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BRIAN ZHOU (2609780)BIP 390 – Investment Banking Final1.Universal banks tend to have more stable business lines and so tend to also fair better during countercyclical downturns in an economy. Also, universal banks are able to take advantage of its funds from depositors to enhance their lending capabilities, making them far safer lenders than an investment bank. The size of the universal bank’s balance sheet is also perceived to be safer for potential M&A engagements. These factors all contribute to why universal banks are able to acquire a larger share of the investment banking business.2.The probability of a sell-side client of going through with the transaction is far higher than that of a buy-side client due to the fact that there is only one seller in a transaction whereas there are multiple potential buyers in an M&A transaction. Since fees are only paid after a transaction is completed, investment banks would obviously favor those transactions that have a higher chance of completion, i.e. sell-side M&A engagements. 3.Proprietary traders can take advantage of insider information on their investment banking clients to make trades, though this is prohibited. This problem arises from the fact that there is a Chinese-wall that exists between the public and private sides of an investment bank’s business, in which the proprietary traders are on the public side, and should be not given any insider information. Furthermore, there is the possibility of the Internalization of trade orders. in their trades4.The Asset Management business of an investment bank deals with the managing of funds and products for institutional clients and investors, whereas the Private Wealth Management business is an advisory business that helps high worth individuals/institutions put their investible assets to work. A conflict of interest might arise in which a Private Wealth advisor may encourage investing in funds or products developed by the same bank’s asset management business (since this will generate revenue for both divisions), even if the advisor knows that these products may not be the best investment vehicles for the client given their risk tolerance profile. 5.I) The Securities Act of 1933: Aimed to improve the transparency to investors about the securities being offered and to prevent fraudulent activating in the selling of securities. The act mandated that each issuer must: issue a registration statement, provide investors with an investor prospectus, and to conduct due diligence prior to the issuance. ii) The Glass-Steagall Act of 1933: This act separated the commercial banking and investment banking business within the same firm.iii) Securities Exchange Act of 1934: This act sought to regulate the secondary markets, mandating that all secondary offerings of securities to require some minimal reporting standards and filing rules. The SEC was also created as part of the act in order to enforce the legislation of the Securities act of 1933.
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U.S. Securities and Exchange Commission, investment banks, investment bank, BRIAN ZHOU