Securities firms operate as private financial institutions to encourage investment trading—buying/selling financial instruments—between investors and corporations. Their primary purpose serves to maximize return on investment—inferring plausible “attractive” outcomes for investors, mitigating diversifiable risks from “existing market conditions.” [i]
For example, a securities firm may prevent “stock price reduction,” to corporations issuing public stock because the firm presumably “anticipates market absorption of stocks.” [ii] Securities firms represent intermediaries synchronizing investors with markets. Securities firms clients include “pension funds, insurance companies, foreign banks,” and affluent individuals. [iii]
Functions of Securities Firms
Securities firms serve several functions. Those functions manifest differently depending on the type of securities firms. Below highlights the types of securities firms and underscores their corresponding functions.
Securities firms may constitute investment banks. Investment bank securities firms facilitate the following functions:
- Securities Offerings— issuance and/or trading of stock. Securities firms place securities for corporations and businesses in either the primary or secondary markets.
- Primary Market Offering—A securities offering in the primary market issues first-time securities. These securities—stocks bought for the first time—typically represent IPOs—Initial Public Offerings. For instance, a government in the primary market might issue securities to subsidize public infrastructural projects, i.e., road construction, bridge rehabilitation, school development, etc. [iv]
- Mortgage Securitization—transforms mortgages—collateralized home loans not easily sold individually in the secondary market due to default debt risks—into liquid securities. How? Securities firms securitize mortgages by consolidating “thousands of smaller mortgages” into an aggregate investible package sold to institutional investors with accrued earnings from the conversion. [v] ***CHANGE SOURCE*** Mortgages, “capital market securities” guarantee relatively “high annualized return” because mortgages secure property value as money in the event of future default. [vi]
- Secondary Market Offering—Conversely, the secondary market propagates trade of existing securities. Here, corporations and government agencies may invest—purchase or sell stock—in the secondary market. For example, a corporation might facilitate business expansion by selling previously issued stock of another company on the National Association of Securities Dealers Automated Quotations (NASDAQ) and New York Stock Exchange (NYSE).
- Advisory Services—Securities firms may also act as advisors to corporations and governments—e.g., bond/treasury bill issues. [vii] Advisory services may include:
- Financing & Tax—Corporations may summon securities firms for refinancing to consolidate operations in a manner that efficaciously advantages certain financial and/or tax deduction advantages. [viii] Here, the securities firms advise to maximize economic viability. For instance, securities firms may contract with corporations to offer advice involving secondary market securities, specifically, “investing in stocks, bonds, mutual funds, or exchange-traded funds.”[ix]
- Ownership Structure—In other instances, corporations may entrust securities firms with the fiduciary responsibility to vest and/or allocate ownership interests among its members. [x] If so, counsel from a seasoned corporate lawyer may accompany this service in promulgating the Articles of Incorporation, negating jurisdictionally-driven default rules to suitably accommodate member interests. [xi]
- Asset Management—Some advisory services instrumentally execute the client’s capital structure by positioning securities for corporations to sell. [xii] Ultimately, these advisory services, if prudently implemented, may facilitate continued business expansion.
(2) Brokerage Firms—Securities brokerage firms typically execute the desired transaction orders of customers—e.g., buying or selling stocks/bonds. These trades vary in size, ranging from institutional investments perhaps comprising, “100,000 shares of a specific stock” to individual “short-sale transactions.” [xiii] Brokers place more than just trades. Apparently, they provide various tailored services. Their versatile expertise may prove resourceful for those perhaps lacking time to stay abreast of the presumably sundry, “complicated issues” encompassing tax or estate planning. [xiv] If true, they may serve many roles. Some firms might combine an alloyed array of futures with “traditional investment and trading vehicles,” whereas others presumably limit exclusively to “electronically traded contracts.” [xv] Nevertheless, brokerage firms generally subdivide into two categories:
- Full-Service Brokerage Firms—Full-service brokers personalize services. Generally, these personalized services imply a more comprehensive variety than traditional discount brokerage firms, and thereby, typically accommodate wealthier, seasoned investors. These services include financial or investment advice, tax planner, and retirement. [xvi] Hence, they typically, “charge higher commissions” consistent with the more elaborate “research” generally assumed to perhaps support larger risk investments. [xvii] They usually entail greater expense than discount brokerage firms because of the more in-depth analysis provided.
- Discount Brokerage Firms—Discount brokers buy and/or sell securities without furnishing any additional advice at significantly lower prices. Here, the client incurs a “discount” for basic trade transactions. Discount brokerage might benefit less experienced investors who perhaps lack specialized financial knowledge to accurately interpret investment analysis in maximizing efficient returns. Some discount brokerage services involve carrying, buying, or selling orders of stocks, options, municipal bonds, etc. Others offer credit cards. Unlike traditional full-service brokerage, discount brokerage diversifies its services with digitized trading systems, ostensibly cheaper to both firms and clients alike. [xviii] Therefore, the exponential expansion of online services may differentiate with a competitive advantage from full-service methods. This inference seems consistent with the recent crescendos in demand for discount brokerage firms.
- History of Securities Firms.
(1) Pre-Civil War 19th Century America.
U.S. securities firms date back to the 1800s. Indeed, all major financial institutions, notably, “banks, savings, mutual funds, insurance, companies, and pension funds,” preceded the 20th Century. [xix] However, Banks predominated finance during those formative years. Even then, marginal investment banking transpired pre-Civil War. [xx] Still, historical accounts indicate some early 19th Century banks, “helped companies sell stock to the public.” [xxi] Nevertheless, private investments seldom involved the “sale of securities” in 1813.[xxii] No central liquidity aid existed in perilous periods preceding 1914. Additionally, securities firms remained “virtually unregulated,” with underwriting services concentrated almost principally on bonds before the Great Depression. [xxiii] Furthermore, 19th Century America perhaps exhibited “underdevelopment” compared with the older, purportedly more advanced European markets.[xxiv]
(2) Civil War to Pre-21st Century.
