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Financial market participants

Investors Image File history File links Broom_icon. ... There are two basic financial market participant catagories, Investor vs. ... Image File history File linksMetadata Size of this preview: 800 × 600 pixelsFull resolution (2816 × 2112 pixel, file size: 2. ... An investor is any party that makes an investment. ...

Speculators speculation Speculation is the buying, holding, and selling of stocks, commodities, futures, currencies, collectibles, real estate, or any valuable thing to profit from fluctuations in its price as opposed to buying it for use or for income - dividends, rent etc. ... Speculation involves the buying, holding, and selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives or any valuable financial instrument to profit from fluctuations in its price as opposed to buying it for use or for income via methods such as dividends or interest. ...

Institutional investors Insurance companies Investment banks Hedge funds Mutual funds Pension funds Private equity funds Venture capital funds Banks Credit Unions Trusts Prime Brokers An institutional investor is an investor who is an institution like a bank, insurance fund, retirement fund, or mutual fund manager. ... Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. ... A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. ... This article deals with U.S. mutual funds. ... A pension (also known as superannuation) is a retirement plan intended to provide a person with a secure income for life. ... A private equity fund is a collaboration of funds that directs a private companys or individuals equity, either in the stock market or in real estate. ... Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ... For other uses, see Bank (disambiguation). ... A credit union is a cooperative financial institution that is owned and controlled by its members. ... A trust company is normally owned by one of three types of structures; an independent partnership, a bank, or a law firm, each of which specialize in being a trustee of various kinds of trusts, and managing estates. ... Prime Brokerage is a service sold by investment banks to hedge funds. ...

Finance series Financial market Participants Corporate finance Personal finance Public finance Banks and Banking Financial regulation Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... This article does not cite any references or sources. ... There are two basic financial market participant catagories, Investor vs. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... For other uses, see Bank (disambiguation). ... Financial supervision is government supervision of financial institutions by regulators. ...

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Investment banks help companies and governments (or their agencies) raise money by issuing and selling securities in the capital markets (both equity and debt). Securities are tradeable interests representing financial value. ... The capital market is the market for securities, where companies and the government can raise long-term funds. ... At the start of a business, owners put some funding into the business to finance assets. ... For alternative meanings, see bond (a disambiguation page). ...

Almost all investment banks also offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities. This page deals with the combination of two companies into one. ... The phrase mergers and acquisitions (M&A) refers to the aspect of business strategy and management dealing with the merging and/or acquiring of different companies. ... Divestment (divestiture) is a term in finance and economics. ... Derivatives traders at the Chicago Board of Trade. ... This article does not cite any references or sources. ... The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... This article does not cite any references or sources. ... A stock, also referred to as a share, is commonly a share of ownership in a corporation. ...

Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is referred to as the "sell side". Underwriting refers to the process that a large financial service provider takes a dump on your face and then uses it to assess the process of providing access to their product like providing equity capital, insurance or credit to a customer. ... Sell side is an expression used in financial markets. ...

The "buy side" constitutes the pension funds, mutual funds, hedge funds, and the investing public who consume the products and services of the sell-side in order to maximize their return on investment. Many firms have both buy and sell side components. Buy side is a financial term used in trading. ... A pension (also known as superannuation) is a retirement plan intended to provide a person with a secure income for life. ... This article deals with U.S. mutual funds. ... A hedge fund is a private investment fund charging a performance fee and typically open to only a limited range of qualified investors. ...

Organizational structure of an investment bank

The main activities and units

The primary function of an investment bank is buying and selling products both on behalf of the bank's clients and also for the bank itself. Banks undertake risk through proprietary trading, done by a special set of traders who do not interface with clients and through Principal Risk, risk undertaken by a trader after he or she buys or sells a product to a client and does not hedge his or her total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. This article or section does not cite its references or sources. ...

An investment bank is split into the so-called Front Office, Middle Office and Back Office. Front office is an integrated CRM software. ... The middle office is the group of employees in a financial services company that manages risk, calculates profits and losses, and (generally) is in charge of information technology. ... Office types Class A office space Back office Front office Mobile office Paperless office Serviced office Small office/home office Virtual office A back office is a part of most corporations where tasks dedicated to running the company itself take place. ...

Front Office Front office is an integrated CRM software. ...

• Investment Banking is the traditional aspect of investment banks which involves helping customers raise funds in the Capital Markets and advising on mergers and acquisitions. Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the Investment Banking Division include Mergers & Acquisitions (M&A) and Corporate Finance.
• Investment management is the professional management of various securities (shares, bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds) .

