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intermediary between an issuer of new securities and the investor. The investment banker buys new securities and then sells them to the public at a higher price, earning a profit on the spread. Depending on the arrangement with the issuing company, the investment banker may perform the functions of underwriting, distribution of securities, and advice and counsel.
firm, acting as underwriter or agent, that serves as intermediary between an issuer of securities and the investing public. In what is termed firm commitment underwriting, the investment banker, either as manager or participating member of an investment banking syndicate, makes outright purchases of new securities from the issuer and distributes them to dealers and investors, profiting on the spread between the purchase price and the selling (public offering) price. Under a conditional arrangement called best effort , the investment banker markets a new issue without underwriting it, acting as agent rather than principal and taking a commission for whatever amount of securities the banker succeeds in marketing. Under another conditional arrangement, called standby commitment , the investment banker serves clients issuing new securities by agreeing to purchase for resale any securities not taken by existing holders of rights .
Where a client relationship exists, the investment banker's role begins with pre-underwriting counseling and continues after the distribution of securities is completed, in the form of ongoing expert advice and guidance, often including a seat on the board of directors. The direct underwriting responsibilities include preparing the Securities and Exchange Commission registration statement; consulting on pricing of the securities; forming and managing the syndicate; establishing a selling group if desired; and pegging (stabilizing) the price of the issue during the offering and distribution period.
In addition to new securities offerings, investment bankers handle the distribution of blocks of previously issued securities, either through secondary offerings or through negotiations; maintain markets for securities already distributed; and act as finders in the private placement of securities.
Along with their investment banking functions, the majority of investment bankers also maintain broker-dealer operations, serving both wholesale and retail clients in brokerage and advisory capacities and offering a growing number of related financial services.See also underwrite , secondary distribution , flotation (floatation) cost
firm, acting as underwriter or agent, that serves as intermediary between an issuer of securities and the investing public.See also best effort , firm commitment
one who brings new securities (e.g., stocks or bonds) to the market.
Example: An investment banker persuaded a municipality that needed to raise money to allow his firm to bring the securities to market, including pricing the issue.
Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.