Security Brokers, Dealers, and Flotation Companies

SIC 6211

Companies in this industry

Industry report:

The securities industry is made up of establishments primarily engaged in the purchase, sale, and brokerage of securities. This industry also encompasses investment bankers, which originate, underwrite, and distribute issues of securities. Firms in this industry essentially serve as financial intermediaries, matching investors with entities that need money. They also provide a pricing mechanism for the investment market, and furnish a vehicle for the liquidation of investors' assets. Although many of these firms also provide investment consultation, companies engaged predominantly in advisement are classified in SIC 6282: Investment Advice.

Industry Snapshot

In 2010, this industry was reeling from the major upheaval that occurred during the subprime mortgage crisis of the late 2000s. Basically, in an effort to stimulate a lagging economy in 2001, the Federal Reserve began cutting interest rates, which in turn stimulated the housing market. The number of houses sold and the prices of houses rose dramatically in 2002. Many of these mortgages were packaged and sold as bundled securities to investors on Wall Street. The resulting profitability of mortgages encouraged banks to loosen lending standards and grant mortgages to even more consumers, including those with little or questionable credit. In addition, exporting much of the risk of mortgages to investors freed up capital for banks, and they started to offer very low adjustable rate mortgages (ARMs), which allowed consumers that may not be able to afford to by a home to buy one with a low mortgage payment. However, in 2006, the housing market stalled, and interest rates started to rise as the price of houses fell. Many of the ARMs granted earlier started to be reset at higher rates, resulting in large increases in many Americans' house payment. Thousands of Americans were not able to make this higher payment and defaulted on their loans. In turn, the investment packages that had been purchased by the security industry lost their value, and investors lost billions of dollars. On September 21, 2008, Goldman Sachs and Morgan Stanley, the only two remaining unregulated investment banks, converted to bank holding companies, effectively ending the era of investment banking on Wall Street.

Organization and Structure

Securities firms have three major functions in financial markets: they provide a mechanism that links people who have money with those seeking to raise money; they deliver a means of valuing and pricing investments; and they offer a vehicle that investors can use to liquidate their investments. Entities in the market that are served by securities firms include individuals, corporations, and governments.

Securities firms typically serve the first function, raising capital, through investment banking and brokerage activities. By acting as an intermediary between those with and those without capital, the firms channel funds between various sectors of the economy. The second function, pricing, is served when companies provide timely information to the marketplace about investments. The essential ability of securities firms to deliver this information quickly has made U.S. capital markets the world's most efficient. Liquidity, the third function, is served as brokers and dealers buy and sell securities for investors as efficiently as possible to avoid losses not related to market conditions.

Although not considered an integral function in the financial market, advisement and product development services offered by many full-service securities firms are significant factors in the dynamics of the industry. Companies continually strive to develop and refine financial instruments specifically tailored to customer needs. These instruments are designed to accomplish myriad investment goals including sheltering taxes, maximizing dividends, or increasing capital gains. Firms that engage in investment counseling provide extensive research for potential investors. These activities entail obtaining information on the customer's investment strategy and goals, providing information on various investment vehicles, offering advice on specific market trends and forecasts, providing information regarding government initiatives such as tax laws, and recommending investments that match the customer's needs.

Types of Securities.
Firms buy and sell an enormous variety of securities for their customers. These securities generally can be categorized as either equity or debt instruments. Equity instruments, most often stock, represent ownership interest in a firm and entitle the owner to a portion of the company's profits. Debt instruments, on the other hand, signify a promise on the part of the issuing entity to repay, at a specified time, a sum of money and an amount of interest for use of that money. Created as a means of raising capital, both debt and equity vehicles are often purchased and sold numerous times through various securities markets.

In addition to trading in traditional corporate stocks and bonds, securities firms sold increasing amounts of alternative investment vehicles in the 1990s and 2000s. These vehicles included municipal (state and local) bonds, junk bonds, options, mutual funds, asset and mortgage-backed securities, futures, and real estate investment trusts.

Two vehicles that received increased emphasis in security markets in the late twentieth and early twenty-first century were derivatives, such as futures and options. An option is a contract to purchase or sell shares of a particular stock. The contract specifies the security, the purchase or sale price, the life of the option, and the number of shares that the contract represents. A "put" option gives the owner the right to sell a security, while a "call" option allows the owner the choice of buying a security. In contrast to an option, a future is a commitment to receive or deliver a specified quantity and quality of a commodity by a specified future date. A future can be used to insure a transaction price at a date prior to the actual exchange.

