Sell side
Encyclopedia
Sell side is a term used in the financial services
industry. It is a general term that indicates a firm that sells investment services to asset management firms, typically referred to as the buy side
, or corporate entities. These services encompass a broad range of activities, including broking/dealing, investment banking, advisory functions, and investment research.
In the capacity of a broker-dealer, "sell side" refers to firms that take orders from buy side
firms and then "work" the orders. This is typically achieved by splitting them into smaller orders which are then sent directly to an exchange or to other firms. Sell side firms are intermediaries whose task is to sell securities to investors (usually the buy side i.e. investing institutions such as mutual funds, pension funds and insurance firms).
Sell side firms are paid through commissions charged on the sales price of the stock. Sell side firms employ research analysts, traders and salespeople who collectively strive to generate ideas and execute trades for Buy side
firms, enticing them to do business. Part of the research analyst's job includes publishing research reports on public companies, these reports analyze their business and provide recommendations on the purchase or sale of the stock.
One recent trend in the industry has been unbundling of commission rates; simply put, this is the process of separating the cost of trading the stock (e.g. trader’s salaries) from the cost of research (e.g. research analyst salaries). This process allows Buy side
firms to purchase research from the best research firms and trade through the best trading firms, which often are not one and the same.
After the bursting of the dot-com bubble
, many US sell side firms were accused of self-dealing in a lawsuit brought by New York State Attorney General Elliot Spitzer. In addition to the business done with Buy side
firms as described above, sell side firms also performed investment banking
services for corporations, such as stock and debt offerings, loans, etc. These corporate clients generally did not like to see negative press put out about their own companies. To try to prevent the publishing of negative research, corporate clients would pressure the sell side firms by threatening to withhold lucrative banking business or demanding equally lucrative shares in IPOs - essentially bribing the sell side firm. While the $1.4 billion settlement of this lawsuit made significant progress in cleaning up the industry in the US, it's notable that the lawsuit only went after sell side firms, leaving the arguably equally culpable corporations relatively unscathed.
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
industry. It is a general term that indicates a firm that sells investment services to asset management firms, typically referred to as the buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
, or corporate entities. These services encompass a broad range of activities, including broking/dealing, investment banking, advisory functions, and investment research.
In the capacity of a broker-dealer, "sell side" refers to firms that take orders from buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
firms and then "work" the orders. This is typically achieved by splitting them into smaller orders which are then sent directly to an exchange or to other firms. Sell side firms are intermediaries whose task is to sell securities to investors (usually the buy side i.e. investing institutions such as mutual funds, pension funds and insurance firms).
Sell side firms are paid through commissions charged on the sales price of the stock. Sell side firms employ research analysts, traders and salespeople who collectively strive to generate ideas and execute trades for Buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
firms, enticing them to do business. Part of the research analyst's job includes publishing research reports on public companies, these reports analyze their business and provide recommendations on the purchase or sale of the stock.
One recent trend in the industry has been unbundling of commission rates; simply put, this is the process of separating the cost of trading the stock (e.g. trader’s salaries) from the cost of research (e.g. research analyst salaries). This process allows Buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
firms to purchase research from the best research firms and trade through the best trading firms, which often are not one and the same.
After the bursting of the dot-com bubble
Dot-com bubble
The dot-com bubble was a speculative bubble covering roughly 1995–2000 during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more...
, many US sell side firms were accused of self-dealing in a lawsuit brought by New York State Attorney General Elliot Spitzer. In addition to the business done with Buy side
Buy side
Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...
firms as described above, sell side firms also performed investment banking
Investment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
services for corporations, such as stock and debt offerings, loans, etc. These corporate clients generally did not like to see negative press put out about their own companies. To try to prevent the publishing of negative research, corporate clients would pressure the sell side firms by threatening to withhold lucrative banking business or demanding equally lucrative shares in IPOs - essentially bribing the sell side firm. While the $1.4 billion settlement of this lawsuit made significant progress in cleaning up the industry in the US, it's notable that the lawsuit only went after sell side firms, leaving the arguably equally culpable corporations relatively unscathed.