Investment banks play a triple role as market makers, brokers and traders in the secondary market. As a market maker, after underwriting securities, investment banks have the obligation to create a secondary market with strong liquidity for the securities and maintain the stability of market prices. As brokers, investment banks trade on behalf of buyers or sellers and on behalf of prices provided by customers.

2. Private placement of securities

There are two ways to issue securities: public offering and private offering. The former underwriting is actually a public offering. Private placement, also known as private placement, means that issuers do not sell securities to the public, but only to a limited number of institutional investors, such as insurance companies and mutual funds.

Private placement is not restricted by public offering laws and regulations, which can not only save issuing time and cost, but also bring higher yield to investment banks and investors than trading securities with the same structure in the open market. Therefore, the scale of private placement is still expanding. But at the same time, private placement also has some shortcomings, such as poor liquidity, narrow distribution area, and difficulty in public listing to expand corporate visibility.

Extended data

Development of investment banks

In the past two decades, investment banking has been in the internationalization, diversification, specialization and centralization of financial business, and has tried to open up various market spaces. These changes are constantly changing investment banks and investment banking business, and have a far-reaching impact on the world economy and financial system, forming a distinct and powerful development trend.

Since the 1960s and 1970s, western developed countries have gradually relaxed financial control and allowed different financial institutions to cross business appropriately, thus creating conditions for the diversified development of investment banking. In 1980s, with the increasingly fierce market competition and the continuous development and perfection of financial innovation tools, this trend was further strengthened.

Nowadays, investment banks have completely jumped out of the narrow business framework of traditional securities underwriting and brokerage, and formed diversified business structures such as securities underwriting and brokerage, private placement, mergers and acquisitions, project financing, corporate wealth management, fund management, investment consulting, asset securitization and venture capital.

Specialized division of labor and cooperation is the inevitable requirement of socialized mass production. In the process of diversified development of the whole financial system, the specialization of investment banking business has become inevitable, and major investment banks have their own strengths while expanding their business diversification.

Reference source Baidu Encyclopedia-Investment Bank