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Some of the players (US pension fund example)
- Plan Sponsor and Beneficiaries
- Investment Manager
- Custodian
- Consultants
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Buy side |
- Issuers (e.g. companies, Treasury,
municipalities)
- Underwriters
- Brokers and Dealers
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Sell side |
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In between |
- SEC, PBGC, Fed, Treasury, IRS
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Regulation |
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Phil Dybvig
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In the investments industry, it is customary to
describe different professionals as working on the
buy side or on the sell side. On the buy
side, we have the people who work on behalf of the
beneficiaries and represent them in the investment in
securities. On the sell side, we have professionals who
are trading with the managed portfolio.
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On the buy side, the plan sponsor is directly
responsible for the portfolio and makes overall
allocation decisions. The investment managers
choose the specific securities to be held and arrange for
trades when securities are bought and sold. The
custodian holds the securities, collects dividends
and interest in the account, accepts funds for
investment, and provides funds for trades authorized by
portfolio managers and withdrawals authorized by the plan
sponsor.
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On the sell side, underwriters represent the
issuers, such as companies or governments, who
issue the securities that will be held in the portfolio.
Brokers and dealers stand ready to trade
previously-issued securities with the portfolio or
execute the portfolio's trades on an exchange.
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Exchanges are organizations that facilitate
trade in securities by bringing buyers and sellers
together. Specialists are exchange members who
stand ready to buy and sell from inventory in order to
maintain continuity in the market. Specialists
and exchanges are not traditionally thought of
as being either on the sell side or on the buy side.
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Governments have an extensive role in monitoring and
regulating various aspects of trading. For example, the
Securities and Exchange Commission (SEC) regulates all
the professionals, including the exchanges,
broker-dealers, issuers, underwriters, and investment
advisors. Under the terms of ERISA, the Employee
Retirement Income Security Act, the Pension Benefit
Guarantee Corporation (PBGC) provides required insurance
for a fee, and works to maintain uninterrupted payment of
pension benefits. The Internal Revenue Service (IRS)
monitors and rules on the conditions under which a
pension plan is tax-exempt.
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