Investment Bank

Investment banks:

• Don’t take deposits
• Underwrite a company’s stock (become a Market Maker)
• Pocket the difference between buy and sell (Underwriting Spread)

Operations §

• Primary Market (=“corporate finance”)
  • Helping firms borrow for the first time
  • Low volume, large transactions
  • IPO advising with Valuation
• Secondary Market (=“global markets”)
  • Trading already-issued securities in the market
  • High volue, small transactions

Organization of a Bank §

Books §

Banks keep track of their assets in mainly two books:

1. Banking book. Assets to keep long-term, often held to maturity. ¶mortgages, loans
   • Recorded as book value in Balance Sheet
2. Trading book. Assets to trade to make money. ¶stocks, Options.
   • Recorded as Mark-to-market in Balance Sheet

Divisions and Desks §

• Fixed Income Division (FICC)

  • Rates Desk
    • Government bonds
    • Interest rate swaps
    • ? Futures, swaptions
  • Credit Desk
    • Corporate bonds
    • Credit default swaps (CDS)
    • ? Credit indices (CDX, iTraxx)
  • FX Desk
    • Spot FX
    • FX Forwards
    • FX options
  • Commodities Desk
    • Oil, gas, metals
    • Commodity futures and options
    • ? Emerging Markets Desk
  • ? EM sovereign bonds
    • EM FX
    • EM CDS
  • Securitized Products Desk
    • Mortgage-backed securities (MBS)
    • Asset-backed securities (ABS)
    • ? Commercial MBS (CMBS)

• Equities Division

  • Cash Equities Desk
    • Single stocks
    • ETFs
    • Equity Derivatives Desk
    • Options
    • Equity swaps
    • ? Volatility products
  • ? Delta One Desk
    • Index swaps
    • ? Custom baskets
    • ETF arbitrage
  • Prime Brokerage
    • Client financing
    • ? Securities lending
    • ? Trade clearing

• ? Structured Products Division

  • ? Structured Notes Desk
    • ? Autocallables
    • Capital-protected products
  • ? Hybrid Derivatives Desk
    • Cross-asset derivatives (e.g., equity + FX)

• Other Groups (Support & Infrastructure)

  • Quant/Strats
    • Pricing models
    • Risk analytics
  • Treasury
    • Liquidity and balance sheet management
  • Risk Management
    • Limit monitoring
    • Value-at-Risk (VaR) controls