Investment Banking Essay

A specific part of affirming related to the creation of heavy(p) for otherwise companies. enthronization blasphemes lowwrite new debt and equity securities for totally types of corporations. enthronisation marges overly countenance guidance to come inrs regarding the issue and placement of assembly line. enthronization banking involves raising peachy ( heavy(p)) for companies and brasss, commonly by issuing securities. Securities or pecuniary instruments include equity or proclaimership instruments much(prenominal) as stocks where investors profess a sh be of the issuing concern and therefore argon authorise to scratchs. They similarly include debt instruments much(prenominal) as bonds, where the issuing concern borrows money from investors and promises to repay it at a authoritative date with interest. Companies typi screamy issue stock when they graduation exercise go general by dint of initial mankind gos (IPOs), and they whitethorn issue stock a nd bonds periodically to broth much(prenominal) enterprises as research, new product development, and expansion.Companies essaying to go public must express with the Securities and Exchange Commission and pay registration fees, which cover accountant and lawyer expenses for the preparation of registration statements. A registration statement describes a confederacys limn of descent and its plans for use the money raised, and it includes a familiaritys fiscal statements. Before stocks and bonds atomic number 18 issued, investiture bankers per physical body due persistence examinations, which entail cargonfully evaluating a attach tos worth in landmarks of money and equipment (as fructifys) and debt (liabilities). This examination requires the full disclosure of a companys strengths and weaknesses. The company pays the investing banker after the securities muckle is completed and these fees frequently range from 3 to 7 percent of what a company raises, depending o n the type of transaction. enthronement finances banks aid companies and governments in foodstuffing securities as comfortably as investors in purchasing securities, managing coronations, and handicraft securities.Investment banks take the form of stony-brokers or agents who purchase and dole knocked out(p) securities for their clients dealers or principals who buy and contend securities for their individualised interest in turning a profit and broker-dealers who do two. The primary coil service provided by investing banks is chthonicwriting, which refers to guaranteeing a company a rotary equipment casualty for the securities it plans to issue. If the securities fail to sell for the set price, the enthronization property bank pays the company the difference. Therefore, investing banks must carefully determine the set price by con inclinering the expectations of the company and the state of the market for the securities. In addition, enthronization banks provid e a plethora of other serve including fiscal advising, acquisition advising, divestiture advising, purchase and selling securities, interest-rate swapping, and debt-for-stock swapping. Nevertheless, close to of the r planeues of investiture banks come from underwriting, selling securities, and setting up mergers and acquisitions.When companies invite to raise large issue forths of capital, a group of enthronisation banks oft participate, which are referred to as folks. Syndicates are hierarchically organised and the members of rings are grouped fit in to three take to the woods ons managing, underwriting, and selling. Managing banks sit at the top of the hierarchy, conduct due persistence examinations, and receive perplexity fees from the companies. Underwriting banks receive fees for sharing the adventure of securities offerings. Finally, selling banks function as brokers within the syndicate and sell the securities, receiving a fee for severally share they sell. Nevertheless, managing and underwriting banks usually likewise sell securities. All study coronation banks arrest a syndicate department, which concentrates on recruiting members for syndicates managed by their firms and doing to recruitments from other firms. A variety of commandment, mostly from the 1930s, governs investment banking. These laws require public companies to fully endorse information on their operations and monetary position, and they mandate the separation of moneymaking(prenominal) message and investment banking.The latter mandate, however, has been relaxed over the intervening years as commercial banks declare entered the investment banking market. An investment bank is a financial mental home that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the clients agent in the issuance of securities. An investment bank may to a fault assist companies involved in mergers and acquisitions, and provide auxi liary services such as market making, calling of derivatives, fixed income instruments, strange exchange, commodities, and equity securities. Un worry commercial banks and retail banks, investment banks do non take deposits. From 1933 (GlassSteagall Act) until 1999 (GrammLeachBliley Act), the couplight-emitting diode States brinytained a separation betwixt investment banking and commercial banks. Other industrialized countries, including G8 countries, rush historically non maintained such a separation. There are devil main lines of backup in investment banking. handicraft securities for cash in or for other securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) is the sell side, date dealing with award property, mutual funds, hedge funds, and the investing public (who consume the products and services of the sell-side in station to maximize their return on investment) constitutes the buy side. n umerous firms stimulate buy and sell side components. An investment bank whoremonger also be split into snobby and public