Chapter-23-notes - Finance 3700 Financial Markets and...

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Finance 3700 Financial Markets and Institutions Fall 2007 Lecture Notes CHAPTER 23 Securities firms, Investment banks, Venture capital © Sven Thommesen
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2 This chapter deals with securities firms and investment banks , both of which facilitate the trade in securities (debt and equity, or stocks and bonds) for individual investors, and mutual funds , which aggregate investor funds and … SECURITIES FIRMS The chief role of securities firms (such as stock brokers and bond dealers) is to facilitate trade of securities in the secondary markets. As brokers : the firm act as agents for the seller or the buyer; they earn a commission only if a successful trade takes place. As dealers : the firm acts as a principal: they purchase securities for their own account (for inventory) and sell when a buyer appears. They make their money (or lose it) on the buy-sell spread . As market makers : at the NYSE certain brokers/dealers are designated specialists ” in a given stock; they are given a monopoly on trading that stock on the floor – but they are also given an “ affirmative obligation ” to be willing to buy even in a falling market. Full service brokers : offer research and investment advice in addition to their brokerage function. Discount brokers : no research, no advice – and lower fees. E-trade firms : allow customers to trade directly via the internet, w/o help from a broker Brokers may operate nationwide, or be of a more regional scope.
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3 INVESTMENT BANKS The chief function of an investment bank is to facilitate the sale of new issues of securities into the primary market , through underwriting . Some classes of securities offered for sale through investment banks in 2001, in order of yearly volume: Straight debt ($1,208.9 billion) Convertible debt ($ 162.6 billion) Investment grade debt ($ 638.5 billion) Mortgage debt ($ 586.0 billion) Collateralized securities ($ 349.0 billion) Municipal new issues
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Chapter-23-notes - Finance 3700 Financial Markets and...

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