Evidently, the Civil War signifies America’s first “successful large-scale public offering,” specifically, selling government securities.” [xxv] Thereafter, the securities industry allegedly exploded. Historians reasonably correlate this manifestation with unprecedented industrialization culminating in railroad transportation, consequently catalyzing the economic hypertrophy to “accelerate expansion of banking networks.” [xxvi] To strengthen this inference, “securities underwriting became a lucrative business,” after the Civil War. [xxvii] As business burgeoned, investment bankers became progressively prominent to suit the beckoning demand for capital in an increasingly complex economy.[xxviii]
The Securities Industry and Financial Markets Association (SIFMA) and Investment Bankers Association (IBA) both formed in 1912 after supposedly two years of rejection. [xxix] In 1914 the Federal Reserve emerged to stabilize market prices and inflation for a surging economy. These developments support the conclusion of securities firm expansion. From 1890 to 1925 investment banking proliferated as the stock market pinnacled at $4.4 billion in equity immediately preceding a devastating 1929 crash and ensuing depression. [xxx] Though state-level Blue Sky Laws mandated bank-commissioned permits for securities transactions, the Great Depression ushered in stricter federal regulations to replicate and expand existing requirements. [xxxi]
After World War II, the U.S. economy blossomed. By the 1950s, U.S. securities markets experienced “steady” growth. [xxxii] Between 1967 and 1971 trading volume apparently more than doubled despite inflationary issues perhaps precipitated from sustained foreign war involvement. [xxxiii] 1980 seemed to produce “the most lucrative year yet” at that time for Wall Street securities firms, culminating in record-high “public underwritten stock sales.” [xxxiv]
Since the early 1980s derivatives included trades on “foreign currencies, government debt instruments, and stock indexes.” [xxxv] With globalization materializing at this time—“the computerization of trading and information technology”—perhaps helped “internationalize portfolios” as economic systems synchronized interdependently for competitive advantage. [xxxvi]
Throughout the 1980s U.S. securities business concentrated heavily in large broker-dealers with a wider range of non-SEC regulated financial products and services. [xxxvii] In 1990, America operated, “11 of the world’s largest 25 securities firms,” with diminished global barriers to European financial markets. [xxxviii]
During the 90s securities firms expanded investments to encompass “state/local municipal bonds, junk bonds, options, mutual funds, asset/mortgage-backed securities, futures, and real estate investment trusts. [xxxix] 1995 proved historic—981 securities firms generated “$176.26 billion,” 572 new companies entered the market, and NYSE produced a record “346 million shares” in average daily volume. [xl]
- Foreseeable Legal, Regulatory, & Practice Developments
Recall the Great Depression period—1929 Stock Market Crash to 1939—signaled an outgrowth of federal reforms. From this historical transition arose the U.S. Securities and Exchange Commission (SEC)—a federal administrative agency designed to regulate securities commerce. Established in 1934, the SEC regulates investment exchanges, monitors required broker disclosures and provides investors accessible information on publicly traded companies. The SEC also maintains general guidelines of financial disclosure laws for buying and selling securities. [xli] The SEC’s mission statement emphasizes “facilitating capital formation” by “protecting investors” and “maintaining efficient markets.” [xlii] It accomplishes this mission by collaborating with privately regulated organizations, i.e., the National Association of Securities Dealers (NASDAQ), to employ surveillance departments and enforcement divisions. Surveillance departments scrutinize “trading behavior” while enforcement divisions “investigate possible violations,” sometimes sanctioning with disciplinary and/or legal action to remediate “market trading abuse.” [xliii] Therefore, the SEC serves an instrumental function in regulating securities firms to ensure ethical, legal, professional trade practices.
- Fiduciary Responsibilities. The SEC recognizes securities firms as fiduciaries to clients. Essentially, clients entrust securities firms with fiduciary responsibilities, a relationship obligation of loyalty in confidence from agents to clients. In other words, securities firms maintain the highest standards of professionalism and ethics to secure their clients’ financial interests. The SEC previously distinguished broker-dealers from investment advisors, originally vesting investment advisors, not broker-dealers, with fiduciary duties due to their advisory role. But now federal law treats broker-dealers the same as investment advisors when acting in an “advisory” financial role to provide “personalized services.” [xliv] These alterations in SEC fiduciary standards evidently evolved over the past several decades.
However, the Department of Labor (DOL) in May 2016 proposed new legislation to expand broker fiduciary duties, requiring broker justifications for retirement investment service prices. [xlv] Given its assumed vagueness—failure to specify “reasonable compensation” under a “best interests” fiduciary standard—the regulation risks exorbitantly increasing expenses on broker retirement advice. [xlvi] Consequently, if enacted, the higher expense further implies higher costs incurred to customers, which may jeopardize business for some independent full-service brokerage securities firms.
- Conflicts of Interest. When securities firms act in a fiduciary capacity for financial transactions they become subject to conflicts of interests. Conflicts of interest arise in this context as fiduciary violation whereby a securities firm acts adversely to its client’s financial interest.[xlvii] Typically, a self-serving motive exists. For example, a securities firm that promotes specific securities to one client but then takes the opposite position while representing another demonstrates conflicting interests. Ultimately, a conflict of interest arises with securities firms where one interest—whether personal or another client—works against the client’s interest.
This section introduces securities firm services as an analytical framework for considering the present and potential future outlook of 21st Century U.S. securities firms.
Recall that securities firms may operate as investment banks or brokers. Investment banks derive income from fees charged for specific services. Brokerage services receive commissions through services. Securities firms feature the following services:
- Underwriting—involves the risk assessment process of investment banks generating capital from investors through debt or equity securities issued by corporations and governments. [xlviii] “Underwriting” originated with “risk-takers writing their names under the total amount of risk” they “willingly” assumed to “accept at a specified premium.” [xlix] Generally, securities companies such as Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America’s Merrill Lynch provide underwriting services. Here, these securities firms act as issuing companies to client borrowers for underwriting stock or bonder offerings from financial or governmental firms. [l]
- Advising—research securities firms perform for clients to corroborate risk assessments. Even after the completion of securities placement, clients may still need help raising long-future funds.
- Advising can take many forms including:
- Identifying potential investment targets;
- Determining possible merger and acquisitions;
- Protecting clients from corporate takeovers.
