Effective with the release of data for January 2001, the Producer Price Index (PPI) introduced indexes for financial services industry NAICS 5231 Security and Commodity Contracts Intermediaries and Brokerage Companies. Historical data for these indexes dates to June 2000. These indexes appear in table 5 of the PPI Detailed Report and are available online through the BLS website. The NAICS 5231 service lines for which indexes are available include:
While dealers and brokers perform similar functions by acting as intermediaries between buyers and sellers, there remains a clear distinction between the two. Dealers own the securities they trade, and receive compensation based on the difference between the dealer's purchase and selling price for a security. Dealers are also required to act as market makers. That is, dealers must stand ready to buy and sell securities to facilitate market trading. Market making in over-the-counter equities includes all stocks traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) system. Dealers also transact corporate bonds, treasury bills, futures, and options.
Investment banking services include underwriting initial public offerings, advisory services for mergers and acquisitions, private placements, and asset securitization.
Other investment banking and securities dealing services include securities lending and reverse purchase agreement transactions. Securities lending is an arrangement in which securities are loaned from one securities dealer to another in exchange for collateral. Reverse purchase agreements are arrangements in which securities are purchased with an agreement that they will be re-sold to the initial seller at a pre-determined, higher price in the future. Both of these transactions generate interest income.
As opposed to dealers, brokers do not own the securities they trade and are usually paid commissions based on either a flat fee or a percentage of a transaction's value.
The PPI for Other securities related services, including margin lending and mutual fund sales, encompasses a wide variety of additional financial services that security brokerage companies perform. A significant component of this index is margin lending. Margin is a secured loan toward the purchase of securities, where securities in the client's account act as collateral. The price or fee for this service is usually a percentage based on the amount of the loan. This industry's establishments may also receive commissions or fees for selling shares of mutual funds to investors.
NAICS 5231 indexes measure changes in the revenue received by security and commodity contract intermediaries and brokerage companies. Therefore, price quotations are generated from specific transactions, where the characteristics of each trade, investment banking deal, or other related services are held constant from the time they were initiated into the PPI survey. By affecting commissions and fees, changes in securities values will drive changes in the PPI.
Last Modified Date: November 4, 2008