Demystifying securities companies and how they operate

Many individual investors entrust their funds to large securities companies or investment dealers. Large brokerage companies usually have thousands of employees. The most recognized companies convince investors that an experienced professional team will manage their investment.

However, we usually only interact with one employee, such as our investment advisor or broker. So how do large securities companies operate?

In this article, we will examine a typical securities company. Our overview will include some of its different departments and the roles of different employees.

How is the structure of a large securities company

Generally, a large company has the following departments:

  • Sales volume
  • Underwriting and financing
  • trading
  • Research and portfolio management
  • administrative

Many small boutique companies may only serve one business department, such as the retail department. Even in these limited businesses, their activities may be similar to those of the respective departments of large companies.

Sales volume

The sales department usually employs the most people in the securities company. This is also the area where individual retail investors interact the most. In the retail sales force, investment advisors may focus on providing services to specific areas of the investment industry. Or, they can provide a “one-stop” service for all retail investment needs.

For example, a particular investment adviser may only act as a stockbroker. They can also provide other services, such as mutual fund transactions, bond transactions, and life insurance sales. In small companies, the activities of investment advisors may be more diverse.

The second department of the sales department is institutional sales. It mainly involves the sale of new securities to traders working in institutional client companies. These client companies may include pension funds and mutual funds. Sometimes, a hot new security issue can arouse so much interest that it will soon be oversubscribed. In these cases, the job of institutional sales is as simple as allocating stock to reward their best customers. Such rewards help maintain the loyalty of top client companies.

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Institutional sales departments usually generate a large portion of the company’s profits. Institutional sales benefit from a large number of U.S. dollar transactions and commissions on new issuances and existing accounts. Unsurprisingly, institutional sales staff are among the highest paid people in the entire company. The institutional sales department works closely with the company’s trading department to maintain the account’s good reputation.

Underwriting and financing

The company’s institutional sales department also works closely with the underwriting or financing department. This department is responsible for coordinating the issuance of new securities and subsequent securities issuances in the secondary market. The underwriting or finance department negotiates with the company or government that issued the securities. They determine the type of security, price, appropriate interest rate, and other special features and protection clauses.

The company’s underwriting or financing department may be divided into two departments. One department handles corporate finance matters, while the other department focuses on government finances. In a large company, these departments will be very different. The needs of business and government are very different.

For example, the financial department of a company needs to be familiar with stocks, bonds, and other securities. Government departments may focus on the issue of bonds and Treasury bills.


The company’s trading department also has separate departments to trade different types of securities. These departments may focus on trading bonds, stocks or other professional financial instruments. Traders in the bond department may also have a narrow focus on a certain part of the bond market. They may focus on Treasury bonds, municipal bonds, money market instruments, or corporate debt.

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The stock trading department executes orders from retail and institutional sales staff. Historically, stock traders have maintained close contact with traders on the stock exchange. With the rise of electronic trading, stock traders may use computers instead of others to trade.

The company’s trading department may also have a department for other professional tools. Depending on the company, they may have departments for mutual funds, exchange-traded funds, options, commodities, or futures contracts.

Research and portfolio management

The research department supports all other departments. Its securities analysts provide important analysis and data to traders, sales staff and underwriters. This information is necessary for the sale and pricing of existing securities and newly issued securities. The company’s research department may consist of economists, technical analysts, and research analysts. Researchers also specialize in specific types of securities or specific industries.

The research department can be further divided into retail and institutional departments. However, companies with only one research department can provide retail investors with reports aimed at institutional clients. If the company has a single institutional research department, it will also cover potential new issues, acquisitions and mergers. Analysts may further participate in the construction of investment portfolios for personal and small business accounts together with the retail department.


The administrative department is an important part of the company’s organization. It maintains proper paperwork and accounting for all transactions and transactions. More importantly, it ensures compliance with securities regulations and oversees internal human resources.

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All transactions conducted by the company must be accounted for and recorded. All inflows and outflows of funds and securities must continue to be balanced. The registration and delivery requirements of the securities must be checked, and dividend payments must be credited to the account upon receipt.

In the credit and compliance department, brokerage employees constantly monitor whether accounts comply with industry and internal standards. This monitoring ensures that payments and securities are received before the due date and that the margin account meets applicable margin requirements.

The finance department is responsible for overseeing accounting matters, such as payroll, budgeting, financial reports and statements. Maintain the minimum capital level according to industry requirements. This ensures that all departments within the company have sufficient funds to adapt to changes in the company’s business.

Bottom line

Although securities companies are important to the financial industry and the economy, they are still somewhat mysterious to ordinary investors. Securities companies tend to maintain a rather secretive culture, mainly due to the professional roles and occupations of the participants.

Many retail investors only interact with their financial advisors or brokers. It is becoming more and more common for independent investors to use brokerage companies’ trading platforms without talking to any employees. This situation makes most people lack insight into the broader role of securities companies.

The sales department usually employs the most people in the securities company.

Knowing who is behind that magnificent oak door is good for every investor. The employees of a securities company affect the actual return of a person’s investment portfolio. For those who are interested, there is more knowledge about brokerage functions.


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