INVESTMENT BANKING SUMMARY

Investment bankers function as intermediaries between providers and users of capital by their activity in the market for new security issues as well as intermediating between investors in the remarketing of existing securities in the secondary markets.
    In the new issues market, the functions of the investment bankers include the negotiations and activities to make new securities acceptable in the market place (origination), the actual purchase of the new security from the issuer at a guaranteed price (underwriting), and the sale of the new security to the investing public through an underwriting syndicate (distribution).
    The investment banker also functions as an investment broker-dealer in the secondary securities market. The secondary market comprises organized exchanges and the over-the-counter market as well as the informal third and fourth markets where transactions are not brought to the organized markets.
    The broker-dealers are compensated for their intermediation activities in the secondary markets by the receipt of commission charges that are negotiated between brokers and their customers. Empirical study has shown that the commission charges are subject to economies for larger share volume and higher price stock transactions. Since income is based upon transactions volume and expenses involve large amounts of fixed costs for office and electronic equipment, brokerage firms experience great variation in earnings from year to year.