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  • 7/29/2019 Investment Banking -

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    5/29/09 Investment banking - Wikipedia, the free encyclopedia

    en.wikipedia.org/wiki/Investment_banking

    Investment bankingFrom Wikipedia, the free encyclopedia

    An investment bankis a financial institution that assists individuals, corporations, and governments in raising

    capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also

    assist companies involved in mergers and acquisitions and provide ancillary services such as market making, tradin

    of derivatives and equity securities, and FICC services (fixed income instruments, currencies, and commodities).

    Unlike commercial banks and retail banks, investment banks do not take deposits. From 1933 (GlassSteagall

    Act) until 1999 (GrammLeachBliley Act), the United States maintained a separation between investment bankin

    and commercial banks. Other industrialized countries, including G8 countries, have historically not maintained such

    a separation. As part of the Dodd-Frank Act 2010, Volcker Rule asserts full institutional separation of investment

    banking services from commercial banking.

    There are two main lines of business in investment banking. Trading securities for cash or for other securities (i.e.

    facilitating transactions, market-making), or the promotion of securities (i.e. underwriting, research, etc.) is the "sel

    side", while buy side is a term used to refer to advising institutions concerned with buying investment services.

    Private equity funds, mutual funds, life insurance companies, unit trusts, and hedge funds are the most commontypes of buy side entities.

    An investment bank can also be split into private and public functions with an information barrier which separates

    the two to prevent information from crossing. The private areas of the bank deal with private insider information th

    may not be publicly disclosed, while the public areas such as stockanalysis deal with public information.

    An advisor who provides investment banking services in the United States must be a licensed broker-dealer and

    subject to Securities & Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA)

    regulation.[1]

    Contents

    1 Organizational structure

    2 Core investment banking activities

    2.1 Front office

    2.1.1 Investment banking

    2.1.2 Sales and trading

    2.1.3 Research

    2.2 Front office/Middle office

    2.2.1 Risk Management

    2.3 Middle office

    2.4 Back office

    2.4.1 Operations

    2.4.2 Technology

    2.5 Other businesses

    3 Industry profile

    3.1 Global size and revenue mix

    http://en.wikipedia.org/wiki/Investment_banking#Global_size_and_revenue_mixhttp://en.wikipedia.org/wiki/Investment_banking#Technologyhttp://en.wikipedia.org/wiki/Investment_banking#Operationshttp://en.wikipedia.org/wiki/Investment_banking#Back_officehttp://en.wikipedia.org/wiki/Investment_banking#Middle_officehttp://en.wikipedia.org/wiki/Investment_banking#Front_office.2FMiddle_officehttp://en.wikipedia.org/wiki/Investment_banking#Sales_and_tradinghttp://en.wikipedia.org/wiki/Investment_banking#Investment_bankinghttp://en.wikipedia.org/wiki/Investment_banking#Front_officehttp://en.wikipedia.org/wiki/Investment_banking#Core_investment_banking_activitieshttp://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Chinese_wallhttp://en.wikipedia.org/wiki/Sell_sidehttp://en.wikipedia.org/wiki/Sell_sidehttp://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Acthttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Equity_securitieshttp://en.wikipedia.org/wiki/Mergers_and_acquisitionshttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Investment_banking#Global_size_and_revenue_mixhttp://en.wikipedia.org/wiki/Investment_banking#Industry_profilehttp://en.wikipedia.org/wiki/Investment_banking#Other_businesseshttp://en.wikipedia.org/wiki/Investment_banking#Technologyhttp://en.wikipedia.org/wiki/Investment_banking#Operationshttp://en.wikipedia.org/wiki/Investment_banking#Back_officehttp://en.wikipedia.org/wiki/Investment_banking#Middle_officehttp://en.wikipedia.org/wiki/Investment_banking#Risk_Managementhttp://en.wikipedia.org/wiki/Investment_banking#Front_office.2FMiddle_officehttp://en.wikipedia.org/wiki/Investment_banking#Researchhttp://en.wikipedia.org/wiki/Investment_banking#Sales_and_tradinghttp://en.wikipedia.org/wiki/Investment_banking#Investment_bankinghttp://en.wikipedia.org/wiki/Investment_banking#Front_officehttp://en.wikipedia.org/wiki/Investment_banking#Core_investment_banking_activitieshttp://en.wikipedia.org/wiki/Investment_banking#Organizational_structurehttp://en.wikipedia.org/wiki/Investment_banking#cite_note-1http://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authorityhttp://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commissionhttp://en.wikipedia.org/wiki/Broker-dealerhttp://en.wikipedia.org/wiki/Insider_informationhttp://en.wikipedia.org/wiki/Chinese_wallhttp://en.wikipedia.org/wiki/Buy_sidehttp://en.wikipedia.org/wiki/Sell_sidehttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Volcker_Rulehttp://en.wikipedia.org/wiki/G8http://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Acthttp://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Acthttp://en.wikipedia.org/wiki/Retail_bankhttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Fixed_incomehttp://en.wikipedia.org/wiki/Equity_securitieshttp://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/wiki/Mergers_and_acquisitionshttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Underwriting
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    5/29/09 Investment banking - Wikipedia, the free encyclopedia

