Underwriting vs Market Making vs Brokerage vs Investment Banking Guys there are thin lines among these. Can someone highlight that?
Underwriting - For IPO’s - the Investment Bank takes on the issuance (and risk) and sells it. Market Making - Selling from own inventory. (Market Makers) Broker - Someone who sets up the deals, Investment Bank - A institution that is involved in multiple lines - M+A, Private Equity, Underwriting, etc… Just to add a true definition of an Investment Bank An individual or institution which acts as an underwriter or agent for corporations and municipalities issuing securities. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors. investment banks also have a large role in facilitating mergers and acquisitions, private equity placements and corporate restructuring. Unlike traditional banks, investment banks do not accept deposits from and provide loans to individuals. also called investment banker. http://www.investorwords.com/2602/investment_bank.html#ixzz1O68gucYo
Someone correct me if I am wrong but… Investment banking usually is a firm that does underwriting and market making, and sometimes has a brokerage division. Investment banking usually entails being corporate advisors, basically advising companies in times of mergers, acquisitions, sales, IPOs, etc… Underwriting is the step after performing due diligence on a firm and agreeing to assume the risk of selling shares or debt on their behalf. Market making is purchasing and selling a particular security type or commodity in the hopes of making money off of the spread. Securities are usually never held longer than a day. Brokerage is a group of brokers who sell securities to clients.
CFAPlay Wrote: ------------------------------------------------------- > Someone correct me if I am wrong but… > > Investment banking usually is a firm that does > underwriting and market making, and sometimes has > a brokerage division. Investment banking usually > entails being corporate advisors, basically > advising companies in times of mergers, > acquisitions, sales, IPOs, etc… > > Underwriting is the step after performing due > diligence on a firm and agreeing to assume the > risk of selling shares or debt on their behalf. > > Market making is purchasing and selling a > particular security type or commodity in the hopes > of making money off of the spread. Securities are > usually never held longer than a day. > > Brokerage is a group of brokers who sell > securities to clients. I believe there are diff types of market makers - some that do hold for more than a day. I forgot the right word…
I guess most difficult to understand is the difference between a broker and a market maker. Basically, the market maker as already mentioned will buy and sell in certain products, e.g. Treasury Bonds (Market Maker for Treasury Bonds), at all times from clients and will try to make money with the Bid/Ask-Spread. So they buy the bonds into their trading books and try to sell them to other clients or even other Market Makers. --> Important part here is that the market maker actually takes the bond into his book/inventory and holds them for some time. In contrast, a broker never buys bonds/stocks to hold them for some time but only tries to arrange a trade between different market participants, e.g. if I am a Market Maker, I can call my broker and ask him to find me a buyer somewhere in the market for a certain bond where I am a seller. So the broker will try to find me a buyer and arranges the trade, and is therefore compensated with a % fee. Clear? Underwriting occurs when an Investment Bank obliges in an IPO/Bond Sale on the primary market to take the rest of the bonds/stocks that are not sold on their own books.