Wall Street 101

1. Wall Street 101 UMBS Investment Association September 2002

2. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

3. Examples • Mutual Funds: Fidelity, Vanguard • Institutional Investors: CalPERs, University of Michigan • Broker/Dealers: Merrill Lynch, Morgan Stanley • Private Clients: ML, Salomon Smith Barney • Discount / Online: Charles Schwab, E*Trade • Trading: Bear Stearns • Investment Banks: Goldman Sachs, Lehman Brothers • Niche players: Robert Baird, Greenhill • Conglomerates: Citigroup, JPMorgan

4. Investors • Invest in securities of corporations via: • Buy stocks/bonds through brokers • Buy mutual fund shares, essentially hiring a professional money manager • Invest directly in company via “DRiPs” • Increasingly knowledgeable (Internet), more trading volume • Research increasingly available

5. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

6. Brokers • Execute trades for clients, earn commissions • Bring individual investors’ assets into fee-based accounts (“asset gatherers”) • Evolving job function: • Online brokers = cheaper commissions • Internet offers research, less need for advice • Essentially sales function

7. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

8. Portfolio Managers • Manage investment portfolios for: • Institutions: pension funds, university endowments, corporations • Individuals: private clients, retail mutual funds • In-house research or from sellside (Analysts and/or Institutional Sales reps) • Hedge funds: growing, increased scrutiny • Start as Analyst, move up to Portfolio Manager

9. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

10. Institutional Sales • Provide research/insight for Portfolio Managers to bring in trading commissions • The link between sellside and buyside • Primarily relationship management • Start in supporting role, then pick up smaller relationships

11. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

12. Analysts • Sell-side: sell research to buyside in order to: • Earn commissions • Close investment banking deals • Buyside: report to Portfolio Managers within own firm • Associates manage models, client calls, eventually cover their own space

13. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

14. Investment Bankers • Underwrite corporations’ equity and debt offerings, advise on mergers & acquisitions, take a % of deal as fee revenue • Regulated interaction with Analysts • Analysts: modeling, presentations • Associates: jack of all trades • VPs / MDs: deal sourcing, relationship management

15. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

16. The Marketplace Corporations Investment Bankers “Chinese Wall” Exchanges Analysts Brokers / Advisors Investors Traders Portfolio Managers Institutional Sales

17. Current Trends • Re-regulation • Conflicts of interest between investment banking and commercial banking • Analyst scrutiny • Conflicts between research and investment banking • Accounting • Quality of reported financial results

18. Further reading • Wall Street Journal – daily • Barron’s – Saturdays • Bloomberg • www.bloomberg.com • Bloomberg terminals in the library (coming soon in the Tozzi Financial Research & Trading Room) • Limitless internet resources