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Exploring the Sell Side of the Financial Markets

The buy side and sell side are the two “hemispheres” of the financial markets. While the buy side spends money to purchase assets for the portfolios of institutions like mutual funds, pension funds, hedge private equity funds, ETFs, and insurance companies, it’s the sell side that provides the securities to fulfill the needs of these investors. Sell-side firms are also called investment banks, wire houses, and broker-dealers. Among the highly recognized global sell-side firms are JPMorgan Chase, Goldman Sachs, Bank of America Securities, Morgan Stanley, BofA Securities, Citigroup, Credit Suisse, Barclays Investment Bank and Deutsche Bank.

What Do Sell-Side Firms Do?

The sell-side creates and services the products that are sold to buy-side customers. Sell-side financial firms engage in both primary and secondary market activities.

Primary market functions include investment banking and underwriting, which specialize in selling new securities to the marketplace to raise capital for business operations and expansions. Firms with this expertise assist in structuring offerings of stocks, bonds, and other securities; preparing documentation for registering with federal and state regulators; and planning the sale of the securities to the public. As underwriters, these firms assume some or all of the financial risk of selling the securities to the public so that the issuing company can benefit from the sales proceeds. In preparation for the sale, the team will conduct road shows to market the securities and develop investor interest. The securities that are offered are sold to institutional buy-side investors as well as retail clients.

In the secondary market, existing securities are traded between buyers and sellers, facilitated by the sales and trading divisions of sell-side firms. These trades take place on exchanges, like the New York Stock Exchange (NYSE) and Nasdaq, along with many other small and large electronic exchanges. Trades in securities that aren’t included, or listed, on an exchange are executed “over-the-counter” (OTC) through a decentralized network of market makers. There is no specific location for trading with these firms; trades are executed through the dealers online or by telephone. The OTC market includes securities of smaller and less established companies, along with derivatives, foreign currencies, and foreign securities. Overall, these securities are higher risk than exchange-traded securities. The market-making divisions of sell-side firms act as dealers in the OTC market. They invest capital in offering securities for sale and purchasing them from sellers to keep the market active. They are required by regulation to be ready to buy or sell a minimum amount of the securities at any time to provide market liquidity.

To summarize, the services that firms on the sell side offer to potential and existing investors include:

  • Advising firms on raising debt and equity capital
  • Facilitating the raising of capital through public and private offerings of debt and equity securities
  • Finding new business relationships and potential buyers
  • Trading securities to allow customers to move in and out of the market
  • Creating liquidity in the secondary markets through market-making activity
  • Providing research reports on equity and debt securities
  • Developing models and valuations services for customers
  • Advising customers on mergers and acquisitions (M&A) activity

Working on the Sell Side of the Financial Markets

Sell-side careers attract competitive, highly motivated individuals and usually require even stronger selling skills than buy-side careers, especially in senior-level positions. Compensation to firms on the sell side is generally in the form of fees and commissions that are earned when transactions are completed. The overriding objective is to bring as many solid deals to the table as possible and to guide them successfully across the finish line for pay day. Individuals that choose sell-side careers opt for long hours in high-pressure environments, but the financial rewards, especially bonuses, can be exceptional.

To work your way into a sell-side career, you’ll need a strong finance background and a degree from a reputable college or university. Look for internships with big-name firms as early as possible, as internships are the best possible foot in the door for these positions. Sell-side employers look for skills in:

  • Excel and financial modeling
  • Industry research and research-reporting capabilities
  • Creating a pitchbook and delivering presentations
  • Sales, closing, and relationship management

Finally, an excellent credential for anyone considering a sell-side career is a securities license. You can obtain partial licensing prior to employment by passing the SIE Exam with the help of Knopman Marks Financial Training. We’ll partner with you and guide you to success as you position yourself for a stand-out career in finance.

Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.