- Restructuring—securities firms help clients restructure their business with various services for additional fees. Restructuring enables clients to retain company equity. Such services may include:
- Ensuring successful company merger;
- Fostering divestiture of “bad assets” to prevent overstating competitiveness;
- Carve-outs—partial divestiture, removing bad assets & preserving quality ones;
- Investing in Spin-offs—“stand-alone” publicly traded subsidiaries deemed to possess greater value independently than part of the larger company—for competitive advantage. [lii] Here, shareholders issuing these spin-offs may capitalize on differentials between undervalued conglomerates relative to its subsidiary in a process known as arbitrage. [liii]
- Brokerage services—include the following:
- Management fees—fees to manage clients’ asset portfolio regardless of investment outcome;
- Trading commissions—commissions charged for selling or buying assets in secondary markets;
- Margin interest—trading on margin constitutes a key aspect of portfolio investment. Here, firms lend “up to 50% of purchase price” of stocks, bonds, or mutual funds, for rates generally less than “credit cards and unsecured loans.” [liv] Therefore, trading on margin permits brokers to charge interest on these loans.
- Proprietary Trading—some brokers invest in financial markets to profit for itself without representing a client in any professional capacity.
- Financial Markets.
Securities firms participate in the financial market to furnish financial services. Financial markets represent the venue of exchange for traders to buy/sell stocks, bonds, currencies, and/or contract derivatives. To ensure legal compliance in safeguarding fraud, misrepresentation, or other violations, a highly sophisticated set of regulations govern the financial market. These regulations classify by investors’, geographic location, net worth, and investment expertise. Financial markets categorize as follows:
- Money Markets. Some securities firms participate in money markets to create mutual funds. These mutual funds invest in money markets assets. Other securities firms advantageously exploit the money market to underwrite commercial paper so they may purchase short term securities for investments. As discussed in the Functions of Securities Firms section, securities firms may underwrite a stock in the primary market. They also provide advice, sometimes executing sell and buy orders as brokers.
- Capital Markets. Securities firms also utilize the bond markets, creating bond mutual fund securities, accordingly restructuring clients’ portfolios as needed for Mergers and Acquisitions (M&A). Likewise, securities firms can buy bonds to incorporate into their diversified portfolio of investments. Also, non-Brokerage firms may solicit securities firms for underwriting services involving mortgage-backed securities, transforming long-term deficit units to surplus units. [lv]
- Futures Markets. Futures contracts hedge against potential high market volatility, e.g., Brexit voting. This derivatives contract sets a predetermined price for future assets as protection from the uncertain event of risks.[lvi] Securities firms might serve as advisors on this occasion.
- Options Markets. Options hedge from market risk, incorporating contingency assurances that assume variable conditions under contract to diversify risk for uncertain events. For example, parties may include condition subsequent “currency option” arrangements, perhaps, hypothetically, requiring a specified price hike to accommodate changes in foreign currency values. [lvii]
- Swap Markets. Interest rates imply risks. So, to reduce risk parties may pursue deals. One party may negotiate mutual benefits under contract by swapping perceived undesirable attributes for attractive arrangements the other party presumably possesses. For example, one party may wish to mitigate risk by trading a floating rate loan to receive fixed rates. The speculator is perhaps seeking to advantage possible interest rate declines might also arrange for higher rate percentages as compensation if rates rise rather than fall. The other party, however, may prefer accepting a higher fixed rate because, despite higher costs, those values then remain constant, locked-in, without change under contract.
- Regulatory Events Impacting Securities Firms.
Again, the Great Depression impacted securities firms by forcing heightened federal scrutiny of financial markets. The SEC formed and evolved with various regulations over time to accommodate transitioning developments. In the late 20th and early 21st Centuries, various regulatory events emerged to accommodate post-millennial modernization—unanticipated globalizing effects of technology on financial markets. These regulatory events influenced how securities firms conduct business. The following events impacted securities firms:
- Financial Services Modernization Act. In 1999, Congress enacted the “Gramm-Leach-Bliley” Financial Services Modernization Act to consolidate securities firms into conglomerates. Under this legislation, financial institutions acquire securities firms in a holding company structure which enables specialized financial services. Essentially, securities firms become subsidiaries of a larger financial institution. The purported purpose of this regulation presumably serves to generate business by encouraging reciprocity between banks and securities firms with customers in amalgamated services. For example, bank mergers may use the “bundling of financial services” to attract customers seeking securities firms, and vice versa.
- Fair Disclosure Regulations. The SEC instituted Regulation Fair Disclosure, requiring contemporaneous disclosure of relevant market information to all market participants. This seemingly egalitarian measure served to equalize opportunity, preventing some analysts from prematurely availing a competitive advantage to inside information against small investors lacking exposure. Consequently, firms disseminated information via newsletters or conference calls. Hence, analysts who relied on individual information rather than pre-publicized information tended to prevail. The measure apparently sought transparency. But such a regulation might instead instigate the consequences it sought to prevent—some analysts fraudulently finagling insider information for financial gain.
- Analyst Rating Regulations. From 2001-2002, the analyst rating process received criticism. Securities firms recognized the benefit of high ratings to attract customers. To exploit advantage, some analysts connected individual compensation with business they engendered for the firm. The temptation for analysts to disingenuously exaggerate ratings and elicit clients with misleading investments too existed. Therefore, to circumvent these apparent conflicts of interest—situations which may adversely affect clients’ financial interests—the SEC in 2002 implemented new rules limiting gains from analyst ratings. These rules:
- Stipulated a 40-day delay precondition to promoting any underwritten IPO;
- Prohibited analysts from aligning compensation with business generated for the firm;
- Restricted investment banks from supervising analysts to prevent extorted ratings;
- Required disclosure of all investment banking business attributed to rating received. [lviii]
- IPO Market Regulation. Conflicts of interest abuses also arose in the IPO market from 2001-2003. Here, some securities firms as IPO underwriters implicitly bribed executives to allocate shares for their firms in a process called spinning. Other securities firms sought usurious bids and commissions to overcompensate when demand exceeded supply. The SEC imposed fines and rules to deter recidivism.
- 2007-2009 Great Recession & Influence on Securities Firms Today.
From 2007-2009, America arguably witnessed its most debilitating financial crisis since the 1930s Great Depression. [lix] The crisis practically crippled many securities firms as “American households, businesses, other investors, etc.” to whom they depend on for economic viability, “lost trillions of dollars.” [lx] The 2008 “Credit Crisis” specifically triggered enormous loss from defaults on debt-secured mortgages. [lxi] Nevertheless, almost no single cause logically accounts for any single historical event. [lxii] To associate the financial crisis with one cause mistakes correlation for causation. Such reasoning neglects the possible influence of interceding, supervening events. Nearly countless contributing factors may plausibly correlate to the onset of this “Great Recession.” However, this paper limits to the potentially pertinent issue of securities deregulation.
