1. Investment Bank Structure (Typical Example of Primary & Secondary Trading)
Rates
Structured
Credit
Equities
Govt/Agencies
Sovereigns (non US)
FX spot/options
Municipals
IR Swaps/Deriv
Money Market (CP)
Commodities
Custom Products:
Financing
Hedging
Tax Strategies
Yield Enhancement
Ad-hoc
Corporates
Bonds
Derivatives
Mortgage-backed
Residential
Commercial
Asset-backed
Loans
Agency Business
Exchange Interfaces
Single Stock
Program Trading
Derivatives
Algo trading
AMM
Institutional Sales, Investment Banking, Capital Markets
Proprietary Trading
Risk Management, Product Control/Finance
Research

2. Trading Function
Maintain competitive markets in their sectors as well as adequate liquidity in lead managed deals
Responsibly commit capital for clients and strategically position the desk
Use various parts of the capital structure and other financial instruments to hedge/mitigate risk and seek arbitrage opportunities
Determine appropriate bid/ask spread to maximize revenue while balancing volumes
Performance Metrics:
Trading volumes
Contribution of intellectual capital and idea generation
Individual P&L
Sector expertise
Primary Execution
Risk Managment

3. Sales Function Responsible to cover 15-20 Institutional Investors
Disseminate markets and field inquiry
Communicate trading ideas
Distribute primary offerings
Serve as their accounts liason to the institution
Develop relationships to capture client flows and foster partnership
Gather market intelligence and investor feedback
Performance metrics:
Sales credits
Quality of business
Account influence
Information gathering
Desk protection and P&L enhancement

4. Risk Management Function
Independent & objective control function
Not P&L driven
Set and maintain trading limits
Credit (notional, potential exposure)
Market (Value at Risk, sensitivity, notional)
Operational (capital put aside for other risks which are not market or credit event triggered)
Measure and maintain adequate capital
Regulatory body interface
Drafting and enforcement of firm policies and procedures
Trade approval
Reserves management (more of a “finance” function)

5. Research Function
Maintain coverage of each of the debt issuers in a specific industry group, sector, country
Fundamental analysis to determine credit quality and forecast results
Macro-economic analysis, understand macro-trends
Assist sales force in it’s effort to distribute new issues and secondary “axes” (what I want to buy or sell)
Synchronize the coverage universe with what is actively traded by the desk
Familiarization with covenants and terms for the various securities and derivatives in their space
Performance metrics:
Gather market intelligence and investor feedback
Institutional Investor ranking and overall franchise enhancement
New Issue contribution
Maintain a strong sense of relative value to increase hedging and arbitrage opportunities
Keep the desk positioned ahead of trends to maximize P&L and maintain orderly markets

6. Establishing a Brand
Create high visibility with accounts as market-makers and achieve “Top Tier Status”
Trade broad array of sectors to match our origination footprint
Underwrite high quality transactions and monitor after-market performance
Generate toll-collecting revenue, superior market intelligence, maximize desk liquidity
Consistent market-making - set the standard by being first to lead with prices in the morning or post
High level of transparency with accounts to gain trust and partnership
Maintain disciplined inventory management and be patient in waiting for opportunities (separate “flow” from “prop”)
Proactively establish and vet all larger risk positions and prop trades (“strategic aging”).

7. Role of Technology with Capital Markets
Risk Management - flexible ways to view and understand risk and correlation in the trading books
Superior analytics - having faster, steadier systes to process data better than the competition
Innovation - being on the forefront to develop new ways to exploit arbitrage opportunities by devising new tools
Maintenance - keeping systems up and running during the peak demands of market hours as well as allowing for enhancements and scalability
Education - teaching the business people how to use technology to more efficiently and intelligently do their day-to-day job