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Information > Financial Terms > This page Note Brokers Dealers
or COMMERCIAL PAPER houses whose business it is to act as middlemen between
the issuers of commercial paper and banks, insurance companies, and private
investors, who constitute the market on the demand side.
Not brokerage firms are usually partnerships having ample capital
resources, capital, and valuable bank connections to enable them to secure
an adequate supply of funds to finance their transactions.
Commercial paper borrowing is a means of temporarily raising funds
for financing seasonal inventory requirements.
Note brokers derive their profit by buying notes from the makers
at one rate of discount and selling them at another, although some of
the business may be done on the basis of a small commission that is charged
by the borrower. The
paper marketed by note brokers is varied in character and includes single-name
paper, double-name trade paper, collateral notes, and trade and bank acceptances.
Much of the paper dealt in by note brokers is single-name paper
of well-known commercial houses. A
large portion of the paper is sold upon a ten days' option to give the
proposed buyer an opportunity to investigate the standing of the maker.
At the end of the option period it may be retained or returned.
Note brokerage is a specialized machinery for facilitating commercial
borrowing by prime credit risks in the open market. |