Securities Brokerage Industry in the U.S.

Operational Functions of Investment

The major operational functions of investment banking firms are underwriting, dealing, brokerage, and the provision of financial advice (Pugel and White, 1985). The underwriting function involves origination, riskbearing, and distribution. Origination is concerned with defining the essential characteristics of an investment offering (debt or equity, pricing, timing, method of distribution, and so forth). Riskbearing on the part of an investment bank involves the purchase by a bank at a fixed price of a new securities issue, for eventual sale to the investing public (Pugel and White, 1985). In this context, the investment bank is at risk until the new issue is sold. Distribution is the act of selling the issue to the investing public. The provision of financial advice accompanies the underwriting function, although financial advice is also provided in other instances, such as, in conjunction with merger and acquisition decisions.

Underwriting is most frequently considered in terms of corporate issues. The underwriting

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Banks ($ = billions) =============================================================== Investment Bank Net Profit Tax Rate BeforeTax Profit (Market Rank) ($) (%)  $ % Revenues     Advest Group 1987 (10) .014 43.8 .025 10.9 1990 (11) .009 28.0 .023 10.9 Bear Stearns 1987 (5) .143 29.0 .493 26.1 1990 (5) .119 38.0 .313 13.1 Discount Corp. 1987 (9) .030 46.5 .065 23.5 1990 (8) .039 46.5 .839 24.2 [exhibit continued on following page]  [exhibit continued from preceding page] Investment Bank Net Profit Tax Rate BeforeTax Profit (Market Rank) ($) (%)  $ % Revenues     A. G. Edwards 1987 (6) .036 36.3 .099 19.6 1990 (6) .059 36.0 .164 24.3 InterRegionalFinancial
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