What Is Sell-Side?
The sell-side refers to the part of the financial industry that is involved in the creation, promotion, and sale of stocks, bonds, foreign exchange, and other financial instruments. Sell-side individuals and firms work to create and service products that are made available to the buy-side of the financial industry. The sell-side of Wall Street includes investment bankers, who serve as intermediaries between issuers of securities and the investing public, and the market makers who provide liquidity in the market.
Explaining the Sell Side
- Sell-side refers to the part of the financial industry that is involved in the creation, promotion, and sale of stocks, bonds, foreign exchange, and other financial instruments.
- Sell-side individuals and firms work to create and service products that are made available to the buy-side of the financial industry.
- The sell-side of Wall Street includes investment bankers, who serve as intermediaries between issuers of securities and the investing public.
- Market makers are the big players on the sell-side who provide liquidity in the market.
The sell-side and buy-side of Wall Street are two sides of the same coin. One is dependent upon the other and could not operate without the other. The sell-side tries to get the highest price possible for each financial instrument while providing insight and analysis on each of these financial assets. Any individual or firm that purchases stock to sell it later at a profit is from the buy-side.
Buy-side players include money managers at hedge funds, institutional firms, mutual funds, and pension funds. Individual investors are technically on the buy-side. However, the term mostly applies to professional money managers. On the sell-side of the equation are the market makers who are the driving force of the financial market.
Foreign Exchange Sell-Side
The FX market is the world's largest financial marketplace, with more than an estimated US $5.3 trillion changing hands daily, as of 2018. Here, the sell-side is dominated by top multinational banks, led by JP Morgan Chase, Citibank, Deutsche Bank, and UBS. Bank trading rooms are divided into two groups:
- Interbank traders who buy and sell large amounts of currency on the spot and forward markets.
- The salespeople sell securities to buy-side customers including hedge funds, mutual funds, and large corporations.
Many interbank traders take proprietary positions, but salespeople generally do not.
Bond Market Sell-Side
The global bond market is the world's second-largest financial marketplace, with an estimated US $100 trillion outstanding shares. The term outstanding indicates the holdings of all shareholders, institutional investors, and company or insider shares.
Investment banks dominate the sell-side, with the largest being Goldman Sachs and Morgan Stanley. JP Morgan Chase, and Bank of America Merrill Lynch, who combine commercial and investment banks under a single holding company. These banks underwrite and manage bond issues. Many are also primary dealers of U.S. Treasury bonds, which means that they buy directly from the U.S. Treasury. The investment banks are very active, both trading and taking positions in the bond market.
Stock Market Sell-Side
Investment banks also dominate the sell-side of the stock market. They underwrite stock issuance, take proprietary positions, and sell to both institutional and individual investors. One of the most high profile activities of the sell-side in the stock market is in initial public offerings (IPOs) of stocks. Companies can't go public themselves. They must enlist the services of an investment bank for underwriting. Underwriters are typically brokers, who act as a buffer between companies and the investing public, and who market and sell those initial shares.
As a real example of a sell-side activity, one needs to look no further than activist investor Carl Icahn's selling off his stake in Lyft before its initial public offering in March 2019. According to an article in CNBC, Icahn held around 2.7% of the ride company before the IPO when he sold. Four years earlier his Lyft holdings valued at US$100 million. Had he held the stake after the company went public, he would have been unable to trade the shares for six months. Lyft opened at $72 per share and climbed to over $78 a share before trading down to just over $70. By selling his stake before the IPO, Icahn locked in his profits.