The sell side represents a segment of the financial markets that is responsible for selling and rating securities for its counterpart, known as the buy side. Typical sell side jobs include Wall Street research analysts, traders, and investment bankers. Clients of the sell side community include institutional investors including mutual funds, retirement funds, hedge funds, or other buy side institutions. Retail or individual investors also constitute the buy side, although sell side research is usually directed at the largest financial institutions.
An institutional-sized investment bank is a financial institution that helps companies to raise money in the capital markets and also maintains a brokerage. Due to an extensive research team in addition to its institutional sales team, an investment bank often services both buy side and sell side communities. Sell side investment banking is responsible for selling securities to investors on behalf of clients in a deal, such as in an initial public offering. Buy side participants might include large institutional buyers, including mutual funds or hedge funds, who are in the market for securities.
A sell side research analyst is responsible for producing reports on a company that trades in the public markets and assigning a rating to the stock. Typical ratings might include buy, sell, or hold recommendations. A sell side analyst might base his rating on projected future earnings growth at a company, which is a signal of how profitable that entity is expected to be. The more profitable a company becomes, the better its stock price typically performs. Investors often make trading decisions based on analyst research.
Relationships between sell side analysts and publicly traded companies can be controversial. An analyst is expected to produce non-biased information about a stock. Institutional brokerage firms that employ research analysts, however, might also employ sell side traders whose very commissions are earned based on the number of shares they sell. If there is a lack of ethics at the firm, a research analyst might be pressured by a company to recommend a stock in hopes that the trader will sell more shares.
This conflict of interest blurs any lines between the buy side and sell side. It is up to a regulatory body in a particular region to establish rules that prohibit any unethical behavior. In the US, for instance, the Sarbanes Oxley Act of 2002 was formed in part to deal with sell side analyst conflicts of interests.
