Sell side

Financial institutions that provide investment services

Sell side is a term used in the financial services industry to mean providing services to sell securities. Firms or institutions on this side include investment banks, brokerages and market makers, who facilitate offering securities to investors, conducting research and creating financial products. The three main markets for this selling are the stock, bond, and foreign exchange market. 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. The sell side and the buy side work hand in hand and each side could not exist without the other. 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 to its customers because the firm handles all the details of the trade on the customer's behalf. Another source of money would be the idea of a spread. A spread is the difference when one sell side firm sells to a client and then goes on to sell the security to another client. Clients of the sell side can be high net worth individuals or institutions that include retirement funds for cities or states, as well as mutual funds. 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.

Sell side analysts have many roles. Sell side analysts rank stocks on a regular basis with three main options: buy, sell and hold. 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. Often, research analysts on the sell side cover an entire fund with a specific purpose or devoted to a specific sector. Sometimes a different approach is taken whereby multiple committees are in charge of different parts of the investment making process. In addition to the aforementioned, sell side analysts have the responsibility to take time and develop relationships with their clients as well as the companies they are researching. There has been research into the relationship between the quality of the research and the amount of capital that the firm collectively raises for its many clients. Many research analysts focus on one particular sector or industry such as telecom, technology, or healthcare, among many others. Generally absolute forecast error and overall inaccuracy are smallest when institutional investors are present. This also applies to future performance because when analysts have reasonably small forecast errors they will tend to have smaller forecast errors in their future predictions as well. It has been proven that higher analyst ranking and reputation leads to more trading volume, and when analysts are accurate in predictions they end up with better reputations at the end of the set period being measured by the ranking system. Under Chinese wall restrictions there is a threat of litigation, leading analysts to have less of an issue with bias in their research. A Chinese wall restriction is used to make sure important and private information is not inadvertently shared or "leaked" and that all clients within large multinational firms are protected. The actual idea stems back decades to the Great Depression, and has allowed the financial services industry to maintain one entity between investment banks and brokerages as opposed to requiring firms to have those two departments be separate entities. Another conflict of interest is the idea of performance rankings. The Institutional Investor All Star Poll, one of the most popular ranking systems, facilitates a conflict of interest in that a high ranking on their platform can influence analyst career paths and their compensation. However, it also forces analysts to produce the best research and ensure it is timely as well. Another conflict of interest would be the presence of institutional investors. Sell side analysts taking the larger institutional investors into account leads to the issue of giving the larger investors more influence over stock recommendations. Potential conflicts of interest in terms of biased research by sell side analysts are an issue on the sell side. There are recommendations that brokers use to help curb conflicts of interest. Suggestions include putting client commitments first, disclosing information as to how the broker is paid to clients, and providing the proper help so clients understand the level of risk they are undertaking with their investments.