Types of Firms.
Many securities firms serve as both brokers and dealers in the market. A broker is an agent who buys and sells securities on behalf of a client for a commission or fee. A dealer firm is a principal that buys and sells on its own account with the intention of making a profit. Firms that serve as broker-dealers typically have a headquarters office supported by numerous branch offices. The branch offices sell and market the company's services, while the main office handles administrative activities, research, and product development. Depending on the type and extent of services offered beyond brokerage and dealing activities, securities firms fall into one of several categories.

For instance, national full-line firms provide a range of services for both retail and institutional customers. These companies usually have many offices nationwide. Examples of such firms include Merrill Lynch and UBS Financial Services (which purchased Paine Webber in 2000). Investment banking firms, such as Goldman Sachs and Morgan Stanley, primarily provide institutional customers with services related to underwriting new securities issues, and mergers and acquisitions. They may also act as brokers and dealers. Regional firms offer full lines of securities products to customers within a particular geographic area. Large firms of this type are Robert W. Baird, Wheat First Securities, and Raymond James Associates.

In addition to full-service, investment banking, and regional firms, the marketplace also includes discount brokers. These companies allow retail customers to buy and sell securities for less than they would have to pay to a full-service broker. Because discount brokers usually do not offer investment advice, have sales staffs, or act as marketers for financial products, they are able to charge lower commissions. Popular firms in this category include Charles Schwab and Olde Discount. Industry revenues remained highly concentrated among the top-tier firms, as they have been since the inception of the industry.

Primary Marketplaces.
Industry participants buy, sell, and issue securities in three primary markets: exchange, over-the-counter (OTC), and money. Exchange markets provide organized trading facilities for stocks, bonds, and/or options. These facilities act as auction houses, where securities brokers and dealers essentially bid for securities. Organizations must meet requirements set forth by the exchange in order to have their securities listed, or made available for trade, on the exchange. The New York Stock Exchange (NYSE) is the best-known exchange, but others include the American Stock Exchange (AMEX), Midwest Stock Exchange, and the Chicago Board Options Exchange.

OTC markets, in contrast to organized exchange facilities, consist of a network of brokers and dealers that represents customers in the purchase or sale of securities. No central location exists for this type of market. Trading departments of securities firms negotiate price with customers or their agents over the telephone. OTC markets usually trade in securities of companies that are small in comparison to those on organized exchanges.

The money market trades mostly in short-term securities that have a maturity of one year or less. These instruments are characterized by high liquidity and typically trade in high denominations. Examples of securities traded in this market are U.S. treasury bills, certificates of deposit, and commercial paper. As with OTC markets, money markets do not have central trading places, and the market is composed primarily of banks and firms that borrow or invest large amounts of money for a short term.

Background and Development

The U.S. securities industry gradually evolved from a mix of financial services available as early as 1800. These services, and the subsequent development of a sophisticated industry, mimicked financial markets that developed in Europe in the eighteenth century. In fact, much of the early investment banking activity in the United States, which was responsible for issuing the first securities, was conducted through joint ventures between Europeans and Americans. Many of the famous families that helped to shape the American securities market are still well known, such as the Rothschilds, Warburgs, and Barings.

Throughout the nineteenth century the development of the American securities industry lagged several decades behind that of Europe. However, the Civil War and the construction of the U.S. railroads created a demand for financial services that spurred the growth of the investment banking and securities industry. In fact, government securities sold during the Civil War represented the first successful security offering made to the public on a large scale. This opened the way for sales and distribution systems that would be used by securities firms throughout the twentieth century. Some of the larger investment banking houses that dominated the nineteenth-century securities industry in the United States included Kuhn Loeb, Morgan, Lehman Brothers, and Goldman Sachs.

The securities industry rapidly expanded after World War I, as the prosperity of the 1920s caused an almost insatiable appetite for securities. Despite massive growth in the popularity of municipal and utility issues, for the first time in 1929, the volume of even more popular stock issues surpassed the amount of bonds issued. Throughout the 1920s, investment bankers raced to meet the demand for new securities. Even an influx of foreign securities was insufficient to satisfy consumers.

