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Basic Operations of an Investment Bank

There are number of different banks already introduced in the world with various types. The classification of banks is very complex now. For certain purpose, a specific bank renders service. Hence the services offer by all banks varies from the other one. Here we talk only about only an investment bank. An investment bank is basically a medium that provides services usually related to finance to the individuals, companies, corporations, entities and even the governments. These services include raising of financial capital either by issuance of securities or shares to the general public, or through underwriting the already issued shares. The purpose of an Investment bank is not to accept and take the deposits like other commercial banks and some of the retail banks. In 1999 the United States Act, the Gramm-Leach-Bliley Act clearly differentiates between investment and retail/commercial bank. After this Act, there remains no doubt that investment bank carries out its operations similar to the commercial bank.

The two basic areas where investment banks do their business are known as the sell side and the buy side. Now what do you mean by the sell side business and the buy side business? Here’s an answer to this question. An exchange or trade of securities for cash is called the sell side business. It doesn’t only trade against the cash, but can also be exchanged and traded for other securities. The reason behind this is to facilitate the transactions and help in the market making. Now let’s talk about the other area of investment bank’s operation. The provision of advices to the companies that buy investment services is called the buy side business. Whenever an individual steps into the world of investment with no past relevant experience, he needs to take an advice regarding his investment. Having a massive capital is not an ultimate need to initiate a business. One should have a sound knowledge about the recent investments. Starting a business is not like buying a new dress. It requires deep research and accurate knowledge. Hence investment banks provide these services. Now you have a clear idea about the operations of an investment bank. And you would be agreed to the statement that investment bank is entirely different from the commercial bank.

The functions of an investment bank can be split into public and private. But there is a Chinese wall between the both areas. The public functions can only be dealt with the public bodies and the private services are only available to the private entities. The public information is not allowed to be disclosed to the private companies and vice versa.

In many countries it is compulsory for an advisor to be licensed broker-dealer, as it is a very sensitive issue. The advisor must be equipped with the good knowledge of the market. Only in that case he can provide the guaranteed advices to the clients.

The concept of investment bank is very new in the banking world. And it is still getting better day by day. The new and modern concepts are being applied and better services has been providing to the clients.

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About Maryum Afzal

Maryum Afzal

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