INDUSTRY OVERVIEW:

The overview of the Brokerage

Industry is discussed in this section.
The term Brokerage firm refers to financial institution that offers the
buying and selling activity of security (financial) between the buyer and
seller. The Brokerage Industry falls under the category tertiary
economic sector. The list of tertiary economic sector including,
Entertainment, Forms of government, Public health, Financial Services,
Franchise, Education and so on.
The Financial Services sector under tertiary economic sector , is sub
classified into:

Banking
Insurance
Investment Management

The tertiary economic sector is one of the three primary sectors that exist.
Namely, after Primary Economic Sector (includes extraction of raw
materials for manufacturing or processing industries) and Secondary
Economic Sector (includes the industries such as manufacturing and
processing).
The tertiary economic sector is generally known as the economic sector
that consists of industries or sector which are aligned towards to offering
of Services.
The emergence of tertiary economic sector was due to the transformation
of business offering from primary and secondary economic sector. This
transformation was named as Tertiarisation.
On viewing the concept of emergence of tertiary economic sector, the
developed countries such as United States of America and Japan have

adapted it well by showing a result of nearly 70% and 60% of the work
force being employed in the service sector.
The definition of sector goes such as, The portion of the economy that
produces

intangible

goods.(

http://www.investopedia.com/terms/s/service-sector.asp).
The

service

sector

generally

consists:

(http://www.census.gov/econ/services.html)

Transportation
Information sector services
Securities, Commodities and other Financial Investment services
Rental and leasing services
Educational services
Administrative and support services
Waste Management and remediation
Health Care and Social Assistance
Arts, Entertainment and recreation Services.

The developed countries, the countries that more economically developed

country (MEDC) or the industrially developed countries could manage to
show a remarkable shift towards the service sector was due the
development of secondary economic sector in these countries.
Whereas the developing countries such as India and China that are
struggling to increase their economic indicators in the secondary
economic sector are being seen as a potential area for the expanding the
service oriented industries.
One of the main difficulties in the developing countries were tackling the
problem of balancing the economy after the industrialization and post
economic-industrialization. Generally the structure of Economy is by
means comparing the shares of three main sectors Agriculture, Industry
and Service. This is also known as sectoral structure of economies. The
sectoral change is world economy is done based on analysing the changes
in theses economic sectoral category.

The agriculture sector is a developing economy and most important

sector. The importance of agriculture sector is being lost as the rise in per
capita income is seen, which further gives importance to the rise of
industrial sector and further to service sector. Generally, these two
consecutive shifts are called industrialization and post-industrialization.
(Growth

of

Service

Sector)

(http://www.worldbank.org/depweb/beyond/beyondco/beg_09.pdf).

All the economies are likely to grow to these three stages which is
explained by structural changes in consumer demand and equivalent
labour production.
The Industrial sector exists in the economy where there is an increase in
peoples income and demand, affordability for food is fulfilled and demand
towards industrial goods increases. The evolution of machinery takes
place which in-turn increase the labour productivity and makes the
agricultural product less expensive and reduces the share of agricultural
sector in the GDP. Once the demand for materials is fulfilled, the demand
in the economy shifts towards services. This shift is referred to as Post
Industrialization.
The labour productivity does not grow in such pace compared to the
growth of labour productivity in Agriculture and Industry. This makes the
offerings of services expensive and further increases the share of Services
in GDP against Agriculture and Industry.
Let us see about the Service Sector in details as follows:
The production of services instead of end user products is the basic
characteristics of service sector.

Heterogeneity of service is one-time generated and cannot be

repeated again.
The perishability of service is that once consumed then it cannot be
consumed again.

A service is an act of performance that one party can offer to another

that is essentially intangible and does not result in the ownership of
anything. Its production may or may not be tied to a physical product
Philip Kotler.
After going through the definition of Services and Service Sector, Now let
us see about the Brokerage Industry.
The brokerage Industry comprises of two distinct types of Business which
is Cyclical. The financial companies that strive to meet the investing
needs of their clients and exchanges that facilitate security trading are
known as Brokerages.
The Brokerages are fairly diversified. The top line of income comes from
buy and sells orders from clients. The broker can act as an intermediary to
perform the operation of matching both clients buy order with thirdpartys sell order and vice-versa.
The first Brokerage System was created by the French during the 11 th
century. The emergence of Brokerage system by French began, as a
process of regulating and trading the agricultural debts on behalf of the
banking community.

The trade in government securities that expanded the importance of the

firms were made by Venetian Brokers during 1300s. The history of
Brokerage starts from the first publicly traded company Dutch East India
company in 1602.
Dutch East India company was the first publicly traded company that
allowed the share-holders to own a portion of the business. This in-turn to
improve the size of the company and became the standard bearer for the
modern financial system. The emergence of London Stock Exchange took
place in 1801.
The stock brokerage firms began to move in a direction of market
makers during the 1900s. The policy of quoting both buying and
selling for a security was adopted. The adoption of this policy allows a firm
to make a profit from establishment of immediate sale price and purchase
price to an investor.
The regulators enforced Chinese Walls system in-order to prevent
communication that existed between different departments within the
brokerage company. The Chinese Wall system resulted in increased
profits and greater interconnection amongst the financial industry.

The System of Consolidation was created by the high value brokerage

firms like Goldman Sacks and Bear Sterns. The merger and takeover
of smaller brokerage firms by the larger firms took place in the last half of
20th Century.
The conglomeration of the financial sector created a volatile environment
which in-turn resulted in chain of reaction and ended up in large economic
collapse in the year 2008.

The roles of the stock exchange and brokerage firms are ever-changing
and prove to be a boon to financial industry in future.
The top global brokerage/financial firms are:
(http://www.forbes.com/2007/05/01/starmine-stocks-analysts-pf-iiin_07topanalysts_pm_0501brokers.html)
FIRMS
Citigroup
Bear Stearns
Credit Suisse
J.P. Morgan
Merrill Lynch
UBS
Goldman Sachs
Robert W. Baird
Stifel Nicolaus
BB&T Capital Markets

Raymond James