• Sales and Trading is often the most profitable area of an investment bank^{[citation needed]}, responsible for the majority of revenue of most investment banks^{[citation needed]}. In the process of market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor basis) and take orders. Sales desks then communicate their clients' orders to the appropriate trading desks, who can price and execute trades, or structure new products that fit a specific need.
• Research is the division which reviews companies and writes reports about their prospects, often with "buy" or "sell" ratings. While the research division generates no revenue, its resources are used to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. In recent years the relationship between investment banking and research has become highly regulated, reducing its importance to the investment bank.
• Structuring has been a relatively recent division as derivatives have come into play, with highly technical and numerate employees working on creating complex structured products which typically offer much greater margins and returns than underlying cash securities.

Middle Office Funding or financing is to provide capital (funds), which means money for a project, a person, a business or any other private or public institution. ... The capital market is the market for long-term loans and equity capital. ... This page deals with the combination of two companies into one. ... The phrase mergers and acquisitions (M&A) refers to the aspect of business strategy and management dealing with the merging and/or acquiring of different companies. ... The phrase mergers and acquisitions (M&A) refers to the aspect of business strategy and management dealing with the merging and/or acquiring of different companies. ... Domestic credit to private sector in 2005 Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Investment management is the professional management of various securities (shares, bonds etc) assets (e. ... See stock (disambiguation) for other meanings of the term stock A stock, also referred to as a share, is commonly a share of ownership in a corporation. ... Look up bond in Wiktionary, the free dictionary. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... Wikipedia does not yet have an article with this exact name. ... A corporation (usually known in the United Kingdom and Ireland as a company) is a legal entity (distinct from a natural person) that often has similar rights in law to those of a Civil law systems may refer to corporations as moral persons; they may also go by the name... The central idea of a mutual fund is to enable investors to pool their money and place it under professional investment management. ... A market maker is a person or a firm which quotes a buy and sell price in a financial instrument or commodity hoping to make a profit on the turn or the bid/offer spread. ... An institution is a group, tenet, maxim, or organization created by a group of humans. ... Investment is a term with several closely related meanings in finance and economics. ... Caveat emptor is Latin for Let the buyer beware. Generally Caveat Emptor was the property law doctrine that controlled the sale of real property after the date of closing. Under the doctrine of Caveat Emptor, the buyer could not recover from the seller for defects on the property that rendered... A sell-side analyst works for a brokerage firm or an investment bank. ... Derivatives traders at the Chicago Board of Trade. ... The middle office is the group of employees in a financial services company that manages risk, calculates profits and losses, and (generally) is in charge of information technology. ...

• Risk Management involves analyzing the market and credit risk that traders are taking onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent 'bad' trades having a detrimental effect to a desk overall. Another key Middle Office role is to ensure that the above mentioned economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized booking models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as "operational risk" and the assurance Middle Offices provide now includes measures to address this risk. When this assurance is not in place, market and credit risk analysis can be unreliable and open to deliberate manipulation.

Back Office For non-business risks, see risk or the disambiguation page risk analysis. ... Market risk is the risk that the value of an investment will decrease due to moves in market factors. ... Credit risk is the risk of loss due to a debtors non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). ... According to §644 of International Convergence of Capital Measurement and Capital Standards, known as Basel II, operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. ... Office types Class A office space Back office Front office Mobile office Paperless office Serviced office Small office/home office Virtual office A back office is a part of most corporations where tasks dedicated to running the company itself take place. ...

• Operations involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. While some believe it provides the greatest job security with the bleakest career prospects of the divisions within an investment bank, many have outsourced operations. It is however a critical part of the bank that involves managing the financial information of the bank and ensures efficient capital markets through the financial reporting function. In recent years due to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 investment banks. A finance degree has proved significant in understanding the depth of the deals and transactions that occur across all the divisions of the bank. [1].

• Technology: every major investment bank has considerable amounts of in-house software, created by the Technology team, who are also responsible for Computer and Telecommunications-based support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading platforms. These platforms can serve as auto-executed hedging to complex model driven algorithms.

Size of industry

Global investment banking revenue increased for the third year running in 2005, to $52.8bn. This was up 14% on the previous year, but 7% below the 2000 peak. The recovery in the global economy and capital markets resulted in an increase in M&A activity, which has been the primary source of investment banking revenue in recent years. Credit spreads are tightening and intense competition within the field has ensured that the banking industry is on its toes. The phrase mergers and acquisitions (M&A) refers to the aspect of business strategy and management dealing with the merging and/or acquiring of different companies. ... In finance, a credit spread is the difference in yield between different securities due to different credit quality. ...