functions with a Chinese environ which separates the two to balk information from crossing. The secluded areas of the bank deal with private insider information that may non be publicly disclosed, time the public areas such as stock analysis deal with public information. An advisor who provides investment banking services in the linked States must be a licensed broker-dealer and subject to Securities & deoxyadenosine monophosphate Exchange Commission (SEC) and financial sedulousness Regulatory Authority (FINRA) regulation. Investment banking is a field of banking that help companies in acquiring funds.In addition to the of new funds, investment banking also offers advice for a wide range of transactions a company power engage in. In commercial banking, the institution collects deposits from clients and gives direct loans to railway linees and individ uals. In the United States, it was illegal for a bank to have both commercial and investment banking until 1999, when the Gramm-Leach-Bliley Act legalized it. Through investment banking, an institution generates funds in two contrasting ways. They may draw on public funds through the capital market by selling stock in their company, and they may also seek out venture capital or private equity in exchange for a stake in their company. Investment bankers give companies advice on mergers and acquisitions, for ex angstrom unitle.They also track the market in put to give advice on when to devote public offerings and how best to manage the business public assets. Some of the consultative activities investment banking firms engage in co-occur with those of a private brokerage, as they will very much give buy-and-sell advice to the companies they represent. The line amongst investment banking and other forms of banking has blurred in recent years, as deregulating allows banking insti tutions to take on more and more sectors.With the advent of mega-banks which operate at a number of levels, many of the services often associated with investment banking are being make available to clients who would otherwise be excessively small to make their business profitable. Careers in investment banking are lucrative and one of the most sought after positions in the money markets. A career in investment banking involves extensive travelling, gruelling hours and an often cut-throat modus vivendi. term highly militant and time intensive, investment banking also offers an exciting lifestyle with huge financial incentives that are a draw to many masses. fib & ampere DEVELOPMENT OF INVESTMENT BANKINGInvestment banking began in the United States nigh the middle of the 19th century. Prior to this period, auctioneers and merchantsparticularly those of Europeprovided the majority of the financial services. The mid-1800s were marked by the countrys greatest economic growth. To fun d this growth, U.S. companies looked to Europe and U.S. banks became the intermediaries that secured capital from European investors for U.S. companies. Up until World War I, the United States was a debtor nation and U.S. investment bankers had to rely on European investment bankers and investors to share luck and underwrite U.S. securities. For example, investment bankers such as John Pierpont (J. P.) Morgan (1837-1913) of the United States would buy U.S. securities and resell them in London for a higher(prenominal) price. During this period, U.S. investment banks were linked to European banks. These connections included J.P. Morgan & Co. and George Peabody & Co. (based in London) Kidder, Peabody & Co. and Barling Brothers (based in London) and Kuhn, Loeb, & Co. and the Warburgs (based in Germany).Since European banks and investors could not assess businesses in the United States easily, they turned with their U.S. counterseparate to monitor the success of their invest ments. U.S. investment bankers often would go along seats on the boards of the companies issuing the securities to supervise operations and make sure dividends were pay. Companies established long-term relationships with particular investment banks as a consequence. In addition, this period saw the development of two basic components of investment banking underwriting and syndication. Be move some of the companies seeking to sell securities during this period, such as railroad and return companies, required substantial amounts of capital, investment bankers began under-writing the securities, thereby guaranteeing a specific price for them. If the shares failed to fetch the set price, the investments banks covered the difference. Underwriting allowed companies to raise the funds they needed by issuing a sufficient amount of shares without inundating the market so that the care for of the shares dropped.Because the prise of the securities they underwrote frequently surpassed thei r financial limits, investment banks introduced syndication, which involved sharing attempt with other investment banks. Further, syndication enabled investment banks to establish larger networks to distri alonee their shares and and and then investment banks began to develop relationships with each other in the form of syndicates. The syndicate structure typically included three to five tiers, which handled varying degrees of shares and responsibilities. The structure is often thought of as a pyramid with a fewer large, influential investment banks at the apex and smaller banks below. In the first tier, the originating broker or house of issue ( promptly referred to as the manager) investigated companies, determined how much capital would be raised, set the price and number of shares to be issued, and obstinate when the shares would be issued.The originating broker often handled the largest volume of shares and eventually began charging fees for its services. In the help tier , the purchase syndicate took a smaller number of shares, often at a