Securities Firms

Securities Firms and Investment

Banks
and
Presented By: Mujitaba Khursheed 15k-2707

Investment Banks Shaheer Haider 16k-2707

Shafique Ahmed 16k-2714

1
 Investment
• An asset or item with value that is purchased for
income or capital appreciation.
• Purchase of stocks, bonds, shares, real property,
annuities, collectibles etc, with the expectation of
obtaining income or capital gain, or both.
• Investment is the purchase of capital equipment.
Such as the purchase of machines, equipment,
factories that firms need to enable them to produce.
– Replacement investment - this is where companies buy new
machinery and equipment that simply replaces
– Net investment - this is where companies buy new machinery
or equipment.

2
 Investment Banks
• Financial intermediary that performs a variety of
services.

• This includes underwriting, acting as an intermediary

between an issuer of securities and the investing public.
•
• Facilitating mergers, acquisition and other corporate
reorganizations, and also acting as a broker for
institutional clients.

3
 Services Offered by Securities Firms
versus Investment Banks
• Investment Banks
– Service entities who wish to raise funds through sales of debt
and equity securities, including corporations or governments;
services include
• originating, underwriting, and placing securities in
money and capital markets
• The wholesale side of the business
• Securities Firms
– services involve assistance in the trading of securities in the
secondary markets (brokerage services or market making)
• Purchase, sale, and brokerage of securities
• The retail side of the business

4
 Services Offered by Securities Firms
versus Investment Banks
• In both cases, these firms act as financial intermediaries in
that they bring together economic units who need money
with those units who wish to invest money.

• 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

5
 Size, Structure, and Composition of the
Industry
• Size of the industry is measured by the equity capital of
the firms in the industry.
• Three major types of firms
– national full-line investment banks that service retail and
corporate customers (e.g.Next Page,)
– national full-line firms that specialize in corporate finance
(e.g., Next Page)
– the remainder of the industry and includes five subclasses
• specialized investment bank subsidiaries of commercial banks
– These subsidiaries continue to make inroads into the markets held by
traditional investment banks as the restrictions imposed by the Banking
Companies Act 1962, which separates commercial banking from
investment banking, are slowly removed.

6
 Investment Banks
• Atlas Investment Bank Limited
Asset Investment Bank Limited
Al-Towfeeq Investment Bank Limited
Cresent Investment Bank Limited
Escorts Investment Bank Limited
Fidelity Investment Bank Limited
First International Investment Bank Limited, Karachi
Franklin Investment Bank Limited
Islamic Investment Bank, Peshawar
Jehangir Investment Bank Limited
Orix Investment Bank (Pak) Limited
Prudential Investment Bank Limited
Security Investment Bank Limited
Trust Investment Bank Limited

7
Size, Structure, and Composition of the
Industry

• Specialized discount brokers

– providing trading services such as the purchase and sale
of stocks, without offering any investment tips, advice or
financial counseling. (e.g. Charles Schwab)
• Regional securities firms
– that offer most of the services mentioned above but
restrict their activities to specific geographical locations.
• Specialized electronic trading securities firms

8
 Securities Firms & Investment Banks
Activity Areas
• Investing
• Investment banking
• Market Making
• Trading
• Cash Management
• Mergers & Acquisitions
• Other Service Functions

9
 Investing

• 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

10
 Investment Banking
• Refers to activities related to underwriting and distributing new
issues of debt and equity securities
• which involves helping customers raise funds in the Capital
Markets and advising on mergers and acquisitions.
• The Investment Banking Division is generally divided into
industry coverage and product coverage groups.
– Industry coverage groups focus on a specific industry such as Healthcare or
Technology, and maintain relationships with corporations within the industry
to bring in business for a bank.
– Product coverage groups focus on financial products, such as Mergers &
Acquisitions, Financial Sponsors, and Leveraged Finance.
• 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

11
 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 customers
– 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

12
 Sales & Trading

• traders will buy and sell financial products with

the goal of making an incremental amount of
money on each trade.
• Sales is the term for the investment banks sales
force, whose primary job is to call on
institutional and high-net-worth investors to
suggest trading ideas and take orders.
• Sales desks then communicate their clients'
orders to the appropriate trading desks, who can
price and execute trades, or structure new
products that fit a specific need.

13
 Trading
• 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 – such as mergers or Federal reserve’s
interest rate announcement
– Program Trading - simultaneous buying and selling using a
computer program to initiate such trades
– Stock Brokerage - trading securities on behalf of individuals
– Electronic Brokerage - offered by major brokers, direct
access via internet to trading floor

14
 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

15
 Mergers and Acquisitions

• Frequently provide advice on, and assistance

in, mergers and acquisitions
– assist in finding merger partners
– underwrite any new securities to be issued by the
merged firms
– asses the value of target firms
– recommend terms of the merger agreement
– assist target firms in preventing a merger

16
 Balance Sheet Assets

Assets

Cash $ 50,982.3 1.51%

Receivable from other broker-dealers 1,204,448.8 35.72
Receivable from customers 177,945.9 5.28
Receivables from noncustomers 15,757.7 0.47
Long positions in securities/commodities 838,254.9 24.86
Securities and investments not marketed 10,550.0 0.31
Securities purchased w/resell agreement 856,043.4 25.39
Exchange membership 1,034.2 0.03
Other assets 216,,624.5 6.43
Total assets $3,371,641.7 100.00

17
 Balance Sheet Liabilities
Liabilities
Bank loans payable $ 76,191.9 2.26%
Payables to other broker-dealers 629,858.6 18.68
Payables to noncustomers 59,910.5 1.78
Payables to customers 391,543.1 11.61
Short positions in securities/commodities 409,342.3 12.14
Securities sold w/repurchase agreements 1,282,870.8 38.05
Other nonsubordinated liabilities 302,757.3 9.16
Subordinated liabilities 68,710.4 2.04
Total liabilities $3,227,184.9 95.72

Capital
Equity capital 144,456.7 4.28
Number of firms 7,029
18