- Securities Deregulation. Risks associated with securities deregulation plausibly influenced the 2007-2009 financial crisis. The inference of securities deregulation comports with history. The 1970s-90s in America reasonably characterized a period of de-regulation. Here, “federal laws removed:
- All limitations on services and interest rate caps;
- All regulations on expansion;
- All regulations concerning combination, e.g., mergers and acquisitions, so companies may profit from buying each other.” [lxiii]
Again, governments during this time de-regulated institutions to advantage global competitiveness. Consequently, diversification in foreign markets through thriving technology became an impetus for sustained economic growth. This deregulation phase manifests as an assumption in the historical evidence of 1970s securities firms offering “attractive” investment alternatives, “shedding legal restrictions” for market “competitiveness.” [lxiv] Additionally, the aforementioned 1999 Gramm-Leach-Bliley” Financial Services Modernization Act with its ostensible intent to “remove legal obstacles,” in synchronizing securities firms with banks, strengthens this inference. [lxv] Hence, if true, securities firms, historically, appeared to receive “looser regulations,” namely, “less stringent capital requirements,” than banks, many of which control them. Assuming looser regulations, greater financial flexibility may incentivize a probative willingness from securities firms to acquire more debt, which if left unpoliced, amplifies default risk. Therefore, it true, this presumed “incentive to securitize low credit loans,” suggests a plausible “contributing factor” inherent in the 2007-2009 crisis.[lxvi]
- Lehman Brothers & Bear Stearns.
For example, Lehman Brothers—among America’s largest, most reputable securities firms in 2007-2008—and Bear Stearns, a large primarily mortgage-backed securities firm, both became linked to low-quality (subprime) mortgage loans. A subprime mortgage refers to loans offered for someone with tenuous credit history. [lxvii]
According to former Federal Reserve Chair Ben S. Bernanke, Fannie & Freddie—publicly-subsidized corporations—assumed significant debt-default risks by taking “large amounts of mortgage-backed securities,” on their own account since the late 1990s. [lxviii] If true, the resulting insolvency from exhausting capital capacity, perhaps compelled Wall Street to consequently securitize mortgages without needing Fannie & Freddie. [lxix] If so, securities firms may securitize mortgages with even “fewer regulatory impediments,” perhaps exposing themselves to greater risks. [lxx]
After all, financial institutions tended toward “excessive risk taking from 2005-2007,” behavior consistent with catalyzing the “2008-2009 credit crisis.” [lxxi] Those financial institutions included various securities firms, namely, Lehman Brothers and Bear Stearns. Because Lehman and Stearns presumably dispensed voluminous quantities of “subprime mortgages,” featuring, “hybrid adjustable-rate mortgages with balloon payments, or negative amortization,” their “unpaid balances increased over time.” [lxxii] If true, these practices ultimately precipitated their failure, demonstrating how securities firms may instigate inordinate risk to themselves and the financial system using “high leverage.” [lxxiii]
- Subprime Securities Tied to Credit-Default Swaps.
Moreover, many failing institutions in 2004-2008 period presumably connected some subprime securities with credit default swaps as a derivative hedge against default risks. [lxxiv] Apparently, a “lack of transparency” heightened credibility concerns among regulators involving privy credit default parties, “as the credit crisis intensified in 2008 and 2009. [lxxv] Bernanke partly implicates the financial crisis with “concentrated risks” from “exotic financial instruments and credit default swaps,” noting “gaps in regulatory structure” among “public-sector vulnerabilities.” [lxxvi] As a former Federal Reserve Chair, his authoritative assertion plausibly correlates securities deregulation with the 2007-2009 Credit Crisis.
- Ramifications of Credit Crisis. The long ramifications of this crisis remain uncertain. Nonetheless, the perceived increased risk suggests several plausible consequences:
- Diminished market participation lest investors lose money;
- Transition toward tightened financial regulation;
- Reduced liquidity after defaulting on high-risk debt obligations;
- Increased unemployment as labor affordability plummeted.
These observed consequences comport with present reality following the financial crisis.
Indeed, the Federal Reserve plausibly reports such “risk-aversive” tendencies sufficient to “stop trade” and/or request, “substantially higher compensation.” [lxxvii] Also, as households lost nearly “$20 trillion in assets,” significant export reductions showed massive declines for U.S. investments. [lxxviii] Likewise, the incidental effect of perceived risk perhaps exacerbated liquidity as businesses struggled to obtain cash with surmounting delinquent debts, especially for greater investor demands. This issue suggests possible further regulatory expansion as the Federal Reserve attempted to provide liquidity.
To stabilize the financial system, stricter consumer protection regulations emerged. Consider the Dodd-Frank Act vis-à-vis its influence on securities firms.
- Dodd-Frank Wall Street Financial Reform Act of 2010. Congress instituted the Dodd Frank Act in 2010 to presumably strengthen consumer protection. Born from the Great Recession, it provides 16 areas of reform to restrict bank lending and mortgage practices in preventing a recurring financial institution collapse. [lxxix] Dodd-Frank provided:
- An extensive credit history investigation for prospective mortgage applicants to mitigate default risk on mortgage-backed securities;
- A securitization process that requires securities firms to retain 5% of the portfolio unless specific standards otherwise satisfy low-risk requirements;
- An Office of Credit Ratings in the SEC to regulate credit rating agencies with internal controls;
- A regulatory authority to liquidate failing securities firms in expediting loss prevention;
- A risk management clearinghouse that standardizes trading practices—price and transparency—for derivatives securities.
- Current Outlook for Securities Firms.
The financial crisis aftermath suggests a mixed/negative outlook for securities firms. Unsurprisingly, Deloitte projects “continued significant regulatory challenges,” for brokers. [lxxx] If accurate, regulatory challenges might correlate with Dodd-Frank and recent attempts to impute harsher fiduciary requirements on brokers reportedly for consumer protection. Fitch Ratings Agency characterizes the 2016 securities firm outlook as fraught with protracted “challenges” correlated to feeble “trading results in Fixed Income Currency and Commodities (FICC) trading businesses.” [lxxxi] Conversely, Fitch indicated “strong 2016 underwriting” prospects, with “solid capital and liquidity levels from larger firms,” though supposedly insufficient to surmount “overall market earnings pressure.” [lxxxii] The Financial Industry Regulatory Authority (FINRA) reported that securities firms “still experience systemic breakdowns,” associated with “significant violations” from substandard compliance in 2016. [lxxxiii] FINRA functions as an independent, non-governmental agency authorized by Congress to ensure investor protection and market integrity. If true, expanded federal regulation may result. Therefore, if true, the reportedly negative overall 2016 outlook for securities firms suggests questionable viability.