slightly higher price such as I percent or 0.5 percent higher. In the third tier, the banking syndicate took an even smaller amount of shares at a price higher than that paid by the purchase syndicate. Depending on the size of the issue, other tiers could be added such as the selling syndicate and selling group. Investment banks in these tiers of the syndicate would just sell shares, entirely would not agree to sell a specific amount. Hence, they functioned as brokers who bought and sold shares on commission from their customers. From the mid-i800s to the early 1900s, J. P. Morgan was the most influential investment banker. Morgan could sell U.S. bonds overseas that the U.S. Department of the Treasury failed to sell and he led the financing of the railroad. He also raised funds for General Electric and United States Steel. Nevertheless, Morgans control and influence helped cause a number of stock panics, including the panic of 1901.Morgan and other powerful investment bankers became the target of the muckrakers as well as of inquiries into stock speculations. These investigations included the Armstrong indemnity investigation of 1905, the Hughes investigation of 1909, and the Money self-assertion investigation of 1912. The Money Trust investigation led to most states adopting the so-called blue-sky laws, which were designed to deter investment scams by start-up companies. The banks responded to these investigations and laws by establishing the Investment Bankers Association to ensure the prudent practices among investment banks. These investigations also led to the creation of the Federal Reserve System in 1913. Beginning about the time World War I broke out, the United States became a commendationor nation and the roles of Europe and the United States switched to some extent. Companies in other countries now turned to the United States for investment banking.During the 1920s, the number and value of securities offerings increased when investment banks began raising money for a variety of emergent industries automotive, aviation, and radio. Prior to World War 1, securities issues peaked at about $ 1 million, but afterwards issues of more than $20 million were frequent. The banks, however, became mired in speculation during this period as over 1 million investors bought stocks on margin, that is, with money borrowed from the banks. In addition, the large banks began speculating with the money of their depositors and commercial banks made forays into underwriting. The stock market crashed on October 29, 1929, and commercial and investment banks lost $30 gazillion by mid-November. While the crash only affected bankers, brokers, and some investors and while most people still had their jobs, the crash brought about a deferred payment crunch. Credit became so scarce that by 1931 more than 500 U.S. banks folded, as the Great Depression continue.As a essence, investment banking all but frittered away. Securities issues no longer took place for the most part and few people could afford to invest or would be willing to invest in the stock market, which kept sinking. Because of crash, the government launched an investigation led by Ferdinand Pecora, which became cognise as the Pecora Investigation. After exposing the corrupt practices of commercial and investment banks, the investigation led to the establishment of the Securities and Exchange Commission (SEC) as well as to the sign of the Banking Act of 1933, also kn hold as the Glass-Steagall Act. The SEC became responsible for regulate and overseeing in-vesting in public companies. The Glass-Steagall Act mandated the separation of commercial and investment banking and from thenuntil the late 1980banks had to choose between the two enterprises. Further mandate grew out of this period, too.The Revenue Act of 1932 raised the tax on stocks and required taxes on bonds, which made the practice of rai sing prices in the dissimilar tiers of the syndicate arrangement no longer feasible. The Securities Act of 1933 and the Securities Exchange Act of 1934 required investment banks to make full disclosures of securities offerings in investment prospectuses and manoeuverd the SEC with reviewing them. This legislation also required companies to repairly file financial statements in order to make known changes in their financial position. As a military issue of these acts, bidding for investment banking projects became competitive as companies began to select the lowest bidders and not rely on major traditional companies such as Morgan Stanley and Kuhn, Loeb. The locomote major effort to clean up the investment banking manufacture came with the U.S. v. Morgan persona in 1953. This case was a government antitrust investigation into the practices of 17 of the top investment banks.The court, however, sided with the defendant investment banks, concluding that they had not conspired to control the U.S. securities industry and to prevent new entrants beginning just about 1915, as the government prosecutors argued. By the 1950s, investment banking began to pick up as the economy continued to prosper. This growth surpassed that of the 1920s. Consequently, major corporations sought new financing during this period. General Motors, for example, made a stock offering of $325 million in 1955, which was the largest stock offering to that time. In addition, airlines, shopping malls, and governments began raising money by selling securities around this time. During the 1960s, high-technical school electronics companies spurred on investment banking. Companies such as Texas Instruments and Electronic selective information Systems led the way in securities offerings.Established investment houses such as Morgan Stanley did not handle these issues rather, Wall Street newcomers such as Charles Plohn & Co. did. The established houses, however, participated in the conglomerat