or government agencies issue the securities. Sovereign governments tend to issue
bonds to the markets directly, without underwriting. The U.S. securities market ac-
commodates the greatest volume of new issues, and the international securities mar-
kets based in Europe comprise most of the rest. Domestic market issues of corporate
stocks and bonds have historically been comparatively modest outside the United
States.
Underwriting of securities is usually carried out through domestic and interna-
tional syndicates of securities firms with access to local investors, investors in vari-
ous important foreign markets such as Japan and Switzerland, and investors in off-
shore markets (Eurobonds), using one of several distribution techniques. In some
markets “private placements” occur in cases in which securities are directed not at
public investors but only at selected institutional investors. Access to various foreign
markets is facilitated by means of interest-rate and currency swaps (swap-driven is-
sues). Some widely distributed, multimarket issues have become known as “global
issues.” In some markets, intense competition and deregulation have narrowed
spreads to the point that the number of firms in underwriting syndicates has declined
over time, and in some cases a single participating firm handles an entire issue—in a
so-called bought deal.
Commercial paper and medium-term note (MTN) programs maintained by corpo-
rations, under which they can issue short-term and medium-term debt instruments on
their own credit standing and more or less uniform legal documentation, have be-
come good substitutes for bank credits. Financial institutions provide services in de-
signing these programs, obtaining agency ratings, and dealing the securities into the
market when issued. In recent years, MTN programs have become one of the most
efficient ways for borrowers to tap the major capital markets.
Underwriting of equity securities is usually heavily concentrated in the home
country of the issuing firm, which is normally where the investor base and the sec-
ondary-market trading and liquidity is to be found. Corporations periodically issue
new shares for business capital, but the principal source of new supplies of stocks to
the market has come from government privatization programs. New issues of stocks
may also involve companies issuing shares to the public for the first time (IPOs), ex-
isting shareholders of large positions selling their holdings, and issues by companies
of new shares to existing shareholders (rights issues).
(iii) Privatizations. Sales of state-owned enterprises (SOEs) to the private sector be-
came a major component of global wholesale financial services in the early 1980s.
Privatizations generally involve the sale of the IPO of a large corporation, but they
have also involved the sale of SOEs to corporate buyers, and substantial advice giv-
ing on how the processes should work to satisfy the public interests. They have run
the gamut from state-owned manufacturing and service enterprises to airlines,
telecommunications, infrastructure providers, and so on, using various approaches
such as sales to domestic or foreign control groups, local market flotations, global eq-
uity distributions, sales to employees, and the like.
(iv) Trading. Once issued, bonds, notes, and shares become trading instruments in
the financial markets, and the underwriters remain active as market makers and as
proprietary investors for their own accounts. Secondary-market trading is also con-
ducted by investment bankers in other instruments including foreign exchange, de-
rivative securities of various types, and commodities and precious metals. Trading
2 • 12 GLOBALIZATION OF THE FINANCIAL SERVICES INDUSTRY