15 Jun Security firms and Invesment Banks.
Origins of Security Firms and Investment Banks
Investment banks fulfil the long-term financing needs of companies, whereas securities firms receive a fee for executing successful financial market trades between buyers and sellers. Investment banks also assist individuals, and the government, apart from the corporations. Investment banks and security firms are closely related but their functions differ. In early times, the difference was not clearly identified, and the business was carried on by merchants of that time for both services. Gradually, the functions of security firms and investment banks were separated, and they became separate entities.
Merchants became popular in the late nineteenth century, especially in the United States. The earliest investment banks started as merchants (Fohlin, 2014). These merchants exchanged commodities, such as metals, silk, spice, etc. The modern investment banks have evolved much from the early merchant banks. The instruments used by early merchant bankers usually included bills of exchange for the purpose of financing, which was funded by their own capital. These bankers gradually expanded. They were previously limited to their own families; however, they later started working with limited-liability partners (Fohlin, 2014). This trend was followed for years. The time period of these partnerships was predetermined and was renewed repeatedly. The branches of these banks were found in different cities in Europe. They initially borrowed for financing the investment activities, and later started using money market instruments.
The profits were earned through triangular arbitrage trade, financing long-distance trade, and speculations in currency fluctuations. Later, longer-term securities were sold by the banks to outside investors (Fohlin, 2014). The business was done by financing long-term capital of companies and working with corporate stock. The securities markets also traded government-issued securities. Investment banking came in being when external finance was largely required by big corporations after incorporation was liberalized.
Goldman-Sachs was initiated by a teacher named Marcus Goldman. He started a small shop in the United States in 1848 and later established a commercial paper trading business in 1869 (Dale, 2018). The business was in New York. The purpose was to provide short-term capital to small business. The business grew positively until the year 1882, after that it boomed towards success. This was the year when Samuel Sachs, Goldman’s son-in-law, joined the business (Dale, 2018). Business opportunities were identified by Goldman, Sachs & Co. in different sectors, including currency arbitrage and offshore debt.
In 1906, Goldman, Sachs & Co. assisted Sears Roebuck Company in its Initial Public Offering, and the business itself started becoming known as an investment bank (Dale, 2018). It continued growing and became Goldman Sachs Trading Corporation. It survived the Great Depression in 1929, and after that, the company took a plunge into arbitrage dealing for securities and currency. This was undertaken by Sidney Weinberg, a member of the company who supported it through the crash of the market (Dale, 2018).
Early stock trading was conducted through telephonic calls where brokers finalized the deals over the phone. This process took place from 1817 to 1969, whether in New York or Toronto. After that, an Electronic Communication Network (ECN) known as Instinet was created which enabled offers even after market hours (Kranc, 2015). In 1971, NASDAQ was formed which automated quotes and allowed bidding on an electronic bulletin board. Later, Designated Order Turnaround (DOT) system was created by NYSE, through which share orders were directly routed to specialists on the floor. Super DOT was formed in 1984 by NYSE, which had a capacity for 100,000 shares (Kranc, 2015). After that, the Small Order Execution System was enlarged by NASDAQ, and orders were taken electronically, known today as electronic trading or E-trading.
E*TRADE Financial Corporation operates as a diversified financial service holding company. Considered a pioneer in the online trading for retail investors, E*TRADE was founded in 1982 and it headquarter located in New York. E*TRADE was forced to expand its services when the dot-com bubble burst–an event that left many pure-play online companies scrambling to shore up revenues and profits. As such, the firm not only offers online investing and trading to its four million customers, but a host of other financial services related to wealth management and banking. E*TRADE touts its products and services to retail, corporate, and institutional customers. Its clients can access account information online and through E*TRADE Centers and automated teller machines located throughout the United States. Christos Cotsakos led the company through its stellar growth period in the late 1990s but stepped down in 2002. Mitchell H. Caplan was named his replacement and is leading the charge to transform E*Trade into a multi-faceted f
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