The immense success of the securities industry, however, foreshadowed its rapid decline and the subsequent transformation of its structure. The industry that had evolved by 1930 was loosely regulated and was dominated, many people at that time believed, by an exclusive network of power brokers. In addition, banks were allowed to participate in both commercial and investment banking activities, which created a conflict of interest for many firms.

The Industry Crash and Reformation.
The stock market crash of 1929 confirmed the suspicions of many that the securities industry was in need of reform. A variety of New Deal legislative orders quickly transformed the industry into one of the most regulated sectors of the American economy. In 1934, Congress established the Securities and Exchange Commission (SEC) to protect investors against fraud and mismanagement by securities firms and other investment entities. The Securities Exchange Commission (SEC) performs legislative, judicial, and executive functions. The most inclusive and far-reaching piece of legislation enacted by the SEC in the 1930s was the Glass-Steagall Act. Other laws included the Revenue Act, the Securities Act, and the Securities Exchange Act. These laws required stricter standards of disclosure and erected a barrier between investment and commercial banking. They were also used to strengthen the banking industry and to reduce speculative risks that threatened the health of the U.S. economy.

The result of the industry transfiguration was a relatively stable securities market throughout most of the remainder of the twentieth century. After 1930 the industry gradually grew and prospered under SEC regulation until the late 1960s, when demand for new business boomed. The amount of new common stock issued increased from about $10 billion in 1965 to a peak of over $40 billion by 1968. New issues of bonds reflected a similar pattern. Although the dynamics of the industry had changed significantly after 1930, the industry remained dominated by several of the larger brokerage houses until the late 1970s, when the increased volume allowed smaller companies to begin to establish a presence in the market.

One of the greatest developments in the securities industry occurred in 1975, when commissions that securities firms charged were deregulated, and negotiated rates were allowed. Since this time, market volume has increased dramatically, and new service offerings have increased. For example, the volume of common stock issued skyrocketed from about $40 billion per year in 1975, to over $75 billion by 1985. During the same period, the amount of new bond issues leapt from $40 billion to over $110 billion per year

The 1980s.
Deregulation of commission rates, a strong market demand for new issues of securities in a vibrant economy, and the increase in the volume and number of new financial instruments all contributed to the growth of the securities industry in the mid-1980s. Between 1982 and 1986 combined industry commissions on securities rose from $6 billion to over $12.6 billion, and total industry revenues jumped from $23.2 billion to $50 billion. Industry employment soared from about 170,000 in 1980 to a peak of 262,000 in 1987. In addition, merger and acquisition activity by American companies, which securities firms handled, proliferated throughout most of the decade, peaking at over $250 billion of completed deals in 1988. Leveraged buyouts and junk bond issues, both of which were high margin activities for securities firms, also added to industry growth and profitability.

Just as the boom of the 1920s foreshadowed the fall of securities markets in the 1930s, the mid-1980s were a prelude to industry setbacks in the late 1980s and early 1990s. The stock market crash on Black Monday in October of 1987 significantly diminished activity and profits for securities firms during the next few years. As equity and debt trading declined, and mergers and acquisitions decreased between 1987 and 1990, pretax income for the entire industry plummeted from $8.3 billion in 1986 to $3.2 billion in 1987 and $800 million by 1990. As industry employment fell to less than 210,000 in 1990, Wall Street posted its worst year on record.

As if economic woes were not enough, the industry was also rocked by scandals in the late 1980s. Arrests and indictments of executives from some of the largest brokerage houses in the United States shook up Wall Street. Charges by the SEC ranged from insider trading, or trading while in possession of nonpublic information, to concealing stock ownership. Charges against Dennis Levine of Drexel Burnham Lambert Inc. and Ivan Boesky in 1986 led to subsequent investigations of a number of prominent Wall Street figures. Boesky received three years in prison and a $100 million civil penalty. Levine was sentenced to serve four years in prison and was fined $362,000.

Increased Competition.
At the same time that the securities industry was experiencing its volatile rise and fall during the 1980s, it was also undergoing structural changes. The initiation of negotiated competitive commissions in 1975 gradually reduced the percentage of company revenues created by commissions. In fact, commission income as a percentage of total industry revenues plummeted from over 40 percent in 1976 to 16 percent by 1990.

