Beat Maker Release Agreement

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Beat Maker Release Agreement Powered By Docstoc
					   Services Offered by Securities Firms
         versus Investment Banks
• Investment Banks
   – raise the debt and equity securities for corporations or
     governments including the origination, underwriting, and
     placement of securities in money and capital markets
• Securities Firms
   – services involve assistance in the trading of securities in the
     secondary markets (brokerage services or market making)
• The largest companies in the industry perform
  multiple services (e.g., underwriting and brokerage)
  and are generally called investment banks
   – advise corporations on mergers and acquisitions as well as
     advising on the restructuring of existing corporations
  Size, Structure, and Composition of the
• Three major types of firms
  – national full-line investment banks that service retail and
    corporate customers (e.g., Merrill Lynch)
  – national full-line firms that specialize more in corporate
    finance (e.g., Goldman Sachs)
  – the remainder of the industry and includes four classes
     •   specialized investment bank subsidiaries of commercial banks
     •   specialized discount brokers
     •   regional securities firms
     •   specialized electronic trading securities firms
  Securities Firm and Investment Bank
              Activity Areas
• Securities firms and investment banks engage in as
  many as seven key activity areas
  –   Investing
  –   Investment Banking
  –   Market Making
  –   Trading
  –   Cash Management
  –   Mergers and Acquisitions
  –   Other Service Functions

• Involves managing pools of assets such as
  mutual funds
• Compete with commercial banks, life insurance
  companies, and pension funds
• Manage funds either as agents for other investors
  or as principals
• Objective is to select asset portfolios to beat
  some return-risk performance benchmark such
  as the S&P 500
                 Investment Banking

• Refers to activities related to underwriting and
  distributing new issues of debt and equity securities
• Industry is dominated by a small number of
  underwriting firms
• Securities underwriting can be undertaken through
  either public or private offerings
   – Private placement - securities issue placed with one of a few
     large institutional investors
   – Public placement - may be underwritten on a best efforts or
     firm commitment basis and offered to the public
                   Market Making

• Involves the creation of a secondary market in an
  asset by a securities firm or investment bank
• Either agency or principal transactions
  – Agency transactions - two-way transactions on behalf of
  – Principal transactions - the market maker seeks to profit on
    the price movements of securities and takes long or short
    inventory positions for its own account
• Closely related to market-making activities
• Six types of trading
  – Position trading - purchases of large blocks on expectation of
    favorable price move
  – Pure Arbitrage - buying an asset in one market and selling it
    immediately in another market at a higher price
  – Risk Arbitrage - buying securities in anticipation of some
    information release
  – Program Trading - simultaneous buying and selling using a
    computer program to initiate such trades
  – Stock Brokerage - trading of securities on behalf of
  – Electronic Brokerage - offered by major brokers, direct access
    via internet to trading floor
              Cash Management

• Securities firms and investment banks offer
  bank deposit-like cash management accounts
  (CMAs) to individual investors
  – money market mutual fund sold by investment
    banks that offer check-writing privileges
            Mergers and Acquisitions

• Frequently provide advice on, and assistance
  in, mergers and acquisitions
  –   assist in finding merger partners
  –   underwrite any new securities
  –   asses the value of target firms
  –   recommend terms of the merger agreement
  –   assist target firms in preventing a merger
        Other Service Functions

• Custody and escrow services
• Clearance and settlement services
• Research and advisory services
                Balance Sheet Assets


Cash                                       $ 27,780.4    1.26%
Receivable from other broker-dealers        766,399.7   34.72
Receivable from customers                   135,723.3     6.15
Receivables from noncustomers                19,296.1     0.87
Long positions in securities/commodities    514,949.9    23.33
Securities and investments not marketed       8,833.8      0.40
Securities purchased w/resell agreement     647,360.8    29.33
Exchange membership                             933.0     0.04
Other assets                                 85,964.0     3.90
Total assets                             $2,111,191.2   100.00
              Balance Sheet Liabilities
Bank loans payable                         $ 47,363.2      2.15%
Payables to other broker-dealers             361,774.7    16.39
Payables to noncustomers                      39,604.9     1.79
Payables to customers                        239,797.3    10.86
Short positions in securities/commodities 263,219.8       11.93
Securities sold w/repurchase agreements 933,214.3         42.28
Other nonsubordinated liabilities           170,715.5      7.73
Subordinated liabilities                      55,501.5     2.52
Total liabilities                        $2,111,191.2    95.65

Equity capital                               96,049.8     4.35
Number of firms                               7,785
• The primary regulator of the securities industry is
  the Securities and Exchange Commission (SEC)
  established in 1934
• SEC sets rules governing securities firms’
  underwriting and trading activities
• The Securities Investor Protection Corporation
  (SIPC) protects investors against losses of up to
  $500,000 on securities firm failures

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