Brokerage operations of banks in their accounting
The securities market is similar to the market of any other commodity, but it also has its own characteristics, which are determined by the specifics of the commodity, the method of education, the nature of circulation. It is part of the financial market.
The main purpose of the securities market is to accumulate temporarily free funds in order to invest them. To accomplish this goal, the securities market performs certain general market and specific functions. Its structure is determined both by one or another type of securities and by the method of trading in this market. Therefore, there are such markets as: primary and secondary; organized and unorganized; stock exchange and over-the-counter; traditional and computerized; cash and urgent.
Participants in the securities market can be divided, depending on their functional purpose, into sellers, consumers (investors); intermediaries; organizations serving the securities market; regulatory and control authorities; or depending on their attitude to the market for customers or users; professional traders; organizations specializing in providing services to participants in the securities market.
The most common operations in the securities market are intermediary operations for the purchase or sale of securities on behalf of and at the expense of the client’s funds (including the issuer of issuable securities when they are placed). Such operations are called brokerage.
The variety of operations carried out by banks with securities is extremely high and the need of clients for providing securities services by banks is steadily increasing. Accordingly, the list of services offered by banks to its customers is growing.
In the past 5 years, there has been a trend towards the development of brokerage and dealer services in the banking sector.
The volume of brokerage transactions with customers of the bank is quite large, but at the same time, they require adjustments and changes. These changes will have a positive effect on both the bank’s profit and the client’s income.
Securities market – a source of financing for the economy
Economic growth in the long term can be achieved through the creation of new production capacity and improvement of technology and production technology. The latter becomes possible when society has savings, i.e. excess of income over consumption.
In the course of their activities, for some business entities, revenues exceed production costs, i.e. savings are formed. If these funds are used for the development of production, they turn into investments. However, in some cases, for various reasons, a number of enterprises do not always immediately convert some of their savings into investments. These funds are temporarily free.
So, in the course of production and consumption of goods and services from enterprises, the population (and sometimes the state) are temporarily free funds. At the same time, other enterprises, another part of the population (and often the state) need additional funds. Thus, a financial market arises where money makes its own independent movement regardless of the movement of goods and services. The owners of funds here act as suppliers of capital (sellers), and those who attract money as consumers of capital (buyers).
The movement of free cash from suppliers to consumers of capital is carried out through the channels of the financial market, the main purpose of which is to ensure the conversion of savings into investments. Depending on how cash is transferred from capital providers to consumers, there are two main parts of the financial market.
One part is the market for bank loans. Banks accumulate temporarily free funds of legal entities and individuals, paying a certain percentage for the funds raised, and then provide loans to borrowers at a higher percentage. Thus, the process of movement of money from their owner to the borrower is mediated by the bank. In many cases, this method of transferring funds is in the interests of the owner of the money, since, although the latter receives a lower percentage from the bank, he thereby transfers the risk of non-return by the borrower to the bank. In addition to reliability, bank deposits are highly liquid, as the depositor can easily withdraw their funds. In addition, investments in banks are available even for the smallest investors.
However, the bank pays investors a lower interest rate compared to the one that borrows from its borrowers, so the desire of capital providers to enter into relations directly with borrowers is quite natural.