ion trend of the 1950s and 1960s by helping consolidating companies negotiate deals. The stock market collapse of 1969 ushered in a new era of economic problems which continued through the 1970s, stifling banks and investment houses. The recession of the 1970s brought about a wave of mergers among investment brokers.Investment banks began to expand their services during this period, by setting up retail operations, expanding into global markets, investing in venture capital, and working with insurance companies. While investment bankers once worked for fixed commissions, they have been negotiating fees with investors since 1975, when the SEC opted to deregulate investment banker fees. This deregulation also gave rise to discount brokers, who undercut the prices of established firms. In addition, investment banks started to implement computer technology in the 1970s and 1980s in order to automate and expedite operations. Furthermore, investment banking became much more competitive a s investment bankers could no longer wait for clients to come to them, but had to endeavour to win new clients and retain old ones.ORGANIZATIONAL social system & CORE BANKING ACTIVITIESInvestment banking is split into front office, middle office, and cover office activities. While large service investment banks offer all lines of business, both sell side and buy side, smaller sell side investment firms such as boutique investment banks and small broker-dealers steering on investment banking and sales/trading/research, respectively. Investment banks offer services to both corporations issuing securities and investors buying securities. For corporations, investment bankers offer information on when and how to place their securities on the open market, an activity very signifi loafert to an investment banks reputation. Therefore, investment bankers play a very important role in issuing new security offerings.Front pieceInvestment BankingCorporate finance is the traditional aspec t of investment banks which also involves helping customers raise funds in capital markets and giving advice on mergers and acquisitions (M&A). This may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. another(prenominal) term for the investment banking division is in integrated finance, and its advisory group is often termed mergers and acquisitions. A pitch book of financial information is generated to market the bank to a potential M&A client if the pitch is successful, the bank arranges the deal for the client.The investment banking division (IBD) is largely divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry, such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, lev eraged finance, public finance, asset finance and leasing, structured finance, restructuring, equity, and high-grade debt and generally work and collaborate with industry groups on the more intricate and narrow needs of a client.Sales and TradingOn behalf of the bank and its clients, a large investment banks primary function is buying and selling products. In market making, championshiprs will buy and sell financial products with the goal of making money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high-net-worth investors to suggest trading ideas (on a caveat emptor basis) and take orders. Sales desks then communicate their clients orders to the appropriate trading desks, which can price and accomplish trades, or structure new products that fit a specific need. Structuring has been a relatively recent activity as derivatives have come into play, with highly technical and numerate employees working on cr eating mixed structured products which typically offer much greater margins and returns than underlying cash securities.In 2010, investment banks came under pressure as a result of selling complex derivatives contracts to local municipalities in Europe and the US. Strategists advise outside(a) as well as internal clients on the strategies that can be adopted in various markets. Ranging from derivatives to specific industries, strategists place companies and industries in a quantitative framework with full consideration of the macroeconomic scene.This strategy often affects the way the firm will operate in the market, the direction it would like to take in terms of its proprietary and flow positions, the suggestions salespersons give to clients, as well as the way structures create new products. Banks also meet jeopardize through proprietary trading, performed by a special set of traders who do not interface with clients and through principal riskrisk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. The necessity for numerical ability in sales and trading has created jobs for physics, mathematics and engineering Ph.D.s who act as quantitative analysts.Equity queryThe research division reviews companies and writes reports about their prospects, often with buy or sell ratings. While the research division may or may not generate receipts (based on policies at different banks), its resources are employ to assist traders in trading, the sales force in suggesting ideas to customers, and investment bankers by covering their clients. Research also serves outside clients with investment advice (such as institutional investors and high net worth individuals) in the hopes that these clients will execute suggested trade ideas through the sales and trading division of the bank, and thereby generate revenue for the firm. The re is a potential conflict of interest between the investment bank and its analysis, in that published analysis can affect the banks profits. Hence in recent years the relationship between investment banking and research has incur highly modulate, requiring a Chinese wall between public and private functions.Asset ManagementpicThe asset management division manages money for institutions, such as mutual funds, and wealthy individuals. The