Securities Sector, 2007

U.S. Market Overview

The securities industry in the United States consists of securities brokers and dealers, investment banks, and advisers. Together these entities facilitate the flow of funds from investors to companies and institutions seeking to finance expansion or other projects. Firms that make up the securities sector may specialize in one segment of the business or engage in a wide range of activities, including investment banking, brokerage, asset management, and advisory services. Financial products labeled as securities include common and preferred stocks; corporate, government, and municipal bonds; mutual funds and stock options.

Investment banking involves the underwriting of new debt securities (bonds) and equity securities (stocks) issued by private or government entities to finance new projects. Investment banks buy the new issues and sell them primarily to institutional investors such as banks, mutual funds, and pension funds. Investment banks may also be called securities dealers or broker/dealers because many also participate in the financial markets as retailers, selling to individual investors. The primary difference between a broker and a dealer is that dealers buy and sell securities, whereas brokers act as intermediaries for investors who wish to purchase or sell securities.

The securities industry raised $3.2 trillion in capital for U.S. businesses in 2005 through corporate underwriting activity in the United States, eclipsing the record $2.89 trillion raised in 2004. The industry accounts for approximately 1.5% of GDP and is uniquely competitive, active in most regions throughout the world, and faces few significant international challenges in either debt or equity markets. Foreign net purchases of U.S. securities (stocks and bonds) have increased throughout the past five years rising from $521 billion in 2001 to over $1 trillion in 2005. This increase demonstrates international confidence in the U.S. economy and the active presence of international investment banks in the United States. Securities firms and investment banks play a major role in financing merger and acquisition (M&A) activity that comprises a large majority of Foreign Direct Investment in the United States.