Weqwe

Ke Wang

Chapter 4

3.

The firms in the security industry vary by size and specialization. The types include

(1) National full-line firms such as BOA (via acquisition of Merrill Lynch), Morgan Stanley (which is now a BHC too).

(2) National full-line firms specializing in corporate finance are second in size (not focusing on small-retail activities). e.g., Goldman, which focuses on wealth mgt, Salomon/Smith Barney (SSB, the IB subsidiary of Citigroup).

(3) Specialized regional securities firms. Concentrate on serving customers in particular regions.

(4) Specialized Discount brokers: effect trades for customers without offering advice, e.g., Charles Schwab.

(5) Specialized electronic trading securities firms: Customers trade on a computer through internet (without brokers). E.g., E*Trade.

4.

There are seven key activity areas for securities firms

(1) Investment Management: Securities firms manage the assets of mutual funds and pension funds for a fee. E.g., BOA-Merrill Lynch manages a family of MFs

(2) Investment Banking: Activities related to: Design, underwriting and distribution of new issues of corporate debt and equity, and gov’t debt, new issues can be IPOs or from seasoned firms: IPOs (initial public off.): New issues by firms issuing for the first time. New issues by seasoned firms (firms with outstanding debt/equity) these can be public offerings or private placements

(3) Market making: Function: Creating a secondary market in an asset. E.g., more than 500 of the NASDAQ member firms act as market makers for govt or corporate sec. Market makers may be banks or IBs. Market making involves Principal transactions: taking short/long inventory positions on its own account. The purpose is: To stabilize that particular market. To benefit from price movements (revenue).

(4) Trading: Trading activities can be conducted on behalf of a customer or the firm. The activities usually involve position trading, pure arbitrage, risk arbitrage, and program...