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.