CAPITAL MARKETS
Asset-Backed Finance
The primary role of asset-backed financing is to facilitate the securitization of the client's receivables. Typical clients include thrifts institutions, mortgage bankers, federal agencies, home builders, commercial banks, insurance companies and industrial companies. The receivables which are securitized are usually mortgages (traditional and home equity), car loans, and credit card receivables and each type of receivable possesses its own risk characteristics. Essentially, the client has receivables and it sells them to a trust or another special purpose vehicle. The trust (or special purpose vehicle) issues securities which are backed or collateralized by the receivables themselves. The securities are sold to investors and they earn an appropriate market rate. The client has sold its receivables and converted them to cash. The asset-backed securities can be traded in the market.
Capital Markets
The primary goal of this group is coordinate the execution of new debt issues in the public and private markets. The Capital Markets Group can aid clients by devising financial products to raise capital and hedge using interest rate or currency swaps. At many firms, the Capital Markets group is a liaison function between investment banking and fixed income trading.
Equity Securities
The term "Equity" is quite broad but in general refers to the sales and trading functions which cover the following product lines: listed equities, both domestic and international, on the New York Stock Exchange, American Stock Exchange, regional stock exchanges and NASDAQ. Other securities which fall under the equities category are convertible debt securities, warrants, ADR's (American depository receipts), preferred stock, warrants, and equity derivatives.
The sales professionals within the equities market cover two main customer groups:
- Institutional Sales
- Strictly speaking, the institutional investors are professional money managers, such as mutual funds, hedge funds, banks, money management firms, pension funds, insurance companies. Generally, a salesperson will cover a number of these companies and will be responsible for relaying information related to the markets to their clients. Most large and regional investment banks (or broker-dealers) will have an established network; the investment bank earns commissions for the trades entered into with or on behalf of their clients.
- Retail Investors
- Many investment banks do not have an established retail investor base. Merrill Lynch, Smith Barney, and Paine Webber are three examples of firms with extensive retail distribution outlets. The clients consist of private individuals who wish to purchase securities for themselves. Again, the investment bank receives a commission for the transactions conducted for their clients. A number of firms cater only to high net worth individuals (e.g. over $2 million in assets for management). These divisions, in firms like Goldman Sachs and J.P. Morgan, are called "Private Client Services" or "PCS". PCS is discussed in another section.
The trading professionals are responsible for making markets in certain securities, obtaining securities to facilitate the clients' trades and for providing liquidity within the market. Traders often maintain inventory positions overnight and are responsible for the profit and loss associated with holding the inventory. Thus, many times, the trader will engage in overnight hedging to avoid undesired market movements against him/her.
Equity derivatives is a catchall phrase for a number of equity-related products. They either structured equity products designed to meet a specific objective (an option on a portfolio of stocks designed to mimic a specific industry's performance), an over-the-counter option on a specific stock or a listed option or future (e.g. an option on the S&P 500). This division can also develop portfolio hedges, aid the asset allocation process, and create synthetic equity instruments using other financial products.
Fixed Income Securities
The term "Fixed Income" is also quite broad but in general refers to the sales and trading functions which cover the following product lines: U.S. Treasury government bonds, International Government Bonds, Corporate Securities (for example, medium term notes), high yield bonds (below investment grade), money market instruments (these bonds have maturities of usually less than one year, like commercial paper), mortgage and asset backed securities, municipal securities, fixed income listed futures and options (e.g. T-bond futures), over-the-counter swaps and options (caps, floors and swaptions).
The sales and trading responsibilities are similar to the equities section. In each discipline, the degree of the professional's specialization varies across different firms. For instance, some firms may adopt the fixed income generalist approach where the salesperson sells all product types, from corporate bonds to mortgages. Other firms will have specialists servicing clients for only mortgages or corporate bonds.
Top of Page
Finance Club Home Page