Securities Firms and Investment Banks

This set of flashcards covers key concepts from the lecture on securities firms and investment banks including their services, regulations, historical changes, and roles in the financial markets.

What do securities firms and investment banks primarily help with?

They help net suppliers of funds transfer funds to net users of funds at a low cost and with maximum efficiency.

What is the main difference in the services offered by securities firms and investment banks?

Investment banks focus on raising debt and equity securities, while securities firms assist in trading securities in the secondary markets.

What was the equity capital in the investment banking industry in 2018?

$263.2 billion.

Which act caused a dramatic increase in the number of firms in the investment banking industry in the late 1990s?

The Financial Services Modernization Act of 1999.

List the three subgroups of national full-service investment banks.

1. Commercial banks, 2. National full-service firms specializing in corporate finance, 3. Large investment banks with limited branch networks.

What is the main purpose of venture capital?

To finance new and often high-risk firms in exchange for equity investment.

How does venture capital differ from private equity?

Venture capital focuses on startups, while private equity deals with existing companies.

What is market making in the context of securities firms?

Creating a secondary market for an asset through agency or principal transactions.

What does the SEC regulate?

It regulates the securities industry, including the administration of securities laws and review of new securities offerings.

What is the role of the Financial Industry Regulatory Authority (FINRA)?

FINRA governs the day-to-day regulation of trading practices in securities firms.

What is the Securities Investor Protection Corporation (SIPC)?

A non-profit corporation that protects investors against losses up to $500,000 due to securities firm failures.

What impact did the financial crisis have on the investment banking industry?

It resulted in significant regulatory changes and reduced profitability due to increased capital requirements.

What are some recent trends in the investment banking industry following the financial crisis?

Increased regulation, strategic initiatives to reduce risks, and a focus on client services.

What is one major source of funding for securities firms?

Repurchase agreements, accounting for a significant portion of their total liabilities.

What financial oversight role does the U.S. Congress play?

Congress oversees the securities industry and assesses if legal changes are needed for public protection.