Emurse

The securities, commodities, and other investments industry is made up of a variety of firms and organizations that bring together buyers and sellers of securities and commodities, manage investments, and offer financial advice. The industry has undergone substantial change because of improvements in technology, deregulation of financial services, regulatory changes, the globalization of the marketplace, and demographics. The Internet, along with high-speed computer systems, has dramatically altered the way in which securities and commodities are bought and sold, almost completely automating the transaction process. At the same time, the number of financial services being offered is rising as firms look for new ways to attract the business of an increasingly wealthy and investment-savvy public.

The Securities and Exchange Commission (SEC) and major stock exchanges have instituted accounting and corporate reforms to increase public confidence in investment markets. These new rules address conflict-of-interest issues raised by Federal, State, and industry investigations into overly optimistic research reports—written by analysts during the stock boom of the late 1990s—on companies that later failed or whose stock declined dramatically in value, costing investors billions of dollars. Furthermore, the securities industry adopted measures to help ensure that research reports are written independently. They also require that analysts disclose details of their compensation that would make investors aware of any possible conflicts of interest. These measures also prohibit stock analysts from attending investment meetings at which investment bankers try to obtain lucrative stock and bond deals.

Also, the SEC now requires corporate chief executive officers (CEOs) to certify the reliability of their companie's financial reports. In addition, the New York Stock Exchange (NYSE) has implemented new rules to separate investment banking from company research.

One of the most important functions of the industry is to facilitate the trading of securities and commodities by bringing together buyers and sellers. Brokerage firms typically provide this function. In these firms, investors place their buy and sell orders for a particular security or commodity by telephone, online by computer, or through a broker. The firm fills the order in one of three ways. If the stock or commodity is sold on an exchange, such as the NYSE or the Chicago Mercantile Exchange (CME), the firm will send the order electronically to the company's floor broker at the exchange. The floor broker will then post the order and execute the trade by finding a seller or buyer who offers the best price for the client. Alternatively, if a security is sold through a dealer network, such as Nasdaq, the broker can access a computer network that lists the prices for which dealers in that particular security are willing to buy or sell it. If a price that the client agrees with is found, then a purchase or sale is made. Large investors and brokerage firms also can buy and sell securities and commodities on “electronic communications networks,” or ECNs—powerful computers that automatically list, match, and execute trades, eliminating the sales agent. ECNs commonly are used for stocks that trade frequently and in large numbers.

Brokerage firms generally are classified as full-service, discount, or online organizations. Investors who do not have time to research investments on their own will likely rely on a full-service broker to help them construct an investment portfolio, manage their investments, or make recommendations regarding which investments to buy. Full-service brokers have access to a wide range of reports and analyses from the company's large staff of financial analysts. These analysts research companies and recommend investments to people with different financial needs. Persons who prefer to select their own investments generally use a discount or online broker and pay lower commission charges. Discount firms usually do not offer advice about specific securities. Online brokerage firms make their trades over the Internet in order to keep costs down and fees low. Discount brokerage firms usually have branch offices, while online firms do not. Most brokerage firms now have call centers staffed with both licensed sales agents and customer service representatives who take orders and answer questions at all hours of the day.

Brokerage firms also provide investment banking services; that is, they act as intermediaries between those companies or governments which would like to raise money and those with money or capital to invest. Investment banking usually involves the firm buying initial stock or bond offerings from private companies or from Federal, State, and local governments and, in turn, selling them to investors for a potential profit. This service can be risky, especially when it involves a new company selling stock to the public for the first time. Investment bankers must try to determine the value of the company on the basis of a number of factors, including projected growth and sales, and decide what price investors are willing to pay for the new stock. Investment bankers also advise businesses on merger and acquisition strategies and may arrange for the transfer of ownership.

Companies that specialize in providing investment advice, portfolio management, and trust, fiduciary, and custody activities also are included in this industry. These companies range from very large mutual fund management companies to self-employed personal financial advisors or financial planners. Also included are managers of pension funds, commodity pools, trust funds, and other investment accounts. Portfolio or asset management companies direct the investment decisions for investors who have chosen to pool their assets in order to have them professionally managed. Many brokerage firms also provide these services. Personal financial advisors can manage investments for individuals as well, but their main objective is to be able to provide advice on a wide range of financial matters .

A relatively small number of professionals in the industry work in the exchanges, where the actual trading of securities and commodities takes place. Computers and their applications have made brokers in the exchanges much more productive and capable of handling the increasing volume of trades.

Firms in this industry offer a number of other services. Many offer cash management accounts that allow account holders to deposit money into a money market fund against which they can write checks, take out margin loans, or use a debit card. Some brokerage firms offer mortgages and other types of loans and lines of credit. They also may offer trust services and help businesses set up benefit plans for their employees. Finally, firms in the industry may sell annuities and other life insurance products.

The securities, commodities, and other investments industry has invested heavily in technology, allowing firms to handle larger volumes of trades with fewer people. The growth of online trading in particular has produced a number of online trading firms. In order to compete, many full-service brokerage firms offer online trading to their customers. This explosion in technology is changing the nature of many of the jobs and the mix of people employed by securities firms. Some companies are more likely to resemble information technology companies than securities firms, with most of the employees working in computer-related occupations. Across the industry, computer professionals are accounting for a greater proportion of the workforce. Moreover, with so much business now being conducted online and through call centers, traditional sales agents are spending less time processing orders and more time seeking out new clients and offering detailed advice.

Employment in each of the segments of the securities, commodities, and other investments industry is directly affected by the activity of the stock market and futures market and the savings and investment goals of individuals. Because these factors are determined largely by the strength of the economy, the industry prospers during good economic times, but is much more adversely affected by downturns than are many other industries.