Chapter 27 - Working with the Institutional Client (Done)

Question 1

What is the difference between the sell side and the buy side of the market?

Answer 1

• Buy Side: Investors and asset managers (retail and institutional) buying securities or investments.
• Sell Side: Institutions selling products.

Question 2

Who are considered institutional clients?

Answer 2

Corporate treasuries, insurance companies, pension funds, mutual funds, hedge funds, endowments, and trusts.

Question 3

What are the responsibilities of a buy-side trader?

Answer 3

Create investment mandates, goals, and guidelines, execute portfolio strategy, and provide market outlook and performance information.

Question 4

What is the organizational structure of a sell-side trading firm?

Answer 4

• Back Office: Operations and IT.
• Middle Office: Risk management, legal, compliance, corporate treasury.
• Front Office: Sales and trading, corporate/government finance, M&A, corporate merchant banking, securities services, and research.

Question 5

What are the different roles within a sell-side dealer’s equity trading services?

Answer 5

• Agency Traders: Act on behalf of institutional clients.
• Liability Traders: Manage the dealer’s trading capital.
• Market Makers: Provide a constant two-sided market for securities.

Question 6

What are some revenue sources for sell-side trading firms?

Answer 6

Equity bull markets, trading revenue, sales revenue, origination revenue, and soft dollar arrangements.

Question 7

What is the institutional settlement process?

Answer 7

Trade placed, security identification provided, trade confirmed, dealer reports details, custodian verifies, and funds released through clearing agency.

Question 8

What are the roles in the institutional market?

Answer 8

• Research Associates: Build models, conduct research, write reports.
• Analysts: Experts in specific companies/sectors.
• Institutional Sales: Relationship managers between dealers and clients.
• Institutional Traders: Execute orders for clients.
• Investment Bankers: Build corporate finance, public finance, M&A services.

Question 9

What are some investment styles for fixed income and equity?

Answer 9

• Fixed Income: Buy and hold, indexing, immunization, interest rate anticipation, bond swaps.
• Equity: Buy and hold, indexing, sector rotation, market timing, value, growth, market capitalization.

Question 10

What are high-frequency trading and dark pools?

Answer 10

• High-Frequency Trading: Fast trading with many small orders for small price imbalances.
• Dark Pools: Equity marketplaces without pre-trade transparency for large block trades by institutional investors.