Sell side
From Wikipedia, the free encyclopedia
Sell side is a term used in the financial services industry to mean providing services to sell securities. Firms or institutions on this side include investment banks, brokerages and market makers, who facilitate offering securities to investors, conducting research and creating financial products.
The three main markets for this selling are the stock, bond, and foreign exchange market. It is a general term that indicates a firm that sells investment services to asset management firms, typically referred to as the buy side, or corporate entities. The sell side and the buy side work hand in hand and each side could not exist without the other.[1] These services encompass a broad range of activities, including broking/dealing, investment banking, advisory functions, and investment research.
In the capacity of a broker-dealer, "sell side" refers to firms that take orders from buy side firms and then "work" the orders. This is typically achieved by splitting them into smaller orders which are then sent directly to an exchange or to other firms. Sell side firms are intermediaries whose task is to sell securities to investors (usually the buy side i.e. investing institutions such as mutual funds, pension funds and insurance firms).
Sell side firms are paid through commissions charged on the sales price of the stock to its customers because the firm handles all the details of the trade on the customer's behalf. Another source of money would be the idea of a spread. A spread is the difference when one sell side firm sells to a client and then goes on to sell the security to another client. Clients of the sell side can be high-net-worth individuals or institutions that include retirement funds for cities or states, as well as mutual funds.[2] Sell side firms employ research analysts, traders and salespeople who collectively strive to generate ideas and execute trades for buy side firms, enticing them to do business.
Roles of sell side analysts
Sell side analysts have many roles. Sell side analysts rank stocks on a regular basis with three main options: buy, sell and hold. Part of the research analyst's job includes publishing research reports on public companies; these reports analyze their business and provide recommendations on the purchase or sale of the stock. Often, research analysts on the sell side cover an entire fund with a specific purpose or devoted to a specific sector. Sometimes a different approach is taken whereby multiple committees are in charge of different parts of the investment making process.[2] Sell side analysts generally get their information for their reports from a variety of sources including public and private sources. The research reports ultimately published contain earnings forecasts, future prospects and recommendations as previously mentioned.[3] In addition to the aforementioned, sell side analysts have the responsibility to take time and develop relationships with their clients as well as the companies they are researching. There has been research into the relationship between the quality of the research and the amount of capital that the firm collectively raises for its many clients. Many research analysts focus on one particular sector or industry such as telecom, technology, or healthcare, among many others.[2] Sell side analysts are responsible for creating a pitch, usually in the form of a book, that is then presented to prospective clients usually for new stock.
In 1975, the structure of sales commissions underwent significant reform when the US Congress ended the SEC's requirement of having a minimum commission, also known as deregulation. One recent trend in the industry has been the unbundling of commission rates; simply put, this is the process of separating the cost of trading the stock (e.g. trader's salaries) from the cost of research (e.g. research analyst salaries). This process allows buy side firms to purchase research from the best research firms and trade through the best trading firms, which often are not one and the same.