    en.wikipedia.org/wiki/Investment_banking 2

    3.2 Top 10 banks

    4 Financial crisis of 2008

    5 Criticisms

    5.1 Conflicts of interest

    5.2 Compensation

    6 See also

    7 External links

    8 Further reading9 References

    Organizational structure

    Investment banking is split into front office, middle office, and back office activities. While large service investment

    banks offer all lines of business, both sell side and buy side, smaller sell-side investment firms such as boutique

    investment banks and small broker-dealers focus on investment banking and sales/trading/research, respectively.

    Investment banks offer services to both corporations issuing securities and investors buying securities. For

    corporations, investment bankers offer information on when and how to place their securities on the open market,

    an activity very important to an investment bank's reputation. Therefore, investment bankers play a very important

    role in issuing new security offerings.[2]

    Core investment banking activities

    Investment banking has changed over the years, beginning as a partnership form focused on underwriting security

    issuance (initial public offerings and secondary offerings), brokerage, and mergers and acquisitions and evolving in

    a "full-service" range including sell-side research, proprietary trading, and investment management. In the modern21st century, the SEC filings of the major independent investment banks such as Goldman Sachs and Morgan

    Stanley reflect three product segments: (1) investment banking (fees for M&A advisory services and securities

    underwriting); (2) asset management (fees for sponsored investment funds), and (3) trading and principal

    investments (broker-dealer activities including proprietary trading ("dealer" transactions) and brokerage trading

    ("broker" transactions)).[3]

    In the United States, commercial banking and investment banking were separated by the GlassSteagall Act, whic

    was repealed in 1999. The repeal led to more "universal banks" offering an even greater range of services. Many

    large commercial banks have therefore developed investment banking divisions through acquisitions and hiring.

    Notable large banks with significant investment banks include JPMorgan Chase, Bank of America, Credit Suisse,Deutsche Bank, Barclays, and Wells Fargo. After the financial crisis of 20072008 and the subsequent passage o

    the DoddFrank Wall Street Reform and Consumer Protection Act, regulations have limited certain investment

    banking operations, notably with the Volcker Rule's restrictions on proprietary trading.[2]

    The traditional service of underwriting security issues has declined as a percentage of revenue. As far back as

    1960, 70% of Merrill Lynch's revenue was derived from transaction commissions while "traditional investment

    banking" services accounted for 5%. However, Merrill Lynch was a relatively "retail-focused" firm with a large

    brokerage network.[2]

    http://en.wikipedia.org/wiki/Investment_banking#cite_note-Morrison-2http://en.wikipedia.org/wiki/Merrill_Lynchhttp://en.wikipedia.org/wiki/Investment_banking#cite_note-Morrison-2http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_Reform_and_Consumer_Protection_Acthttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008http://en.wikipedia.org/wiki/Wells_Fargohttp://en.wikipedia.org/wiki/Barclayshttp://en.wikipedia.org/wiki/Deutsche_Bankhttp://en.wikipedia.org/wiki/Credit_Suissehttp://en.wikipedia.org/wiki/Bank_of_Americahttp://en.wikipedia.org/wiki/JPMorgan_Chasehttp://en.wikipedia.org/wiki/Universal_bankhttp://en.wikipedia.org/wiki/Glass%E2%80%93Stea