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Sales and Trading
Client Related Trading•Traders basically buy and sell securities to make profits, but client-related traders also have the additional objective of helping investing clients trade profitably•If a client can’t trade profitably with an investment bank, the client may eventually stop trading with that bank•As a result, sometimes traders decide to accept lower trading margins (and occasional losses) to accommodate client investment objectives and to facilitate greater trading volume
Client Related Trading (cont.)Traders divide their focus into two principal areas:supporting primary market transactions, which involves purchasing securities directly from a corporate or government issuer, reselling those securities at a profit, and standing ready to repurchase securities at any time participating in the secondary market by buying and selling previously issued securities at a profitIn order to provide this “market-making” service, a bank keeps an inventory of securities and makes “bid” and “offer” prices on these securities based on their risk and liquidity
Sales•Sales professionals cover individual and institutional investing clients•Their role is to bring to clients value-added investing or hedging ideas, as well as pricing from traders•Sales teams have the dual objective of helping both traders and investing clients create profits, but sometimes it is difficult to meet the objectives of both sides•In addition to providing pricing information, sales professionals provide investment ideas developed from research and analysis
Equity Sales and TradingEquity TradingSource: Morgan StanleyResearch AnalystResearch SalesSales TraderTrader/ExchangePortfolio Mgr/AnalystInstitutional TraderOperations1. Analyst proposes stock recommendation to sales force2. Salesperson adds value to the report and contacts relevant clients4. Institutional trader contacts the bank’s sales trader with the order5. Sales trader contacts the trader to execute the order6. Trade settlement and clearance3. PM informs instit’l trader of the stock &the quantity to buyClient
Prime Brokerage•The Prime Brokerage business is housed in the Trading Division and focuses principally on hedge funds and other clients who borrow securities and cash to support their investment business•In addition to lending, other services provided to investing clients include trade clearing, custody and settlement, real estate and computer assistance, performance measurement and performance reporting•These products and services bring in fees that can be several billion dollars per year at some banks.
Prime Brokerage (cont.)•Hedge funds sometimes borrow securities to enable them to sell the securities short (selling a borrowed security, with the obligation to return it after repurchasing it in the market in the future)•Depending on a hedge fund’s strategy, shorting is used to create downside security price protection (a hedge) or to