How does an investment bank work?

The diagram shows a front-to-back functional view.

πŸ”Ή Front office (Pre-Trade & Trade)
These core business functions include client services, research, trading, brokerage, and sales. A bank’s front office generates revenue.

πŸ”Ή Middle office
Middle office functions support front office functions, including trading risk management, control services, recordkeeping, limits management, and analytical services.

πŸ”Ή Back office (Post-Trade)
Back office runs clearing and settlements. Various reporting happens in the back office as well.

πŸ”Ή Support
As a company, an investment bank also has supporting functions, including HR, legal & compliance, performance management, and support infra.

An investment bank’s middle office and back office functions typically don’t generate revenue, but they are necessary to remain in business. The bank spends a lot of money on meeting regulatory requirements.

Image Credit: Ajit Nair

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