The US was the primary source of investment banking income in 2005, with 51% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 31% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 18%. Between 2002 and 2005, fee income from Asia increased by 98%. This compares with a 55% increase in Europe, and a 46% increase in the US, during this time period. United States may refer to: Places: United States of America SS United States, the fastest ocean liner ever built. ...

Recent evolution of the business

New products

Investment bank is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized. New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets. However, since these can usually not be patented or copyrighted, they are very often copied quickly by competing banks, pushing down trading margins. ^{[citation needed]} This article does not cite any references or sources. ... For other uses, see Patent (disambiguation). ... Not to be confused with copywriting. ...

For example, trading bonds and equities for customers is now a commodity business ^{[citation needed]}, but structuring and trading derivatives is highly profitable ^{[citation needed]}. Each OTC contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as general equity securities. Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprieter, partners, or shareholders). ... Derivatives traders at the Chicago Board of Trade. ... The abbreviation OTC may refer to: an Office of Technology Commercialization, the intellectual property managing office of many American research universities (sometimes referred to as an Office of Technology Transfer or OTT). ... The Chicago Board Options Exchange (CBOE) is one of the worlds largest options exchanges with an annual trade of over 15 billion shares of stock options in some 1200 companies. ...

In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading ^{[citation needed]}, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make better trades and pass on better guidance to clients).

Vertical Integration

In the US, the Dan the Man, initially created in the wake of the Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities which led to segregation of Investment Banks from Commercial Banks. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act in 1999. The 1929 stock market crash devastated economies worldwide The Wall Street Crash refers to the stock market crash that occurred on October 29, 1929, when share prices on the New York Stock Exchange collapsed, leading eventually to the Great Depression. ... A commercial bank is a type of financial intermediary and a type of bank. ... The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub. ... This article is about the year. ...

Another development in recent years has been the vertical integration of debt securitization ^{[citation needed]}. Previously, investment banks had assisted lenders in raising more lending funds and having the ability to offer longer term fixed interest rates by converting the lenders' outstanding loans into bonds. For example, a mortgage lender would make a house loan, and then use the investment bank to sell bonds to fund the debt, the money from the sale of the bonds can be used to make new loans, while the lender accepts loan payments and passes the payments on to the bondholders. This process is called securitization. However, lenders have begun to securitize loans themselves ^{[citation needed]}, especially in the areas of mortgage loans. Because of this, and because of the fear that this will continue, many Investment Banks have focused on becoming lenders themselves ^{[citation needed]}, making loans with the goal of securitizing them. In fact, in the areas of commercial mortgages, many Investment Banks lend at loss leader interest rates ^{[citation needed]} in order to make money securitizing the loans, causing them to be a very popular financing option for commercial property investors and developers ^{[citation needed]}. It has been suggested that Vertical expansion be merged into this article or section. ...

Possible conflicts of interest

Potential conflicts of interest may arise between different parts of a bank, creating the potential for financial movements that could be market manipulation. Authorities that regulate investment banking (the FSA in the United Kingdom and the SEC in the United States) require that banks impose a Chinese wall which prohibits communication between investment banking on one side and research and equities on the other. The Financial Services Authority (FSA) is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. ... SEC redirects here. ... In business, a Chinese wall is a means used to make sure that different parts of the firm are kept separate so that information does not circulate freely and to prevent conflicts of interest. ...

Some of the conflicts of interest that can be found in investment banking are listed here:

• Historically, equity research firms were founded and owned by investment banks. One common practice is for equity analysts to initiate coverage on a company in order to develop relationships that lead to highly profitable investment banking business. In the 1990s, many equity researchers allegedly traded positive stock ratings directly for investment banking business. On the flip side of the coin: companies would threaten to divert investment banking business to competitors unless their stock was rated favorably. Politicians acted to pass laws to criminalize such acts. Increased pressure from regulators and a series of lawsuits, settlements, and prosecutions curbed this business to a large extent following the 2001 stock market tumble.^{[citation needed]}

• Many investment banks also own retail brokerages. Also during the 1990s, some retail brokerages sold consumers securities which did not meet their stated risk profile. This behavior may have led to investment banking business or even sales of surplus shares during a public offering to keep public perception of the stock favorable.

• Since investment banks engage heavily in trading for their own account, there is always the temptation or possibility that they might engage in some form of front running. Front running is the illegal practice of a stock broker executing orders on a security for their own account (and thus affecting prices) before filling orders previously submitted by their customers.

Front Running is the unethical practice of a broker trading an equity based on information from the analyst department before his or her clients have been given the information. ...

Investment banks

Main article: List of Investment Banks

The following is a list of investment banks // Large financial-services conglomerates combine commercial banking and investment banking, and sometimes insurance. ...

External links

• New York Times Deal Book - Financial News