13 Professional Services

Front 1

dealers are proprietary traders

• provide liquidity**
• willing to trade on demand
• provide trading services by participating directly in their client's trades

Back 1

brokers are professional negotiators

• provide trading services by acting as agents**
• match buyers and sellers
• commissions depend on the value or quantity traded

Front 2

custodians hold money for institutional investors

• may also offer services i.e. collecting interest and dividends for client's securities, trade settlement etc.
  
• banks and brokerage firms are custodians
  

Back 2

depositories monitor counter parties and act as custodians too

• monitor security settlement and make sure that borrowers aren't pledging the same securities as collateral for new loans
  
• prevent loss of securities and payments through fraud, deficiencies in oversight, or natural disaster
• tend to be regulated
  

Front 3

brokerage accounts hold securities for smaller investors

• small institutional investors have their brokers make arrangements with custodians and depositories for safekeeping

brokerage services primarily include:

• placing trade orders for securities on behalf of clients
• acting as an agent to execute trade orders
• matchingbuyers and sellers and serving as trade negotiators
• clients pay commissions to brokers and these commissionstypically depend on the value or quantity traded

Back 3

clearing houses do not monitorcounterparties or hold assets

• clearing houses arrange for the finalsettlement of trades, reassure the investors and promote liquidity
• eliminate settlement risk & act as a settlement intermediary - not the role of a broker!!

settlement agencies only arrange for the final exchange of cash

Front 4

Buy Side Firms:

• institutional investors
• pension plans foundations funds

Sell Side Firms:

• brokers dealers
• investment banks

Back 4

Trading Services:

• Sell-Side
• Brokers/Dealers
• Brokerage Services

Custodial Services

• Depositories/Custodians
  
• Clearing Houses
• Settlement Agents

Front 5

block brokers - arrange trades on behalf of clients who want to trade large blocks of securities

Back 5

primary dealers - trade with clients and facilitate monetary policy transactions initiated by central banks

Front 6

practitioners typically use the termX to refer to investors who purchase investment products and services

Back 6

buy-side: investment management services

• manage portfolios
• purchase investment products

Front 7

insurance companies (buy-side)

• typically sellinsurance products and buy investment products and services

consulting services (buy-side consultants)

• used by the buy-side institutions to evaluate investments
  

Back 7

investment banks (sell-side)

• many sell-side firms have buy-side capabilities i.e. investment management services are buy-side even though
• investment banks are sell-side firms

Front 8

sell-side firms are best described as firms that

Back 8

• sell to the buy-side
  
• provide investment products
  
• facilitate trading services

i.e. investment banks, brokers and dealers are sell-side firms

Front 9

buy-side firms are best described as firms that

Back 9

• buy products from the sell-side
  
• to evaluate investment performance
  
• manage portfolios

i.e. institutional investors, foundations, funds, pension plans are buy-side firms

Front 10

• investment banks
  
• brokers
  
• dealers
  

are examples of:

Back 10

sell-side firms are best described as firms that provide investment products and services

Front 11

• insurance companies
  
• pension plans
  
• endowment funds
  
• sovereign wealth funds
• institutional investors

are examples of:

Back 11

buy side firms are best described as firms that purchase investment products and services from the sell-side

Front 12

Distinguish between front-, middle-, and back-office functions

Back 12

Identify positions & each of their responsibilities

Front 13

• Portfolio Construction is

Back 13

they trade, hold, manage, and account for all the activities they prepared for in the analysis and allocation steps; then they evaluate the performance of the investments

Front 14

determining the proportion of money to be invested and what asset classes to use is called

Back 14

asset allocation

Front 15

measuring attractiveness of securities based on fundamental values

Back 15

investment anaylsis

Front 16

passive managers seek to

Back 16

match the return and risk of a:

broad market index

• they use benchmarks because they are less costly
  
• benchmarks include broad market indices that cover an entire asset class, indices for a specific industry, and customized benchmarks
  

Front 17

X managers use strategies that are less costly; they buy and hold securities based on their characteristics, rather than analyzing or predicting future returns

Back 17

passive managers

Front 18

real-time data about companies and market conditions are usually supplied by:

Back 18

data vendors

Front 19

X helpclients set their financial goals and determine:

• how much money they should savefor future expenses
• how much money they can spend on current expenseswhile still preserving their capital
  

Back 19

financial planners

Front 20

X isresponsible for:

• leading the firm's auditing department,
• assessing the firm'soperational systems,
• suggesting ways to improve them
  

Back 20

chief auditor

or

chief audit executive - they can provide independent assessments of the firms operational system, not to be confused with the COO who is responsible for the day-to-day

Front 21

X is responsible for identifying and managingpotential risks to clients and the firm

Back 21

chief risk officer

Front 22

X isusually the head of the legal department, which is responsible for arrangingcontracts, interpreting regulations, and handling lawsuits

Back 22

general counsel

Front 23

chief X officer is usually the person responsiblefor ensuring that the firm follows internal policies and regulations orconstraints placed on the firm by laws, regulations, and clients

Back 23

chief compliance officer

Front 24

chief operating officer is responsible for:

Back 24

the day-to-day management of the firm

Front 25

the providers of investment data, research, andconsulting services are:

Back 25

investment information service providers

• i.e. credit rating agencies
  

Front 26

what do investment research providers do?

Back 26

• research and compile data about industries, companies, and technologies based on public information
• document results in investment reports;
• provide information services
• do not interact with clients directly
  
• work with brokers to better serve their clients

Front 27

X activities in a sell-side firm includeactivities that directly produce revenue and typically have direct clientcontact. Examples include sales and customer services

Back 27

front-office

• i.e. traders, sales, customer service, marketing
• front office activities of a sell side firm often include client facing, revenue producing activities
  

Front 28

coreactivities of the firm are performed by the X office

Back 28

middle office

• i.e. IT corporate finance, portfolio management, research, risk management

Front 29

where does risk management activities take place?

Back 29

core - middle office

Front 30

the X office of a firm is responsible for support and administrative functions

Back 30

back-office

• i.e. human resources, payroll, operations,
• and accounting, which is especially important for banks or brokerage firms that provide custodial services because their accounting dept. clears and settles trades; and keeps track of who owns what

Front 31

accounting is a X office function

Back 31

back-office

Front 32

historical data uses

Back 32

real-time data examples

Front 33

treasurer

head trader

chief financial officer

chief accountant

chief investment officer

Back 33

research assistants

buy-side traders

sales traders

sales managers

salespeople

client service agents

Front 34

An example of an investment professional providing indirect services is when:

• a securities analyst helps a pension fund select bonds to purchase.
  
• an investor buys shares in a mutual fund.
• a financial planner determines how much an investor needs to meet retirement goals.
  

Back 34

an investor buys shares in a mutual fund.

investment professionals are providing (indirect) services when they oversee investment (vehicles) such as:

(mutual funds) or (asset-backed securities).

Front 35

the responsibility for "accounting and financial systems" in an investment firm rests with the:

Back 35

(finance controller) or "chief" accountant.