Other regulatory changes also jostled the market. Some of these laws were prompted by scandals that tarnished the industry's image during the 1980s, while others were a result of a changing marketplace. For instance, the Glass-Steagall Act was essentially dismantled, as regulators tried to make the U.S. banking industry more competitive in global markets. Additionally, the Tax Equity and Fiscal Responsibility Act (TEFRA) and Rule 415 also affected the industry. TEFRA, which increased reporting requirements for securities companies, compelled firms to invest in costly information technology. Rule 415 allowed multiple security offerings to be covered by one underwriting, thereby increasing fee competition in the industry.

Besides regulatory changes, three major factors increased the competitiveness of the industry. First, the pool of investment dollars grew because of large increases in the size of pension funds. Secondly, interest-rate volatility was partly responsible for growth in the trading of fixed-income investment products, which increased opportunities for commissions in the industry. Finally, rapid growth in the federal deficit resulted in a large increase in the available pool of U.S. government investment instruments, causing increased trading in bonds.

One effect of these changes was the entrance of new players in securities markets. Banks, insurance companies, and investment advisors, among others, all began competing for a piece of the securities market pie in the late 1980s, placing downward pressure on securities firms' profits. Furthermore, discount brokers, many of which charged as much as 90 percent less than full-service firms, cornered 20 percent of the individual investor market during the 1980s.

Securities firms reacted to increased competition and reduced commission income in two ways. First, they emphasized the services side of their business, relying less on income from buying and selling securities and more on money management and advisory services. Secondly, the number of firms in the industry declined, as companies merged to benefit from economies of scale. Besides mergers between securities firms, several large firms also merged with insurance companies and other institutions that complemented their role in the market. For example, Kemper Insurance Company merged with five regional broker-dealers. The number of securities firms fell from a peak of 9,515 in 1987 to 7,610 in 1992.

Despite significant setbacks for securities firms triggered by the 1987 stock market crash and aggravated by increased competition, the industry staged an amazing recovery by 1991 and 1992. Following one of its worst years on record in 1990, industry pretax income rose to historical highs of $8.6 billion in 1991 and more than $10 billion in 1992. Low interest rates and high stock prices sparked much of the activity. Lower rates increased the amount of new debt offerings and encouraged corporations, municipalities, and homeowners to refinance their existing debt. Because stock prices were high in relation to company earnings, corporations tended to issue more new equities.

However, the bond market crashed in 1994 as a result of an unexpected rise in interest rates. Furthermore, brokerage companies experienced slowdowns in underwriting and trading. Firms became stuck with unwieldy cost structures that outstripped revenues. Thus, Wall Street firms curtailed expansion plans and eliminated more marginal businesses.

In 1995, pretax profits of NYSE-member securities firms soared. Virtually all revenue components posted increases led by trading gains. Commissions and asset management fees also hit new highs. In 1995, securities firms took in $6.58 billion in disclosed underwriting fees, making 1995 Wall Street's third-best year ever. Triggering the surge in fees was robust activity in stock sales, the most lucrative underwriting sector. Stock sales yielded $4.02 billion in fees alone, or nearly two-thirds of all underwriting fees.

In 1995 all records for mergers and acquisitions activity in the United States and abroad were broken. An unprecedented $458 billion in deals was announced by U.S. companies, up 32 percent from the old record of $347 billion reached in 1994. Globally, a record $866 billion in transactions was reached, up 51 percent from the $572 billion announced in 1994.

In late 1996, the Federal Reserve Board loosened the cap on banks' underwritings from 10 percent to 25 percent of the revenue in their securities' affiliates. Furthermore, during 1996, industry firms continued to diversify their revenue bases. A generally favorable environment for financial assets continued to provide a backdrop for impressive profits postings in the industry. Mutual fund inflows and trading volumes increased.