- Future Outlook for Securities Firms
Though the SEC currently exercises a “limited role” in how U.S. securities firms utilize funds, technological proliferation may predispose greater fraud infiltration with increased internet information accessibility. [lxxxiv] Assuming technology inexorably advances as present trends suggest, the evidence supports SEC involvement increasing to combat potential securities violations. To strengthen this inference, FINRA emphasized several compliance problem areas including:
- Supervision, Risk Management & Controls—“firm culture, conflicts of interest, ethics”;
- Liquidity—“financial contingency planning and internal controls.” [lxxxv]
If true, these issues predispose greater federal scrutiny. After all, the 2010 Dodd-Frank Act, putatively designed to reform credit practices in view of 2008’s Financial Crisis, risks severely restricting business for securities firms. Excess regulation tends to restrict profitable gains as evidenced from inordinate taxes and oversight in trading practices. Again, the DOL’s heightened fiduciary standard to discourage higher brokerage fees for retirement services possibly disenfranchises securities firms of earnings otherwise received without restrictions. Furthermore, an apparent new norm of lower interest rates compared to pre-2007 levels, assuming patterns persist, may endanger securities firms as bank profitability suffers. [lxxxvi] Therefore, assuming these predictions prove accurate, unless U.S. securities firms improve their compliance reputation, foreseeable regulations potentially threaten to stifle growth by controlling its practices.
- Political Climate.
The next financial crisis, however, might not involve, “mortgage loans or even financial securities,” but more plausibly, averting an abounding record-level fiscal debt, if unaddressed. [lxxxvii] Why? The current national debt surpasses $19.2 trillion. That value allegedly exceeds the U.S. GDP, comprising, “551% of annual revenues.” [lxxxviii] Assuming this pattern continues, topping new heights of record-setting stratospheric debt, even the Treasury becomes paramount. The future of securities may struggle to pay just 1.8% in interest. [lxxxix] This unresolved issue may prove deleterious to the entire economy let alone securities firms which impact its overall sustainability. Hence, future policy may factor instrumentally in the economic viability of U.S. securities firms. Therefore, if true, their future economic viability may depend on 2016 election results, specifically, whether Hillary Clinton or Donald Trump becomes the next incumbent president. This paper concludes with a comparison of presidential proposals as related to potential institutional impact on securities firms.
A Clinton Presidency
Despite her Wall Street connections, Hillary’s historical record assumes a notoriously anti-capitalistic platform. For example, she allegedly advocates, inter alia:
- Capital gain tax rate increases to “39.6% on “two year” short-term investments”[xc];
- Income inequality” among the “biggest issues” in America; [xci]
- “Tough new rules,” with “stronger enforcement” to expand Dodd-Frank [xcii];
- Removing “bankers” from boards of 12 regional Federal Reserve banks.[xciii]
- Equalizing the gender wage gap; [xciv]
- Tax “certain types of high-frequency trading, automated stock trading” [xcv];
- Tax incentives to “delay capital gains realizations” [xcvi]
If anything Clinton seems more concerned with gender and racial issues concerning the Federal Reserve than major financial priorities in her proposal to “increased diversity of its leadership.” [xcvii] If true, Hillary’s restrictive proposals—increased short-term investment taxes, impliedly reducing incomes with delayed realization, etc, presumably harm securities firms. If true, these socialistic measures—higher taxes and lower deductions to upper-income brackets—may impede financial growth for securities firms who rely on wealthier clients. [xcviii] She presumably fails to directly tackle the record-breaking national debt problem, and her assumed tax increases seem consistent with exacerbating it. [xcix] Therefore, another four years of federal expansionism—higher taxes, regulatory costs, reduced capital gains—risks jeopardizing the financial stability of many securities firms.
A Trump Presidency
Conversely, Donald Trump’s presidential objectives assume a more conservative financial and fiscal policy. Moreover, his perceived reputation as an independent-billionaire businessman may reinforce credibility among U.S. securities firms desiring domestic and economic growth. His proposed policy includes:
- Removing the Dodd-Frank Act;
- Lower the corporate tax to 15% [c];
- Auditing the Federal Reserve;
- Promises to obliterate the $19 trillion deficit in 8 years;
- Restoring “millions of jobs” and reactivating domestic “manufacturing jobs.”
- A maximum 20% corporate tax rate.[ci]
While Donald may not accomplish all of the proposed policies he promises, if elected, his legitimacy seems much more plausible than a scandal-ridden politician. If true, a plausible inference as someone with nothing to lose, his de-regulatory attempts may restore confidence in securities firms, perhaps encouraging investment gains. Removing the Dodd –Frank act advances that direction. Assuming he proves true to his character, and succeeds in all of his proposals, securities firms may thrive from loosened monetary policies. However, his proposed plan assumes a moderate de-regulatory plan, as inferred from his plan to restructure the Federal Reserve. Likewise, his concession during the financial crisis that “…you have to keep the banks going,” reveals he understands sometimes a crisis may warrant federal intervention. [cii]Therefore, if elected, Trump’s policy proposals seem to comport with job growth for securities firms—negating years the Obama Administration’s federal expansion—perhaps protracted further under Hillary.
[i] See Besley & Brigham, Essentials of Managerial Finance, 14th Edition, Thomson South-Western, 2008, 2005, p 102.
[iii] See Bernanke, Ben S. “The Federal Reserve’s Response to the Financial Crisis.” The Federal Reserve and the Financial Crisis. Princeton UP, 2013. p. 69.
[iv] See Srinivasan, Sujata, Role of the Primary Market, Houston Chronicle, Demand Media, LLC, Hearst Newspapers, LLC, 2016, p.1, http://smallbusiness.chron.com/role-primary-market-1519.html.
[v] See Madura at 645; See Investopedia, Securitization Definition, Investopedia, LLC, 2016, p. 1, http://www.investopedia.com/terms/s/securitization.asp.
