Participants
Participants in the Financial System
These are key participants in the broader financial system, categorized by their primary function:
Investment Banks
- Provide advice and arrange finance for companies:
- Floating on the stock market (IPOs).
- Raising additional finance through share or bond issuance.
- Mergers and acquisitions.
- Finance-raising and advisory work for governments and companies.
Custodian Banks
- Specialize in safe custody services:
- Holding assets in safekeeping (equities and bonds).
- Arranging settlement of securities purchases and sales.
- Providing information on underlying companies and AGMs.
- Providing regular reporting on portfolio activities (trades, corporate actions, transactions).
- Dominated by a few global custodians (often divisions of major banks).
- Examples: Bank of New York Mellon, State Street.
- Offer additional services:
- Stock lending.
- Measuring portfolio performance.
- Maximizing returns on surplus cash.
Retail/Commercial Banks
- Take deposits from and lend funds to retail customers.
- Provide payment and money transmission services.
- Operate through physical branches, telephone, and internet-based services.
- Often part of "financial conglomerates":
- Offer services in multiple financial sectors (banking, securities, insurance).
Peer-to-Peer (P2P) and Crowdfunding
- Crowdfunding: Funding projects by raising small amounts from a large number of people.
- Use the internet to access potential funders.
- Types of Crowdfunding:
- Donation-based: Funding based on belief in the cause.
- Debt-based: Investors lend money and receive it back with interest.
- Equity-based: Investors receive equity or shares in the venture.
Insurance Companies
Retirement Schemes
- Include employer and employee contributions to an investment pot.
- Accumulated funds provide a pension at retirement.
Fund Managers
- Also known as investment managers, portfolio managers, or asset managers.
- Run portfolios of investments for others (institutions, wealthy individuals).
- Manage funds for:
- Pension funds, insurance companies.
- Wealthier individuals.
- Global asset management industry is vast (trillions of dollars).
- Charge clients fees based on:
- A percentage of the fund's value.
- Performance achieved.
Stockbrokers and Wealth Managers
- Stockbrokers arrange stock market trades for clients.
- Investment institutions, fund managers, or private investors.
- Types of Stockbrokers:
- Execution-only brokers: No advice, commission per trade. Aimed at day traders and confident investors.
- Robo-advisers: Online automated portfolio management advice using algorithms.
- Advisory and discretionary wealth managers: Provide tailored advice and management.
- Institutional brokers: Facilitate large trades for large institutions
- Institutional brokers' skill lies in executing large trades without significantly impacting share prices.
-
Participants in the Financial System
These are key participants in the broader financial system, categorized by their primary function:
Investment Banks
- Provide advice and arrange finance for companies:
- Floating on the stock market (IPOs).
- Raising additional finance through share or bond issuance.
- Mergers and acquisitions.
- Finance-raising and advisory work for governments and companies.
Custodian Banks
- Specialize in safe custody services:
- Holding assets in safekeeping (equities and bonds).
- Arranging settlement of securities purchases and sales.
- Providing information on underlying companies and AGMs.
- Providing regular reporting on portfolio activities (trades, corporate actions, transactions).
- Dominated by a few global custodians (often divisions of major banks).
- Examples: Bank of New York Mellon, State Street.
- Offer additional services:
- Stock lending.
- Measuring portfolio performance.
- Maximizing returns on surplus cash.
Retail/Commercial Banks
- Take deposits from and lend funds to retail customers.
- Provide payment and money transmission services.
- Operate through physical branches, telephone, and internet-based services.
- Often part of "financial conglomerates":
- Offer services in multiple financial sectors (banking, securities, insurance).
Peer-to-Peer (P2P) and Crowdfunding
- Crowdfunding: Funding projects by raising small amounts from a large number of people.
- Use the internet to access potential funders.
- Types of Crowdfunding:
- Donation-based: Funding based on belief in the cause.
- Debt-based: Investors lend money and receive it back with interest.
- Equity-based: Investors receive equity or shares in the venture.
Insurance Companies
Retirement Schemes
- Include employer and employee contributions to an investment pot.
- Accumulated funds provide a pension at retirement.
Fund Managers
- Also known as investment managers, portfolio managers, or asset managers.
- Run portfolios of investments for others (institutions, wealthy individuals).
- Manage funds for:
- Pension funds, insurance companies.
- Wealthier individuals.
- Global asset management industry is vast (trillions of dollars).
- Charge clients fees based on:
- A percentage of the fund's value.
- Performance achieved.
Stockbrokers and Wealth Managers
- Stockbrokers arrange stock market trades for clients.
- Investment institutions, fund managers, or private investors.
- Types of Stockbrokers:
- Execution-only brokers: No advice, commission per trade. Aimed at day traders and confident investors.
- Robo-advisers: Online automated portfolio management advice using algorithms.
- Advisory and discretionary wealth managers: Provide tailored advice and management.
- Institutional brokers: Facilitate large trades for large institutions.
- Institutional brokers' skill lies in executing large trades without significantly impacting share prices.
Platforms
- Online services used by intermediaries (e.g., IFAs) to view and manage client investment portfolios.
- Also available directly to investors.
- Earn income by charging for their services.
Private Banks
- Provide a wide range of services for their clients:
- Wealth management, estate planning, tax planning, insurance, lending, and lines of credit.
- Distinction between private and retail banks is diminishing.
- Private banks lowering investment thresholds for competition.
- Retail banks expanding services to attract the "mass affluent" and HNWIs.
Sovereign Wealth Funds (SWFs)
- State-owned investment funds holding financial assets (equities, bonds, real estate, etc.).
- Examples: Norway Government Pension Fund, Abu Dhabi Investment Authority.
- Defined as special purpose investment funds or arrangements owned by a government.
- Characteristics:
- Hold, manage, or administer assets for financial objectives.
- Employ strategies including foreign financial asset investment.
- Assets often established from:
- Balance of payments surpluses.
- Foreign currency operations.
- Privatization proceeds.
- Commodity export receipts.
- Benefits:
- Participation in global opportunities.
- Risk diversification.
- Prevention of local economic overheating.
- Reserve capital for natural resource depletion.
- Growing importance in the international financial system.
- Concerns about transparency and potential political influence.
- International Forum of Sovereign Wealth Funds and the "Santiago Principles" promote transparency.
Trade and Professional Bodies
- Represent the views of industry sections, especially to governments and regulators.
- Facilitate cross-firm developments for an efficient market.
- Examples:
- International Capital Market Association (ICMA): Focus on international bond dealing.
- International Swaps and Derivatives Association (ISDA): Sets standards for OTC derivatives.
Third-Party Administrators (TPAs)
- Undertake investment administration for other firms, specializing in this area.
- Rationale for outsourcing:
- Allows firms to focus on core areas (investment management, stock selection, financial planning).
- Enables other firms to process administrative functions more efficiently.
No Comments