The late 1990s saw the advent of online trading, a trend that revolutionized and changed the industry. According to an article in The Economist, one of every six shares traded during 1999 was traded through the Internet, or 500,000 shares per day. In 1994 there were no online brokerage accounts; by 1999, 5 million of these accounts were active. Online brokerage firms were typically discount brokerages, with an average commission of $15.00 per trade, much less than the full-service brokerage fee of $100 to $300 per trade. Traditional brokerages such as Merrill Lynch appeared not to be concerned with the rising competition--arguing that the discount online brokerage model was not sustainable in a business sense. Online brokers continued to shape their niche in the industry by offering additional services and products such as insurance or online research on companies. The CEO of Prudential Securities, a traditional firm without online trading, suggested that the value for consumers in sticking with a traditional firm lay with the advice that the firm could provide, rather than the actual execution of the trade, which online providers excel at, and offer at a cheap price.

Performance among online brokerages varied as these companies evolved in the late 1990s. A Kiplinger's article surveyed the performances of online brokerages and found a disparity in the quality of service provided. Among the disadvantages of online brokerages were long phone waits (one investor reportedly lost $5,000 because he couldn't get through to the firm), computer crashes, or difficulty logging onto the brokerage site. Advantages included low brokerage fees from some companies (good for frequent traders) and information available on a brokerage site. Using several criteria for ranking online brokerages (including commissions, responsiveness, margin rates, availability of initial public offerings [IPOs], broker knowledge, and Web site), Kiplinger's ranked Accutrade and Ameritrade highly. Web Street Securities received the lowest overall rating. Forbes 1999 Annual Report noted that Charles Schwab, a traditional brokerage firm, had done well both in establishing dominance in the mutual fund market and in online brokerage services.

After a robust period during the late 1990s, the stock market fell over drastically during the early 2000s. However, in 2004, spurred by low interest rates and increased market activity, daily average dollar volume on both the New York Stock Exchange (NYSE) and Nasdaq reversed the three-year downward trend. Although still well below the record levels of 2000, the NYSE's daily average dollar volume jumped 19.9 percent in 2004 to $46.1 billion, and Nasdaq's volume increased by 23.7 percent to $34.6 billion. In addition, the NYSE's average daily share volume reached 1.46 billion, a record high in 2004, and Nasdaq's average daily share volume was 1.69 billion, the second-highest recorded total.

By the mid-2000s, the industry was undergoing some consolidation efforts to grow profits and decrease costs. Additionally, the lines between online and traditional trading were becoming more blurred, but the industry's biggest players continued to dominate the industry. For example, according to Thomson Financial, during the first quarter of 2005, the top ten firms accounted for 60 percent of global debt, equity, and equity-related volume. Causes for concern during 2005 included gradually rising interest rates and high oil prices.

In June 2005, online discount trader Ameritrade Holding Corp. announced the purchase of rival TD Waterhouse USA for $2.9 billion in stock, creating a company with an estimated worth of $9 billion. The acquisition was deemed a logical consequence of the declining online trading volume following the bust of the dot-com industry in 2000. During the mid-2000s, online traders were working hard to balance discount services with increased customer service as more consumers looked for solid financial advance before investing money they could not afford to lose.

Another issue the industry was coping with in the mid-2000s was compliance costs, partly in response to the USA Patriot Act following the terrorist attacks on September 11, 2001, and the Sarbanes-Oxley Act of 2002, which mandated increased reporting of internal control. Those and other factors caused the cost of compliance to nearly double between 2002 and 2005, according to a Securities Association Industry survey. The 2005 survey found that compliance costs rose from $13 billion in 2002 to $25 billion in 2005, an increase approximately equivalent to 5 percent of the industry's annual net revenues.

As the industry got a handle on compliance costs, profits jumped dramatically on the strength of trading gains and record underwriting revenue. In 2006 the U.S. securities industry posted record profits of $33.1 billion, an increase of 88.2 percent from 2005. The previous high of $31.6 billion had come in 2000, before the industry faced a sluggish economy exacerbated by the terrorist attacks of September 11, 2001. The hey-day was short-lived, however, as the subprime mortgage crisis and financial meltdown of the late 2000s brought drove many companies deep into the red. By 2007, the United States had entered an economic recession that many compared to the Great Depression of the 1930s.

Current Conditions

In 2010, investment companies continued to operate, although under vastly different conditions than those of just a few years earlier. Further changes were pending in the industry as participants waited to experience the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in July 2010. The act brought about a sweeping reform of the entire financial services industry in the United States. As stated by the Securities Industry and Financial Markets Association (SIFMA), the Dodd-Frank Act involved "an unprecedented two- to five-year rulemaking process where roughly 250 new regulations will need to be researched and written by at least a dozen regulatory agencies." The SIFMA went on to say that although passage of the act "brought to a close the first stage of financial regulatory reform; the rulemaking phase, however, is just beginning. ... the final outcome of regulatory reform will not be known for years in some areas."