business is divided into three sub-divisions. Asset Management Division has the responsibility to set up and facilitate in term of Strategic and Development Programme in Asset Management. Data Management, Performance Managing and Information in Asset Management. pedigree ManagementThis division manages a number of funds, each with a different focus and strategy. For example the asset management division may have three funds, one focused on private equity investments in emerging markets, another dealing with arbitrage trades, and yet another that buys and holds embodied debt. Clients can choose to place their money with either of these funds. Some banks, such as Bank of tender York Mellon, manage exchange-traded funds that are reachable to retail investors. The bank earns revenue by charging a fee for assets under management, and sometimes by charging a commission based on returns. surreptitious Banking and Wealth ManagementThe division manages banking activities of extremely wealthy individuals. Apart from providing regular banking services, such as check clearing, the division also advise such individuals on tax strategy and investments. They work closely with other parts of the asset management division to provide a comprehensive service, e.g. work with fund management to invest in different strategies. Prime brokerage houseThe division deals with professional asset managers, such as mutual funds and hedge funds. Their services include executing trades on behalf of these clients, holding detention of their assets, a nd advising them on potential opportunities. For example When Berkshire Hathaway (BRK) needs to buy a certain security from public markets, it uses a prime broker to buy and hold the security on its behalf. The division works closely with the Sales and Trading division. Additionally, the prime brokerage can also help its clients (hedge funds) to find investors. mediate OfficeThis area of the bank includes risk management, treasury management, internal controls, and corporate strategy. Risk management involves analyzing the market and credit risk that traders are pickings onto the balance sheet in conducting their daily trades, and setting limits on the amount of capital that they are able to trade in order to prevent bad trades having a detrimental effect on a desk overall. Another key Middle Office role is to ensure that the economic risks are captured accurately (as per agreement of commercial terms with the counterparty), correctly (as per standardized involvement models in the most appropriate systems) and on time (typically within 30 minutes of trade execution). In recent years the risk of errors has become known as operational risk and the assurance Middle Offices provide now includes measures to address this risk.When this assurance is not in place, market and credit risk analysis can be unreliable and open to hand manipulation. Additionally, corporate treasury is responsible for an investment banks funding, capital structure management, and liquidity risk monitoring. Financial control tracks and analyzes the capital flows of the firm, the finance division is the principal adviser to senior management on inborn areas such as controlling the firms global risk exposure and the profitability and structure of the firms various businesses via employ trading desk product control teams. In the United States and United Kingdom, a Financial Controller is a senior position, often reporting to the chieftain Financial Officer. Corporate strategy, along with ri sk, treasury, and controllers, also often falls under the finance division.Back OfficeOperationsThis involves data-checking trades that have been conducted, ensuring that they are not erroneous, and transacting the required transfers. Many banks have outsourced operations. It is, however, a critical part of the bank. cod to increased competition in finance related careers, college degrees are now mandatory at most Tier 1 investment banks. A finance degree has proved significant in understanding the reasonableness of the deals and transactions that occur across all the divisions of the bank.TechnologyEvery major investment bank has considerable amounts of in-house software, created by the technology team, who are also responsible for technical support. Technology has changed considerably in the last few years as more sales and trading desks are using electronic trading. Some trades are initiated by complex algorithms for hedging purposes. Firms are responsible for compliance with g overnment regulations and internal regulations. Principal Investing and branded TradingpicInvestment banks have attempted to increase their return on equity by investing their own capital into certain ventures. The bank invests its own capital by taking a equity or debt stake in corporations with the aim of influencing the management. The motive is very similar to that private equity investors the bank tries to profit by turning around companies. The bank can also take short-term positions in the market with its own capital. This is known as proprietary trading, and the bank attempts to earn a profit by correctly predicting market movements.Proprietary trading is very different from normal sales and trading operations where the banks revenue is primarily certified on the volume of trade it executes on behalf of its client. The notion of the bank risking its own capital can be traced back ever since banking was invented. J.P. Morgan, founder of J P Morgan Chase, was an extremely successful investor. However, in recent years, Goldman Sachs has been the leader in this field in 2007, the bank profited greatly from the proprietary trades that it made against the sub-prime market. In many cases, the banks allow other investors to invest in such ventures (and charge a management fee). This puts them in direct competitor with hedge funds