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Buy Side & Sell Side. Alexander Motola, CFA. Sell Side. Brokerage Syndicate Custody & Prime Brokerage/Lending. Sell-Side/Brokerage. 4 Positions Broker Sales Trader Trader Analyst. Sell Side/Broker. Broker is a Buy Sider’s primary contact at the investment bank Broker’s job is to:

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Buy Side & Sell Side

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Buy side sell side

Buy Side & Sell Side

Alexander Motola, CFA

Alexander Motola, 2013


Sell side

Sell Side

  • Brokerage

  • Syndicate

  • Custody & Prime Brokerage/Lending

Alexander Motola, 2013


Sell side brokerage

Sell-Side/Brokerage

  • 4 Positions

    • Broker

    • Sales Trader

    • Trader

    • Analyst

Alexander Motola, 2013


Sell side broker

Sell Side/Broker

  • Broker is a Buy Sider’s primary contact at the investment bank

  • Broker’s job is to:

    • Understand client needs, what services they need/want, what kind of stocks and ideas they are interested in, provide information & ideas; bring analysts and management to buy sider clients

    • Generate commissions for his firm

Alexander Motola, 2013


Sell side sales trader

Sell Side/Sales Trader

  • Sometimes called “trader”, the real title is “sales trader”; sales traders don’t trade stocks but act as intermediaries between buy side traders and sell side traders (either floor or electronic traders)

  • Job is more relationship based than technically based

Alexander Motola, 2013


Sell side broker1

Sell Side/Broker

  • Clients want:

    • Idea generation

    • Access to analysts & research

    • Access to managements

    • IPOs

    • Swag & Benes

    • Conference Access

    • Travel Arrangements (Intl)

Alexander Motola, 2013


Sell side trader

Sell Side/Trader

  • Employee of investment bank who either matches trades between clients, runs a book (P&L), or works on a floor or pad

  • Does not talk with clients, just other sell side traders and prop traders

  • Paid based on profits as agent but mostly as principal

Alexander Motola, 2013


Sell side analyst

Sell Side/Analyst

  • Paid via commissions and trading volume in stocks under his/her coverage

  • Usually works in a team oriented around an industry

  • There are associates and analysts

  • Associates build models, listen to calls, field marketing calls, talk to management/companies, attend industry conferences, etc.; basically they are apprentice analysts

Alexander Motola, 2013


Sell side analyst1

Sell Side/Analyst

  • Analysts manage 1 or more associates, control their product, perform higher level analysis, meet with management

  • Analysts build their own “brand” (Johnson, Blodget, Cohen, Meeker); their franchise is often more important than their employer

  • Analysts meet with clients, build relationships, and make “calls”

Alexander Motola, 2013


Sell side syndicate

Sell Side/Syndicate

  • Syndicate is the investment bank’s new issue pipeline

    • They handle IPOs, secondaries, follow-ons, bond issuance, etc.

    • They market to the issuing companies, often using their analysts’ reputations

    • They dictate pricing, distribution, and road show (in conjunction with management)

    • Track distribution post offering and provide stabilization as necessary

Alexander Motola, 2013


Sell side custody etc

Sell Side/Custody, etc.

  • A broker will also sell other services to buy siders, including:

    • Custody

    • Currency trading

    • Derivatives and hedging

    • Lending

    • Borrowing

    • Leverage

    • Prime Brokerage

Alexander Motola, 2013


Sell side i banking

Sell Side/I-Banking

  • M&A and Syndicate

    • They have their own Analysts and Associates (Associates are higher scale jobs than Analysts in I-banking)

    • Little actual direct investing

Alexander Motola, 2013


Buy side equity research

Buy-Side/Equity Research

  • 4 Positions

    • CIO/Investment Committee

    • Portfolio Manager

    • Analyst

    • Trader

Alexander Motola, 2013


Buy side cio

Buy-Side/CIO

  • CIO or IC

    • Sets standards of research; might also oversee analyst staff

    • Can make investment decisions

      • Sometimes there is a “buylist”

