In a previous article, we introduced the
CFA Institute Investment Foundation Program (Read
more here). It is a free program
designed for anyone who wants to enter or advance within the investment
management industry, including IT, operations, accounting, administration, and
marketing. Candidates who successfully
pass the online exam earn the CFA Institute Investment Foundations Certificate.
There are total of 20 Chapters in 7
modules, covering all the essential topics in finance, economics, ethics and
regulations. This series of articles
will highlight the core knowledge of each chapter.
Chapter 13 provides an overview of the Structure
of the Investment Industry. The learning outcome of chapter 13 is as follows:
·
Describe
needs served by the investment industry;
·
Describe
financial planning services;
·
Describe
investment management services;
·
Describe
investment information services;
·
Describe
trading services;
·
Compare
the roles of brokers and dealers;
·
Distinguish
between buy-side and sell-side firms in the investment industry;
·
Distinguish
between front-, middle-, and back-office functions in the investment industry;
·
Identify
positions and responsibilities within firms in the investment industry.
Brokers, dealers, clearing houses,
settlement agents, custodians, and depositories provide various services that
facilitate investment by helping buyers and sellers of securities and
investment assets arrange trades with each other and by holding assets for
clients.
Brokerage services are provided to
clients who want to buy and sell securities; they include not only execution
services (that is, processing orders on behalf of clients) but also investment
advice and research.
Dealers make it possible for their
clients to trade without having to wait to find a counterparty; they are ready
to buy from clients who want to sell and to sell to clients who want to buy.
Dealers thus participate in their clients’ trades, in contrast to brokers who
do not trade with their clients but only arrange trades on behalf of their
clients.
Clearing houses and settlement agents
settle trades after they have been arranged. Clearing refers to all activities
that occur from the arrangement of the trade to its settlement. Settlement
consists of the final exchange of cash for securities.
Custodians are typically banks and
brokerage firms that hold money and securities for safekeeping on behalf of
their clients. Thus, they play an important role in reducing the risk that
securities may be lost or stolen. Security ownership records were once commonly
held as actual paper certificates in secure vaults. Now, securities are almost
exclusively held in book-entry form as secure computer records. The conversion
of evidence of security ownership from physical certificates (called
immobilisation) and electronic corporate ownership records (called
dematerialisation) into standardised book-entry records greatly reduces the
costs of clearing and settling trades.
Depositories act not only as custodians
but also as monitors. They are often regulated and their role is to help
·
prevent
the loss of securities and payments through fraud, deficient oversight, or
natural disaster.
·
ensure
that securities cannot be pledged more than once by the same borrower as
collateral for loans.
·
ensure
that securities said to be purchased are actually purchased.
Sell-side firms are typically investment
banks, brokers, and dealers that provide investment products and services.
Buy-side participants are typically investors and investment managers that
purchase investment products and services.
The front office of a sell-side firm
consists of client-facing activities that provide direct revenue generation.
The middle office includes the core activities of the firm, such as risk
management, information technology, corporate finance, portfolio management,
and research. The back office houses the administrative and support functions
necessary to run the firm, such as accounting, human resources, payroll, and
operations.
No comments:
Post a Comment