According to Hoover's, in 2010 the U.S. securities brokerage industry comprised about 7,500 companies with combined annual revenue of approximately $150 billion. The industry was highly concentrated, with the top 50 companies accounting for more than 80 percent of revenue. On a more general scale, the Investment Company Institute reported in 2009 that about 16,120 U.S. investment companies managed more than $12 trillion in assets for 90 million Americans.

Industry Leaders

Security and investment firms thrived during the early and mid-2000s, only to be wiped out by the subprime mortgage crisis late in the decade.

In 2004, Morgan Stanley edged out long-time rival Merrill Lynch to claim the top spot as the top national investment brokerage firm, based on total assets of $24.4 billion. Despite its perennial presence as a leader in the industry, Morgan Stanley struggled with internal discord during the mid-2000s. Chief executive officer Philip Purcell announced his resignation in June 2005 after two vice presidents, and possible successors, stormed out in March. This unleashed a wave of managerial discontent and employee defections, including one-third of the company's powerful managerial committee. In the mayhem, the company's performance declined during the first half of 2005. By 2006, however, Morgan Stanley rebounded to post net income growth of 51.3 percent with a net income of $7.5 billion on revenues of $76.6 billion.

The bursting of the housing bubble and subsequent losses from the subprime mortgage crisis moved the firm to obtain a $5 billion capital infusion from the China Investment Corp. in 2007, and in 2008 the Mitsubishi UFJ Financial Group, Japan's largest bank, invested $9 billion in the company. The most significant change, however, came in on September 21, 2008, when the firm converted to a bank holding company, regulated by the Federal Reserve. Morgan Stanley continued to offer investment services and in 2009 purchased Smith Barney from Citigroup to become Morgan Stanley Smith Barney.

In 2006, Merrill Lynch and Company, Inc. of New York was one of the world's largest equities underwriters, providing financing, investment, and insurance services to clients worldwide. Merrill Lynch was one of the few financial services companies to have achieved strength in both the retail and institutional markets at home and abroad. However, the firm found itself in trouble during the late 2000s as well. After losing $19.2 billion in one year, the firm fired CEO E. Stanley O'Neal and started selling off assets. Bloomberg reported the firm's final losses from the subprime mortgage crisis totaled $51.8 billion. Merrill Lynch struggled through the rest of the decade amid a flurry of lawsuits. In September 2008, the firm was sold to Bank of America for about $50 billion in shares.

Citigroup, the first U.S. financial firm to log $1 trillion in assets, reported revenues of $146.6 billion in 2006. Citigroup's organization, which by 2005 included Smith Barney, led the industry in underwriting and in numerous securities categories. According to Thomson Financial, Citigroup was the leader in global debt, equity, and equity-related volume, with more than 9 percent market share, followed by Morgan Stanley, which led the industry in the IPO sector.

Citigroup also lost billions of dollars in the late 2000s. In 2008 it received a major bailout from the U.S. government, and by June 2009 it had been dropped from the Dow Jones Industrial Average due to the percentage of government ownership.


Employment increased rapidly during the late 1990s and first years of the 2000s, as the industry opened up to banks' involvement with the passage of the Gramm-Leach-Bliley Act in 1999. Employment numbers skyrocketed from 770,000 in 2000 to over 840,000 in 2001. However, the decline in the stock market during the early 2000s led to intensive cost-cutting measures within the industry, and employment numbers fell off to a low of 751,000 during 2003. As economic conditions improved, firms loosened strict hiring freezes and employment climbed to 781,000 by the beginning of 2005. According to the U.S. Securities Industry and Financial Markets Association, total employment in the industry stood at 793,800 in mid-2010.

Employment in the field typically requires knowledge of finance and investments, although many brokers in the past have started their careers with little of either. Jobs usually are available in one of five basic functional areas: sales and marketing, where securities or financial products are sold directly to customers; investment banking; research; trading, which often entails buying and selling on an exchange floor; and finance and administration. Although salaries in more traditional business functions are similar to other industries, salaries in commission-based positions in brokerage or sales can vary greatly depending on the market and the success of the worker.

