The Development of Investment Banking in Hong Kong Research Paper

The Development of Investment Banking in Hong Kong - Research Paper Example This research will begin with the statement that investment banking is a type of financial service dealings with the creation of capital for other companies and co-operation. Investment banks underwrite new debts and equity securities for corporations.   They also offer guidance to issuers of security and placement of stock. In addition, they foresee sales of securities in some cases. Investment banks also take part in the mergers, acquisitions, reorganization and broker trades for firms and private investors.   A distinction feature between investment banking and commercial banking is that investment banks do not deal in cash deposits. Corporate finance is the fundamental aspect of investment banking; it also entails helping customers raise funds in capital markets. The banks also provide their customers with supplementary services such as market making, trading of derivatives, commodities as well as fixed income instruments. However, there are some instances where the bank exis ts as a part of a commercial bank but as a chief commercial banker. There are two categories or classes of investment banks based on their mode of operation. This is more relevantly defined as branches of operation in investment banking. The first is simply referred to as the ‘Sell Side’; it carries out functions such as trading securities for an exchange of cash or other securities. Under this section, the bank facilitates transactions and promotes securities and market making services. The other category is the â€Å"Buy Side†. It is concerned with the provision of guidance and advice. It deals with purchasing of investment services. Some of the organizations that deal with this category include unit trusts, insurance companies, private equity funds and mutual funds. The banking system can also be split into private and public functions. This comes to play when there is information barrier which makes the two sections separate since there is no information cros sing to either side of the system. The private section deals with private insider information; under no circumstance should this kind of information be disclosed to the public. The public section, on the other hand, deals with public information such as analysis of the stock, which is suitable for public consumption. The origin of investment banks in Hong Kong can be traced back to 1865 when major financial activities were carried out by HSBC. This was a name derived from Hong Kong and Shanghai Banking Corporation, who were the founding members of the modern group. The bank was owned by business communities of China cost in 1869. During this period financial trade in the region was not yet developed and most banking activities were still handled by Europeans or Hongs, instead of professional bankers. However, people began to venture in entrepreneurship raising the demand of larger and more sophisticated banking facilities and services. The citizens in Hong  Kong particularly neede d a specialized banking system, which was preferably owned and managed locally. After being colonized the British the colony has rapidly become a regional hub for trade in South Asia. Also due to its strategic location in a gateway of China Hong Kong has become the most important financial center in the world and attracting a huge number of investors from all over the world in its investment banking system. The industry has been modernized and conditions set that would see investment banking flourishing. This is due to the low tax rates and also considerable economic rise are key factors that have to lead to the modernization of investment banking in Hong Kong. Hong Kong harbors the best investment banks in the region which have developed over the historic period of banking evolution. It provides regional leaders, with dedicated teams of professionals serving a wide range of clients.