[vi] See Madura at 5.
[vii] See Van Bergen, Jason, Uncovering The Securities Firm, Investopedia, LLC, 2016, p. 1, http://www.investopedia.com/articles/basics/04/061104.asp.
[viii] See Investment Company Institute (ICI), Investment Company Fact Book—A Review of Trends and Activities in the U.S. Investment Company Industry, 53rd Edition, ICI, 2013, p. 224, See Eastend Financial Group (EEFG), Hot Topic—Path Act Makes Many Tax Breaks Permanent, EEFG, Inc., 2016, p. 1, http://www.eastendfinancialgroup.com/HOT-TOPIC-PATH-Act-Makes-Many-Tax-Breaks-Permanent.c7059.htm.
[x] See Madura, Jeff at 645.
[xi] See Department of State, Division of Corporations, State Records, & UCC, Business Corporations Frequently Asked Questions, 2016, p. 1, http://www.dos.ny.gov/corps/bcfaq.asp.
[xii] See Madura at 14.
[xiii] See Id. at 646.
[xiv] See Investopedia, Full-Service Broker, Investopedia, LLC, 2016, p. 1, http://www.investopedia.com/terms/f/fullservicebroker.asp.
[xv] See Garner, Carley, A Trader’s First Book on Commodities—An Introduction to the World’s Fastest Growing Markets, Pearson Education, Inc., FT Press, 2010, p. 68.
[xvi] See Investopedia, Discount Broker—Definition, Investopedia, LLC, 2016 p. 1, http://www.investopedia.com/terms/d/discountbroker.asp?layout=infini&v=5F&orig=1&.
[xvii] See Groz, Marc. M., Forbes—Guide to the Markets, Becoming a Savy Investor, Second Edition, John Wiley & Sons, Inc., Glossary, 2009, p. 255.
[xviii] Reiman, Maxime, What’s the Difference Between a Full-Service Broker and a Discount Broker? Nerdwallet, Inc., September 26, 2014, p. 1, https://www.nerdwallet.com/blog/investing/full-service-broker-discount-broker/.
[xix] See Litan, Robert E., Rauch, Jonathan, American Finance for the 21st Century, Brookings Institution Press, 1998, p. 23.
[xx] See Odekon, Mehmet, Booms and Busts: An Encyclopedia of Economic History from Tulipmania of the 1630s to the Global Financial Crisis of the 21st Century, Volume 1-3, Taylor & Francis, © 2010, p. 180.
[xxi] Geisst, Charles, R., Encyclopedia of American Business History, 2006, p. 228.
[xxiii] See Litan, Robert E., Rauch, Jonathan, American Finance for the 21st Century, Brookings Institution Press, 1998, p. 23.
[xxiv] See SIC 6211, Security Brokers, Dealers, & Flotation Companies, 2016 Advameg, Inc, 2016, p.4, http://www.referenceforbusiness.com/industries/Finance-Insurance-Real-Estate/Security-Brokers-Dealers-Flotation-Companies.html.
[xxv] See Moulton, Harold Glenn, The Financial Organization of Society, University of Chicago, January 1921, p. 213.
[xxvi] See Atack, Jeremy, Jaremski, Matthew, Rousseau, Peter, L., American Banking and the Transportation Revolution Before the Civil War, September 2013, p. 3, http://eh.net/eha/wp-content/uploads/2013/11/Atack.pdf.
[xxvii] See Litan, Robert E., What Should Banks Do? The Brookings Institution, 1987, p. 22.
[xxviii] See Gale Encyclopedia of U.S. Economic History, Civil War and Industrial Expansion 1860—1897, Gale Group, Inc., 2000, p. 5.
[xxix] See Securities Financial Markets Association (SIFMA), History, 2016, p. 1, http://www.sifma.org/about/history/.
[xxx] See Stowell, David, An Introduction to Investment Banks, Hedge Funds, & Private Equity—The New Paradigm, Academic Press, Elsevier, Inc., 2010, p. 22.
[xxxi] See Cornell University Law School, Securities Law History, Legal Information Institute, 2016, p. 2, https://www.law.cornell.edu/wex/securities_law_history.
[xxxii] See the University of Texas at Austin, Initial Impact of Computers in the 60s and 70s, p. 1, http://www.laits.utexas.edu/~anorman/long.extra/Projects.F97/Stock_Tech/initial.htm.
[xxxiii] See Wells, Wyatt, The Remaking of Wall Street, 1967-1971, Harvard Business Journal, Business History Review, October 2, 2000, p. 1, http://hbswk.hbs.edu/archive/1719.html; See Bernanke, Ben S. “The Federal Reserve’s Response to the Financial Crisis.” The Federal Reserve and the Financial Crisis. Princeton UP, 2013. p. 30-31.
[xxxiv] See Lohr, Steve, 1980 A Very Good Wall St. Year, New York Times, Business Day, Jan. 1, 1981, p. 1, 3, http://www.nytimes.com/1981/01/01/business/1980-a-very-good-wall-st-year.html.
[xxxvi] See Hufbauer, Clyde, G., Unfinished Business: Telecommunications After the Uruguay Round, Institute for International Economics, Washington, D.C., Dec. 1997, p. 132.
[xxxvii] See U.S. Government Accountability Office (GAO), Securities Firms: Assessing the Need to Regulate Additional Financial Activities, April 21, 1992, p. 1, http://www.gao.gov/products/GGD-92-70.
[xxxviii] See Breeden, Richard, C., New York Financial Writers Association, Speech: The Securities Markets in the 1990s, New York Financial Writers Association, U.S. Securities & Exchange Commission, June 7, 1990, p. 2, 6, https://www.sec.gov/news/speech/1990/060790breeden.pdf.
[xxxix] See SIC 6211, Security Brokers, Dealers, & Flotation Companies, 2016 Advameg, Inc, 2016, p.2, http://www.referenceforbusiness.com/industries/Finance-Insurance-Real-Estate/Security-Brokers-Dealers-Flotation-Companies.html.
[xli] Foner, Eric, Garraty, John A., The Reader’s Companion to History—Securities and Exchange Commission, Houghton-Mifflin, 1991, http://www.history.com/topics/securities-and-exchange-commission.
[xliii] See Madura, Financial Markets and Institutions, 11th Edition, Cengage Learning, 2012, 2015, p. 652.
