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2. Securities firms and investment banks
• Primarily help net suppliers of funds (e.g.
households) transfer funds to net users of
funds (e.g. businesses)
• at a low cost
• with a maximum degree of efficiency.
3. Securities firms and investment banks
• Do not transform the securities issued by the
net users of funds into claims that may be
‘more’ attractive to the net suppliers of funds.
• Like banks
• Serve as intermediaries between fund
suppliers and fund users.
4. Investment banks
• Help corporations or government to raise
funds from primary market by issue of debt
and equity securities.
• Organize, underwrite and place securities in
money and capital markets.
• E.g. Alawwal capital company, Al-Khabeer
capital
5. Securities firms
• Assist trading securities in secondary markets
• Brokerage services or market making
• E.g. AlBilad investment company, Aljazira
capital company
6. Securities firms and investment banks
• Largest firms in the industry perform multiple
services (e.g. underwriting and brokerage
services)
• Global Investment House
7. Securities firms and investment banks
• Other firms concentrate their services in one
area only i.e. either in securities trading or
securities underwriting.
• NCB capital
8. Securities firms and investment banks
• Third group of companies.
• Investment bank subsidiaries of commercial
banks
• Discount brokers
• Regional securities firms
• Specialized electronic trading firms
• Venture capital firms
9. Investment banking
• First time debt and equity issues occur
through initial public offerings (IPOs)
• New issues from a firm whose debt or equity
is already traded are called seasoned equity
offerings. (SEOs)
10. Investment banking
• A private placement is a securities issue that is
placed with one or a few large institutional
investors
• Agent for a feee
• Public offerings are offered to public at large
• IBs act only as an agent in best efforts
underwriting
• IBs act as principals in firm commitments
11. Venture capital
• A professionally managed pool of money used
to finance new and often high-risk firms.
• Provide capital to untried company and its
managers in return for an equity investment in
the firm.
• Do not make outright loans
12. Venture capital
• Purchase an equity interest that gives rights
and privileges like other owners.
• Venture capital and private equity are used
interchangeably.
13. Venture capital
• Types:
• Institutional venture capital firms: Business
entities whose sole purpose is to find and
fund the most promising new firms.
• Angel venture capitalists: Wealthy individuals
who make equity investments.
14. Market making
• Involves the creation of secondary market in
an asset by a securities firm or investment
bank
• In addition to being primary dealers in
government securities and underwriters of
corporate bonds and equities, investment
bankers make a secondary market in these
instruments.
15. Market making
• Either principal or agency transactions.
• Agency transactions:
• Two-way transactions made on behalf of
customers – acting as a stockbroker or dealer
for a fee.
16. Market making
• Principal transactions:
• Seeks to profit on the price movements of
securities
• Either takes long or short inventory positions
for its own account
17. Trading
• 1. Position trading
• 2. Pure arbitrage
• 3. Risk arbitrage
• 4. Program trading
• 5. Stock brokerage
• 6. Electronic brokerage
18. Position trading
• Involves purchases of large block of securities
on the expectation of a favourable price move
• Long or short positions for intervals up to
several weeks or even months
• Unlike day traders, take relatively longer views
of market trends
• Such positions also facilitate the smooth
functioning of the secondary markets in such
securities
19. Pure arbitrage
• Entails buying an asset in one market at one
price and selling it immediately in another
market at a higher price
• Attempt to profit from price discrepancies
between spot and future prices
20. Risk arbitrage
• Involves buying securities in anticipation of
some information release such as merger or
Central bank’s interest rate announcement.
• Risk arbitrage because if the event does not
actually occur, trader stands to lose money
21. Program trading
• Simultaneous buying and selling of a portfolio
of at least 15 different stocks using computer
programs to initiate such trades
• Like pure arbitrage but with the help of
computer programme
22. Stock brokerage
• Involves trading of securities on behalf of
individuals who want to transact in the money
or capital markets