One of the most glamorous and high-paying areas, and the most difficult to break into, is investment banking. Although employment in the field declined after the mid 1980s, the industry remains cyclical, and economic growth could open more opportunities in this field. Successful investment bankers typically work long hours, have a master's degree in business administration, and work in one of a few large metropolitan areas, particularly New York.

America and the World

Securities firms in the United States, as well as in other countries, often deal in foreign markets to access untapped capital, among other reasons. By issuing a security in a foreign market, a company can increase the success of its offering simply by increasing the size of the potential market. A second important impetus for buying and selling overseas securities is to achieve greater returns and asset diversification. Although the United States maintained the largest and most efficient securities industry and markets in the world, foreign securities industries were becoming increasingly competitive, and overseas markets more attractive.

Although new technology was the greatest reason for the emergence of the global securities market, regulatory reform on all continents was also an important factor. This has resulted as governments have discovered that globalized financial markets encourage flows of capital to regions offering the best returns. They also recognized that open markets have allowed investors to achieve greater portfolio diversification, thus creating more stable markets.

The United States has been a leader in the opening of markets for foreign investment. During the 1980s, the SEC revised many of its rules to assure that capital raising in the United States by foreign issuers was not unnecessarily hampered. In 1990, the SEC adopted Rule 144a, which made it easier for large institutions to trade certain securities among themselves, thereby encouraging foreign issuers to invest in U.S. markets despite U.S. disclosure requirements. In 1991, the SEC acted again by allowing certain Canadian firms to issue securities prepared in accordance with Canadian requirements, rather than under U.S. laws. Furthermore, in the 1990s, foreign companies increasingly issued American Depository Receipts (ADRs) in the United States in order to obtain additional sources of equity capital.

Similar breakdowns in barriers of overseas markets in the 1980s and early 1990s were encouraging U.S. securities firms to venture abroad as well, often despite less efficient overseas markets. For instance, surplus countries -- such as Japan -- have opened their markets as a result of pressure from other nations seeking a greater balance of world capital flows. In fact, Japan and England both led other Asian and European nations to deregulate their markets when both countries abolished many of their controls in 1979. Further reorganization of financial markets by the European Community promises more efficient markets in the future.

The ramifications of global markets for the U.S. securities industry include the potential for a broadened role in world financial markets, more investment alternatives and financial products, greater access to capital, and a greater volume of transactions. As markets continue to become more efficient, and foreign securities industries become more advanced, however, the global market will also mean greater competition for U.S. firms.

Research and Technology

Advances in technology continued to have a marked impact on the securities industry. Technology was rapidly changing the entire structure of the industry in several ways. Companies were relying increasingly on computer automation to reduce costs and to meet federal reporting requirements. In addition, markets and exchanges in the United States were becoming more "electronic" each year, allowing various trading functions to be conducted by computer. Finally, computer technology was quickly creating a global securities market in which investors and capital seekers around the world could collaborate.

Successful securities firms were those that had made, or were making, the technological leap from transaction processors to information processors. Firms were coordinating sales, trading, and financial advisory services through advanced information system networks. This was allowing companies to reduce transaction costs, make better investment decisions, and deliver new products more quickly, thereby increasing customer service and lowering overhead costs. Advanced information systems were also becoming vital as a result of increased SEC reporting requirements.

Besides making companies within the industry more productive, information technology was also altering the way that securities were bought and sold in the marketplace. For instance, programmed trading allows brokers and dealers to complete transactions by computer, rather than from the floor of an exchange. Electronic trading had become fairly standard as the country headed into the second decade of the twenty-first century.

In addition to changes it has prompted in the way firms and markets operate, information technology has had the most notable impact upon global securities markets. Advancements in telecommunications and satellite systems allow investors and capital seekers to monitor and participate in world markets on a minute-by-minute basis. Indeed, all market participants now have access to information allowing them to swiftly orchestrate complex financing techniques that simultaneously integrate multiple national markets.

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Internet Wire; May 28, 2002; 700+ words
...benchmark a company's financial...Security Brokers, Dealers and Flotation Companies" industry...methods of company benchmarking...Flotation Companies" industry...many other "Security Brokers...Inc., BWD Securities PLC, E...

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