Role of Investment Bankers

A firm may be able to operate a business using its own funds. But if its business
is lucrative, it will surely progress to a point where the owners may want to expand its
operation to cater the increasing demands of its customers. Most of the time, this plan
for business expansion needs more money in addition to the earnings of the company.
To raise these additional funds, the firm have, among others, the following options:

1. Obtain a bank loan

2. Issue bonds

3. Issue shares of stocks

If a firm decides to issue securities, it will contact an investment banker to do the job
of actually raising funds using the issued securities.

Normally, an investment banker can efficiently facilitate such plan to raise funds
due to his well- established network of prospective investors. He will act as intermediary
between the firms that issue securities and the willing and able investors. This
crucial role of investment bankers is done by:

1. Selling debt instruments, such as bonds

2. Selling Shares of stocks

Initial public offering

Initial public offering (IPO) arises when the newly issued shares of stock are
offered to the general public.

Primary market is where the securities are sold by the issuing firms directly to the
investors.
Underwriting

Underwriting arises when an investment banker makes a firm commitment to

raise a specified amount of funds using the firm’s issued securities. In effect, the
investment banker buys the securities of the firm with the intention of selling them later
to the general public. In case of failure to sell those securities to the public, the
underwriter is still bound to pay the specified amount to the issuing firm.

The underwriter will then take the necessary steps to trade those securities to the
stock exchange which is considered as one of the secondary markets.

Role of Securities and Exchange Commission

The Securities and Exchange Commission is tasked to enforce the laws relating
to financial securities such as, among others, Securities and Regulations Code [R.A.
8799]. Under the said code, the Commission can formulate policies and
recommendations on issues concerning the securities market, and even “issue cease
and desist orders to prevent fraud or injury to the investing public” 1.

1
Section 5 (5.1) (i), R.A. 8799