the trade but does not take an asset or liability position
- therefore assets on balance sheets of securities firms are cash not capital market positions