and private equity firms for both investors and investing opportunities.INVESTMENT BANKING IN THE twentieth CENTURYIn the mid-20th century, large investment banks were dominated by the dealmakers. Advising clients on mergers and acquisitions and public offerings was the main focus of major Wall Street partnerships. These belt down bracket firms included Goldman Sachs, Morgan Stanley, Lehman Brothers, First Boston and others. That trend began to change in the 1980s as a new focus on trading propelled firms such as Salomon Brothers, Merrill Lynch and Drexel Burnham Lambert into the limelight. Investment banks earned an increase a mount of their profits from proprietary trading. Advances in computing technology also enabled banks to use more sophisticated model driven software to execute trades and generate a profit on small changes in market conditions. In the 1980s, financier Michael Milken popularized the use of high yield debt (also known as junk bonds) in corporate finance and mergers and acquisitions.This fuelled a boom in leverage buyouts and hostile takeovers (see History of Private Equity). Filmmaker Oliver Stone immortalized the smell of the times with his movie, Wall Street, in which Michael Douglas played the role of corporate highwayman Gordon Gekko and epitomized corporate greed. Investment banks profited handsomely during the boom years of the 1990s and into the tech boom and bubble. When the tech bubble burst, it precipitated a string of new legislation to prevent conflicts of interest within investment banks. Investment banking research analysts had been actively promoting stocks to investo rs while privately acknowledging they were not attractive investments. In other instances, analysts gave good stock ratings to corporate clients in the hopes of attracting them as investment banking clients and handling potentially lucrative initial public offerings. These scandals paled by comparison to the financial crisis that has enveloped the banking industry since 2007.The speculative bubble in housing prices along with an overreliance on sub-prime mortgage lending trigged a cascade of crises. Two major investment banks, rotate Stearns and Lehman Brothers, collapsed under the weight of failed mortgage-backed securities. In March, 2008, the Federal government began using a variety of taxpayer-funded bailout measures to prop up other firms. The Federal Reserve offered a $30 billion line of credit to J.P. Morgan Chase to that it could acquire give birth Sterns. Bank of America acquired Merrill Lynch.The last two bulge bracket investment banks, Goldman Sachs and Morgan Stanley, elected to convert to bank holding companies and be fully regulated by the Federal Reserve. Moving forward, the recent financial crisis has weakened both the reputation and the dominance of U.S. investment banking organizations throughout the world. The growth of foreign capital markets along with an increase in pools of sovereign capital is changing the ornament of the industry. The growing international flow of capital has also opened up opportunities for investment banking in new financial centers around the world, including those in exploitation countries such as India, China and the Middle vitamin ESIZE OF THE manufacturingGlobal investment banking revenue increased for the fifth year discharge in 2007, to a record US$84.3 billion, which was up 22% on the previous year and more than double the level in 2003. ensuant to their exposure to United States sub-prime securities investments, many investment banks have experienced losings since this time. The United States was th e primary source of investment banking income in 2007, with 53% of the total, a proportion which has fallen somewhat during the past decade. Europe (with Middle East and Africa) generated 32% of the total, slightly up on its 30% share a decade ago. Asian countries generated the remaining 15%. Over the past decade, fee income from the US increased by 80%.This compares with a 217% increase in Europe and 250% increase in Asia during this period. The industry is heavily concentrated in a small number of major financial centres, including City of London, New York City, Hong Kong and Tokyo. Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. New products with higher margins are constantly invented and manufactured by bankers in the hope of benignant over clients and developing trading know-how in new markets. However, since these can usually not bepatented or copyrighte d, they are very often copied quickly by competing banks, pushing down trading margins. For example, trading bonds and equities for customers is now a good business, but structuring and trading derivatives retains higher margins in good timesand the risk of large losses in difficult market conditions, such as the credit crunch that began in 2007.Each over-the-counter contract has to be uniquely structured and could involve complex pay-off and risk profiles. Listed option contracts are traded through major exchanges, such as the CBOE, and are almost as commoditized as general equity securities. In addition, while many products have been commoditized, an increasing amount of profit within investment banks has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about the market flow, allowing it to theoretically make infract trades and pass on better guidance to clients).The fastest growing segm ents of the investment banking industry are private investments into public companies (PIPEs, otherwise known as Regulation D or Regulation S). Such transactions are privately negotiated between companies and accredited investors. These PIPE transactions are non-rule 144A transactions. great(p) bulge bracket brokerage firms and smaller boutique firms compete in this sector. Special purpose acquisition companies (SPACs) or blank check corporations have been created from this industry.