    • Approves research

    • Sets economic direction or investment style direction

    • Manages or oversees portfolio risk

Alexander Motola, 2013


Buy side pm

Buy-Side/PM

  • Portfolio Manager

    • Might oversee analysts (team approach)

    • Makes investment decisions for their strategy

    • Provides marketing for their strategy; client communication

    • Likely to be involved in the design of their strategy or evolution of their strategy

Alexander Motola, 2013


Buy side analyst

Buy-Side/Analyst

  • Analyst

    • Various levels of Analyst

    • Key function is company and/or industry research

      • Modeling, company contact, visits, industry evaluation, news, etc.; whatever is demanded by the strategy

    • Possibly some marketing support

Alexander Motola, 2013


Buy side trader

Buy-Side/Trader

  • Trader

    • Implements PM decisions

      • Timing

      • Size

      • Price

      • Market action

      • Liquidity supplier or demander

      • Talks all day to sales traders and uses “the box”

Alexander Motola, 2013


Buy side fixed income

Buy-Side/Fixed Income

  • PM/Analyst/Trader

    • Most FI is specific, unlike stocks; with a stock, you can always go out and buy what you want, with FI you can usually only buy what’s available

      • This usually means that the Trading role is integrated into the PM and Analyst role

Alexander Motola, 2013


Typical path analyst

Typical Path (Analyst)

  • Undergrad in a Technical Field (Computer Science, Finance, Engineering, Marketing)

  • Work in the field, gaining industry expertise

  • MBA, emphasis in Finance

  • Associate (buy or sell side)

  • Promotion to Analyst

  • Possible Promotion to PM

Alexander Motola, 2013


Buy side firm structures

Buy Side Firm Structures

  • Team Approach

  • Segregated

  • Star Driven

  • Combinations of the above

Alexander Motola, 2013


Compensation

Compensation

  • Sales & Trading Compensation

    • Analyst $ 80K - $ 150K

    • Associate $ 180K - $ 250K

    • Vice Presidents $ 300K - $ 500K

    • Managing Directors/Partners $1MM+

  • Per “Wall Street Oasis”

Alexander Motola, 2013


Compensation1

Compensation

  • Investment Banking Compensation

    • Summer interns/associate: $71,300 (+$9,400)First year analyst: $85,300 (+$28,700)Third year analyst: $111,400 (+$51,600)First year associate: $120,000 (+$39,900)Third year associate: $149,000 ($60,700)Vice President: $255,700 (+$116,800)Managing Director: $273,400 (+$135,600)

  • Per “Wall Street Oasis”

Alexander Motola, 2013


Compensation2

Compensation

  • Investment Banking Compensation

    • Summer interns: $58,000 (+$3,100)First year analyst: $67,000 (+$21,000)Senior analyst: $82,100 (+$21,100)First year associate: $71,500 (+$33,000)Senior associate: $99,200 ($36,200)Vice President: $140,000 (+$100,700)Principal: $145,600 (+$157,500)

  • Per “Wall Street Oasis”

Alexander Motola, 2013


Compensation3

Compensation

  • How much you make is very dependent on:

    • What type of firm you work at (who owns it)

    • Where the firm is located

    • Size of firm

    • Bonus philosophy

  • This is in addition to the usual: your position, experience, etc.

Alexander Motola, 2013


Other aspects of the job

Other Aspects of the Job

  • Mentally challenging, with many new problems to solve; constant learning environment

  • Very long hours

  • Very performance driven; you get a report card every day

  • There is nothing additive to the production of goods; stock market is zero sum game for active investment

Alexander Motola, 2013


Other aspects of the job1

Other Aspects of the Job

  • CFA and/or MBA virtually required for many positions, just to get to the interview

  • Can be a highly competitive environment (both within your firm and outside it)

  • It’s difficult to get a definitive performance advantage

Alexander Motola, 2013


Staying ahead of the competition

Staying Ahead of the Competition


Thursday

Thursday

  • UBXN SW, SARIN SP

  • CEO (CNOOC ADR)

  • KRFT

  • MCHP

  • WM

  • PFE

  • CLX

  • MCD

Alexander Motola, 2013


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