Experience and Lessons from International Investment Banks (Securities Companies) in Mature Markets

China's securities industry has been facing fresh opportunities and challenges as profound changes have shaped the international economic and financial environment in recent years. During this development trend, it has transformed from a separate operation to mixed operation. A major issue now is how to achieve a healthy and stable development under this new business environment. One opportunity for Chinese securities companies is to step into the "bright future" paved by business development models and experiences from foreign investment banks (securities companies).

This chapter examines the general laws of development for investment banks in the new differentiated environment by looking at the external regulation mode, organizational structure, business structure, and internal control of international investment banks in mature markets. It then puts forward a range of proposals, combined with China's specific circumstances, for Chinese securities to develop and prosper.


Internationally, there is a plurality of designations for investing banks with varying connotations and denotations. Before getting into the specifics of the development experience of overseas investing banks, let us first define investment banks themselves. There are narrow and broad concepts of investment banks. Based on the coverage of business lines, the four levels shown in Table 8.1 can be defined.

TABLE 8.1 Definition of Investment Bank

Definition of Investment Bank

As shown in Table 8.1, investment banks on the first level simply engage in the most traditional investment banking business, which includes only stock and bond underwriting and some financial counseling services in the primary market. Investment banks on the second level have common investment bank business lines and relatively complete coverage of primary and secondary market services. Investment banks on the third level have a rather comprehensive business scope. They engage in such types of knowledge-intensive business as asset management and research, which are usually considered to be the basic features of large investment banks. Investment banks on the fourth level are actually beyond the traditional definition of investment banks. They fit the concept of a holding company with investment banking at the core of its business, similar to Goldman Sachs and Morgan Stanley.

In addition to differences in connotation and denotation, investment banks under the same level tend to have different designations from country to country. For example, investment banks on the third level are called investment banks in the United States, merchant banks in the United Kingdom, and securities companies in Japan and China. In this chapter, depending on the context, the terms investment bank and securities company are used interchangeably to refer to investment banks on the third level, unless specified otherwise.

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