There are many professions that make up the finance industry; many activities take place before the trader practices his art. There are even finance companies that do not employ a single trader. So, let’s explore the range of market finance professions with a few examples.
Example 1: Chamber of Commerce
The finance director of an aircraft manufacturer whose factories are located in the eurozone and whose customers pay in dollars wants to hedge against currency risk. So, thanks to the macroeconomic analyzes of the chamber economist, he contacts the seller in the trading room of his usual bank, who advises him on a hedge.
For a more complex transaction, the seller can use the services of financial engineers. The transaction agreed with the customer will be immediately released by an execution trader whose task is to place the order on the best terms.
Example 2: Registered Chamber of Commerce
Special account activities were introduced in the 1980s to improve their results. As such, proprietary traders are responsible for implementing strategies aimed at increasing the amounts entrusted to them by taking advantage of market inefficiencies.
These strategies are various, optional or quantitative. The development of ever more complex strategies has brought quantitative analysts to the forefront who are not limited to trading rooms for their own account.
Top traders have set up hedge funds where they execute their strategy for a client that often accepts less transparency, high liquidity risk, and generous commissions for ex-management traders.
Example 3: Management Company
A finance director wants to increase his company’s cash flow. For this, he contacts a portfolio management company and is immediately directed to a sales representative. Second, it establishes the risk and performance profile to which the client wishes to be exposed, as well as constraints along with the expectation.
The salesperson then makes the most appropriate recommendation for that particular cash investment. Finally, the financial director orders a subscription for the intermediary units.
It is the portfolio manager’s turn to intervene to place new subscriptions on selected investments. He is the person who gives orders for the assets of the portfolio entrusted to him.
For this he is usually assisted by an assistant manager who assists him on a daily basis while taking the job. The manager also regularly uses the services of internal analysts, known as buy-sides. A risk manager checks that the risks taken do not exceed internal or regulatory rules.
Management companies could not exist without custody banks. The assets of managed portfolios are invested in them.
Thus, it assures its owners the seriousness of the custody. Some alternative funds take securities held by the fund as collateral. It uses the services of a master broker to finance the leverage effect the funds use.
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Example 4: Front Office Support
All employees who place orders, follow up or participate in initiation belong to the front office, which manages relations with the outside world (markets and customers). Once an order has been released, it must be handled with the utmost care.
Those working in the middle office are responsible for controlling the risks taken by the front, calculating the results for each operator, and ensuring the smooth functioning of IT.
This includes personnel responsible for reporting and performance attribution.
In the back office, we can ensure proper execution, approval, reconciliation of orders, deliveries of securities, etc. work related to provision is carried out.
We should not forget the financial lawyers, who are usually attached to the general secretariat of the company. They make it possible to guarantee the prior regulatory compliance of many contracts necessary to deal with financial instruments.
Thus, they identify questionable clauses in deals and defend the interests of the company or its customers in the event of a dispute.
Example 5: Internal Control and Compliance
The profession has implemented stricter procedures than ever before to limit the risk and scope of occupational disasters to occur. This is how internal control services emerged. It was gradually expanded to include other risks such as conflicts of interest.
More generally, the controller, auditor or inspector participates in the development and verification of procedures.
They then verify that it was implemented correctly. The development of regulations regulating financial activities has also led to the emergence of compliance functions.
Example 6: Quantitative Research and IT Support
The number of operations to manage no longer allows to keep track of everything on paper, as in many other industries. The figures considered require great care in the procedures and calculations to be made.
Therefore, skilled developers and quantifiers are especially sought after in the financial industry. Indeed, tools to value or model behavior require more complex calculations than ever before.
Dr. Yasam Ayavefe
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