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Securities Firms and the Role They Play in Corporate Finance

Securities firms provide transaction services related to financial investments, which are quite distinct from the services provided by traditional depository institutions. However, many commercial banks have separate departments that offer the services of securities firms, and others actually merge or partner with securities firms. (For example, Bank of America is a commercial bank that bought the securities firm known as Merrill Lynch.)

Still other securities firms are completely independent of any depository institution. Exactly which types of services a securities firm provides depends on the type of institution it is.

Investment banks

Investment banks deal exclusively in corporations and other businesses as clients as well as products.

In other words, they offer a wide range of services, including underwriting services for companies that issue stock on the primary market, broker-dealer services for both buyers and sellers of stock on the primary and secondary markets, merger and acquisitions services, assistance with corporate reorganization and bankruptcy procedures, general consulting services for corporations large enough to afford them, and other such services related to raising or transferring capital.

Broker-dealers

In case you couldn’t tell from their name, broker-dealers perform the services of both brokers and dealers:

  • Brokers are organizations that conduct securities transactions on the part of their clients — buying, selling, or trading for the investment portfolio of their clients.

  • Dealers are organizations that buy or sell securities of their own portfolio and then deal those securities to customers who are looking to buy them.

  • Broker-dealers are organizations that do a combination of both of these services. They perform pretty much all the middle-man functions of providing securities services to corporations and individuals alike, and they’ve all but eliminated the need for organizations that specialize in either broker or dealer services.

    A special type of broker, called a discount broker, performs similar functions as broker-dealers, except that they only perform the transactions, while broker-dealers often provide assistance by offering advice, analysis, and other services that can help their customers make investment decisions. Discount brokers don’t perform these additional services.

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