[xliv] See US Securities and Exchange Commission, Recommendation of the Investor Advisory Committee—
Broker-Dealer Fiduciary Duty, p. 3
[xlv] See Wall Street Journal, Fiduciary Duty in Congress—The GOP Votes to Repeal the Fourth Obama Regulation in Two Years, Opinion, June 2, 2016, 7:15 P.M. ET, p. 2, http://www.wsj.com/articles/fiduciary-duty-in-congress-1464909327.
[xlvi] See Carmel, David R., The DOL Fiduciary Rule’s Effect on Small Broker Dealers, Investment News, May 4, 2016, p. 6-7 http://www.investmentnews.com/article/20160504/BLOG09/160509969/the-dol-fiduciary-rules-effect-on-small-broker-dealers.
[xlviii] See Papaioannou, George, J., The Market Structure Effects of Commercial Bank Entry into Underwriting: Evidence from the League Tables, Journal of Financial Services Marketing, Vol. 13, 4, 300–316 © 2009 Palgrave Macmillan, p. 305-306.
[xlix] See Investopedia, Underwriting, Investopedia LLC, 2016, p. 1, http://www.investopedia.com/terms/u/underwriting.asp.
[l] See Spiceland, David J., Thomas, Wayne, Herrmann, Don, Financial Accounting, 4th Edition, McGraw Hill Education, 2016, p. 418.
[lii] See Investopedia, Spinoffs, Investopedia LLC, 2016, p. 1, http://www.investopedia.com/terms/s/spinoff.asp?layout=infini&v=5F&adtest=5F&ato=0.
[liii] See Buffet Mary, Clark, David, Warren Buffet and the Art of Stock Arbitrage—Proven Strategies for Arbitrage and Other Special Investments, Simon & Schuster, Inc., 2010, p. 11.
[liv] See Spiegelman, Rande, Margin: How Does it Work? Charles Schwab & Co., Inc., May 9, 2013, p.1-2, http://www.schwab.com/public/schwab/nn/articles/Margin-How-Does-It-Work.
[lv] See Madura, Jeff, at 5.
[lvi] See Investopedia, Futures Contract, Investopedia LLC, 2016, p. 1, http://www.investopedia.com/terms/f/futurescontract.asp.
[lvii] Finnerty, John D., Project Financing, Asset-Based Financial Engineering, John Wiley & Sons, Inc., 3rd Edition, 2013, p. 302.
[lviii] See Madura, Financial Markets and Institutions, 11th Edition, Cengage Learning, 2012, 2015, p. 654.
[lix] See Soros, George, The New Paradigm for Financial Markets—The Credit Crisis of 2008 and What it Means, Perseus Books Group, 2008, p. 1.
[lx] See American Bar Association, The Financial Crisis of 2007-2009 Causes and Contributing Circumstances, Task Force on the Causes of the Financial Crisis, Banking Law Committee, Section of Business Law, American Bar Association, September 2009, p. 10, https://apps.americanbar.org/buslaw/committees/CL130055pub/materials/201001/causes-report.pdf.
[lxi] See Madura at 658.
[lxii] See Kroszner, Randall, S, Shiller, Robert, J., Reforming U.S. Financial Markets, MIT Press, p. 2011, p. 25; See American Bar Association, The Financial Crisis of 2007-2009 Causes and Contributing Circumstances, Task Force on the Causes of the Financial Crisis, Banking Law Committee, Section of Business Law, American Bar Association, September 2009, p. 10, https://apps.americanbar.org/buslaw/committees/CL130055pub/materials/201001/causes-report.pdf.
[lxiii] See Manley, John, Ph.D. Class Recording Annotation, June 27, 2016, 2 minutes, 37 seconds—3 minutes, 18 seconds.
[lxiv] See American Bar Association, The Financial Crisis of 2007-2009 Causes and Contributing Circumstances, Task Force on the Causes of the Financial Crisis, Banking Law Committee, Section of Business Law, American Bar Association, September 2009, p. 10, https://apps.americanbar.org/buslaw/committees/CL130055pub/materials/201001/causes-report.pdf.
[lxvi] See Financial Crisis Inquiry Commission, The Financial Crisis Inquiry Report, The Financial Crisis Inquiry Commission, 2011, p. 663; See Gorton, G.B., Pennacchi, G.G., Banks and Loan Sales: Marketing Nonmarketable Assets Journal of Monetary Economics, 1995, p. 35, 389-411.
[lxvii] See Zandi, Mark, Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis, Pearson Education, Inc. 2009, p. 9.
[lxviii] See Bernanke, Ben S. “The Federal Reserve’s Response to the Financial Crisis.” The Federal Reserve and the Financial Crisis. Princeton UP, 2013. p. 65-66.
[lxix] See Griffith, John, 7 Things You Need to Know about Fannie Mae and Freddie Mac, Center for American Progress, September, 6, 2012, p. 2, https://www.americanprogress.org/issues/housing/report/2012/09/06/36736/7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/.
[lxx] See Manley, John, Ph.D, Service of Financial Institutions—Finance Companies Expand Mortgages & Business Loans, PowerPoint, p. 12.
[lxxi] See Madura, Jeff, Financial Markets and Institutions, 11th Edition, Cengage Learning, 2012, 2015, p. 497.
[lxxii] See Griffith, John, 7 Things You Need to Know about Fannie Mae and Freddie Mac, Center for American Progress, September 6, 2012, p. 3, https://www.americanprogress.org/issues/housing/report/2012/09/06/36736/7-things-you-need-to-know-about-fannie-mae-and-freddie-mac/.
[lxxiii] See Madura, Jeff, Financial Markets and Institutions, 11th Edition, Cengage Learning, 2012, 2015, p. 661.
[lxxiv] See Clark, Josh, What are Credit Default Swaps?—The Credit Default Swap Situation, How StuffWorks, Money, Infospace, LLC, p. 1, http://money.howstuffworks.com/credit-default-swap2.htm.
[lxxv] See Madura at 503.
[lxxvi] See Bernanke, Ben S. “The Federal Reserve’s Response to the Financial Crisis.” The Federal Reserve and the Financial Crisis. Princeton UP, 2013. p. 66.
[lxxvii] See Sarkar, Asani, Liquidity Risk, Credit Risk, and the Federal Reserve’s Responses to the Crisis, Federal Reserve Bank of New York Staff Reports, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr389.pdf.
