Uncovering the Securities Firm and How They Work

Many individual investors trust their money with large securities firms or investment dealers. Large brokerage firms typically have thousands of employees. The most recognized firms give investors confidence that a seasoned team of professionals manages their investments.

However, we usually only interact with a single employee, such as our investment advisor or broker. So how does a large securities house really work?

In this article, we will look at a typical securities firm. Our overview will include some of its different departments and the roles of various employees.

How a Large Securities Firm May Be Structured

Typically, a large firm has the following departments:

  • Sales
  • Underwriting and Financing
  • Trading
  • Research and Portfolio Management
  • Administration

Many small boutique firms may serve only a single department of a business, such as retail sales. Even in these limited operations, their activities likely resemble those of the respective department of a larger firm.


The sales department usually employs the largest number of people in a securities firm. It is also the area that individual retail investors interact with the most. Within the retail sales force, investment advisors may focus on servicing a specific area of the investment industry. Alternatively, they may provide a "one-stop-shop" for all retail investment needs.

For example, a particular investment advisor may act only as a stockbroker. They can offer other services as well, such as mutual fund transactions, bond trading, and life insurance sales. In a small firm, the activities of the investment advisor are likely to be more diverse.

A second division within the sales department is institutional sales. It is primarily involved in selling new securities issues to traders working at institutional client firms. These client firms may include pension funds and mutual funds. Sometimes, a hot new securities issue generates so much interest it quickly becomes oversubscribed. In those cases, the job of institutional sales is as simple as allocating shares to reward their best clients. Such rewards can help to keep top client firms loyal.

The institutional sales department often generates a significant portion of the firm's profits. Institutional sales benefit from the large dollar volume of transactions and the commissions from both new issues and existing accounts. Unsurprisingly, institutional salespeople are some of the best-paid personnel in the entire firm. The institutional sales department works closely with the firm's trading department to maintain accounts in good standing.

Underwriting and Financing

The firm's institutional sales division also works closely with the underwriting or financing department. This department coordinates new securities issues and follow-up securities issues on the secondary market. The underwriting or finance department negotiates with the companies or governments issuing the securities. They establish the type of security, its price, an interest rate where appropriate, and other special features and protective provisions.

The firm's underwriting or financing department may be split into two divisions. One division deals with matters of corporate finance, while the other focuses on government finance. In a large firm, these departments would be quite distinct. The needs of corporations and governments are very different.

For example, the corporate finance department would require familiarity with stocks, bonds, and other securities. The government department might focus on bond and Treasury bill issues.


The firm's trading department also has separate divisions that trade different types of securities. These divisions may focus on trading bonds, stocks, or other specialized financial instruments. Traders in the bond division may also have a narrower emphasis on one part of the bond market. They may focus on Treasuries, municipal bonds, money market instruments, or corporate debt.

The stock-trading department executes orders from retail and institutional sales staff. Historically, stock traders maintained close links with traders on the floors of stock exchanges. With the rise of electronic trading, stock traders might be trading with computers instead of other human beings.

The firm's trading department may also have divisions geared toward other specialized instruments. Depending on the firm, they might have divisions 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 vital analysis and data to aid traders, salespeople, and underwriters. This information is necessary for the selling and pricing of existing securities and new issues. The firm's research department may consist of economists, technical analysts, and research analysts. Researchers also specialize in specific types of securities or particular industries.

The research department may be further divided into retail and institutional divisions. However, firms with only one research department may make reports aimed at institutional clients available to retail investors. If the firm hosts a single institutional research department, it will also cover potential new issues, takeovers, and mergers. Together with the retail department, analysts may be further involved in structuring portfolios for individual and small-business accounts.


The administration department is a vital component of the firm's organization. It maintains proper paperwork and accounting for all trades and transactions. More importantly, it ensures compliance with securities legislation and oversees internal human resources.

All trades made by the firm must be accounted for and recorded. All incoming and outgoing funds and securities must be continually balanced. Securities must be checked for registration and delivery requirements, plus dividend payments must be credited to accounts as received.

In the credit and compliance division, brokerage employees constantly monitor accounts for compliance with industry and internal guidelines. This monitoring ensures payments and securities are received by their due dates and that margin accounts fulfill applicable margin requirements.

The financial division oversees accounting matters, such as payroll, budgeting, financial reports, and statements. Minimum capital levels are maintained according to industry requirements. That guarantees the various departments within the firm hold sufficient funds to accommodate changes in the firm's business.

The Bottom Line

Despite their importance to the financial industry and the economy, securities firms are still somewhat of a mystery to average investors. Securities firms tend to maintain a rather secretive culture, mainly due to the players' specialized roles and occupations.

Many retail investors only interact with their financial advisor or broker. It is also increasingly common for self-directed investors to use a brokerage firm's trading platform without talking to any employees. This situation leaves most people with a lack of insight into the broader set of roles within securities firms.

The sales department usually employs the largest number of people in a securities firm.

It benefits every investor to know who's who behind that set of magnificent oak doors. The employees in a securities firm can affect the real returns of one's investment portfolio. For those who are interested, there is far more to learn about brokerage functions.

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