[lxxviii] See Tufts University, Chapter 15—Financial Crisis & Great Recession, p. 1, http://www.ase.tufts.edu/gdae/Pubs/te/MAC/2e/MAC_2e_Chapter_15.pdf.
[lxxx] See Deloitte, A Brief Overview of the 2016 Regulatory Trends in Securities, Center for Regulatory Strategies, 2016, p. 2, http://www2.deloitte.com/us/en/pages/regulatory/securities-regulatory-outlook.html.
[lxxxi] Reuters, Fitch: Securities Firms Earnings to Remain Challenging in 2016, Financials, November 30, 2015, 11:58 P.M., EST, http://www.reuters.com/article/idUSFit93980220151130.
[lxxxii] Reuters, Fitch: Securities Firms Earnings to Remain Challenging in 2016, Financials, November 30, 2015, 11:58 P.M., EST, http://www.reuters.com/article/idUSFit93980220151130.
[lxxxiii] See FINRA, FINRA’s 2016 Focus: Supervision, Liquidity and Securities Firms’ Culture, FINRA.Org, January 5, 2016, https://www.finra.org/newsroom/2016/finras-2016-focus-supervision-liquidity-and-securities-firms-culture.
[lxxxiv] See Zinn, Dan, Petition for Rulemaking to Amend Regulation A to Make SEC Reporting Companies Eligible Issuers and Permit at the Market Offerings, OTC Markets, https://www.sec.gov/rules/petitions/2016/petn4-699.pdf.
[lxxxv] See FINRA, FINRA’s 2016 Focus: Supervision, Liquidity and Securities Firms’ Culture, FINRA.Org, January 5, 2016, https://www.finra.org/newsroom/2016/finras-2016-focus-supervision-liquidity-and-securities-firms-culture.
[lxxxvi] See Moskowitz, Dan, Moody’s: Low Interest Rates Likely the New Norm, Investopedia, May 13, 2016, 10:46 A.M., EDT, p. 1, http://www.investopedia.com/articles/markets/051316/moodys-low-interest-rates-likely-new-norm.asp; See Strumpf, Dan, Light, Joe, Hilsenrath, Jon, the High Consequences of Low Interest Rates, Wall Street Journal, Feb. 9, 2016 5:59 p.m. ET, p. 2, http://www.wsj.com/articles/the-high-consequences-of-low-interest-rates-1455057473.
[lxxxvii] See Zandi, Mark, Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis, Pearson Education, Inc. 2009, p. 7.
[lxxxviii] See Bureau of Economic Analysis, Table 1.1.5. Gross Domestic Product, U.S. Department of Commerce, May 27, 2016, www.bea.gov; “[Billions of dollars] Seasonally adjusted at annual rates … Gross Domestic Product … 2016Q1 [=] 18,229.5.”
CALCULATION: $19,229,279,536,522 debt / $18,229,500,000,000 GDP = 105%;
See Bureau of Economic Analysis, Table 3.1. Federal Government Current Receipts and Expenditures U.S. Department of Commerce, May 27, 2016, www.bea.gov; “[Billions of dollars] Seasonally adjusted at annual rates … Total receipts … 2016Q1 [=] 3,491.7” CALCULATION: $19,229,279,536,522 debt / $3,491,700,000,000 receipts = 551%.
[lxxxix] See Zandi, Mark, Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis, Pearson Education, Inc. 2009, p. 7; See See Grant, James, The United States of Insolvency, TIME Magazine, April 14, 2016, p. 4, http://time.com/4293549/james-grant-united-states-debt/.
On the same subject: https://www.aabrs.com/managing-small-business-finances/
[xc] See Victor Fleischer, “Hillary Clinton’s Capital Gains Tax Change Misses the Mark,” Andrew Sorkin, New York Times, July 28, 2015, p. 2, http://www.nytimes.com/2015/07/29/business/dealbook/clintons-capital-gains-tax-change-misses-the-mark.html.
[xci] See Richard Eskow, “Hillary’s Challengers—and the Anti-Wall Street Wave,” TheHuffingtonPost.com, Inc., March 24, 2015, 1:10 A.M., p. 3, http://www.huffingtonpost.com/rj-eskow/hillarys-challengers—-a_b_6928820.html.
[xcii] See Clinton, Hillary, Hillary Clinton: How I’d Rein in Wall Street, New York Times, Op-ed, Dec. 7, 2015, http://www.nytimes.com/2015/12/07/opinion/hillary-clinton-how-id-rein-in-wall-street.html?_r=0.
[xciii] See Borak, Donna, Where Clinton and Trump Stand on Wall Street, The Wall Street Journal, June 20, 2016, p. 19, http://graphics.wsj.com/elections/2016/where-do-clinton-and-trump-stand-on-wall-street/.
[xciv] See Riddell, Kelly, Equal pay for equal work, yet Hillary Clinton pays female aides 88 cents for every $1 a man makes, The Washington Times, April 12, 2016, p. 1, http://www.washingtontimes.com/news/2016/apr/12/equal-pay-equal-work-yet-hillary-pays-female-aides/.
[xcvi] See Pormerleau, Kyle, Schuyler, Michael, Details and Analysis of Hillary Clinton’s Tax Proposals, Tax Foundation, January 26, 2016, p. 1, http://taxfoundation.org/article/details-and-analysis-hillary-clinton-s-tax-proposals.
[xcviii] See Sahadi, Jeanne, Here’s How Much Hillary Clinton’s Tax Plan Would Hit the Rich, CNN Money, March 3, 2016, http://money.cnn.com/2016/03/03/pf/taxes/hillary-clinton-taxes/.
[xcix] See Miregoff, Paul, Hillary Clinton’s National Debt Evasion, PowerLine, December 4, 2015, p. 1, http://www.powerlineblog.com/archives/2015/12/hillary-clintons-national-debt-evasion.php.
[c] See Langley, Monica, McKinnon, John, D., Trump Plans to Cut Taxes for Millions, Sept. 29, 2015, p. 3, http://www.wsj.com/articles/trump-plan-cuts-taxes-for-millions-1443427200.
[ci] See Borak, Donna, Where Clinton and Trump Stand on Wall Street, The Wall Street Journal, June 20, 2016, p. 1, http://graphics.wsj.com/elections/2016/where-do-clinton-and-trump-stand-on-wall-street/.