What is the Meaning of Custodian in Stock Market?

In finance, a custodian is simply referred to as a financial institution responsible for holding and safe-keeping customers’ securities, trust funds and other assets to help them prevent loss or theft. The securities and other assets can be held in physical or electronic form depending on whichever form they take. Custodians are usually large and reputable institutions since they are likely to have in their possession assets and securities worth hundreds of millions or billions of dollars. They are also referred to as “custodian banks.”

Understanding the Responsibilities of Custodians

While the primary purpose of Custodians or Custodian banks is to hold customers’ securities and assets for safekeeping, they also offer other services such as transaction settlements, tax support, account administration, foreign exchange, collection of dividends and interest payments. There are fees allocated to the services provided by the custodians and they vary according to what the client wants. Some firms charge quarterly custody fees depending on the total value of the holdings.

Depending on the agreement between a client and a custodian, the custodian may have rights to assume possession over the assets in aggregation with the backing of an attorney. That way, the custodian will have the legal right to either make payments in the client’s name or change investments on behalf of the client. However, notices must be sent to customers to notify them of transactions and other activities that have been or are being conducted on their behalf. Account statements must also be sent to the customers to keep them up-to-date with their current holdings.

'Dealing with minors'

In cases where the account beneficiary is a minor, the custodian, according to rules and regulations limiting minors will be required to perform certain activities on behalf of the minor. The custodian will be granted the authority to make investment decisions and contributions regarding the assets in the minor’s account. However, all actions performed must be intended for use by the named beneficiary, until the minor reaches the legal age of adulthood.

Special Considerations

There are special considerations where the investment advisors function as custodians for customer funds. In such cases, the advisor will be required to follow custody rules as stated by the Securities and Exchange Commission (SEC). Before an investment advisor can act as a custodian, the person or firm must be qualified as a custodian capable of holding customers’ funds.

The major purpose of custodian services is to help absentee owners (owners who do not want to be involved in day-to-day management activities of their accounts) manage their accounts. They also help out with complex transactions, asset management, tax management, and timely reporting and compliance.

Custodian Banks

There are quite a few reputable custodian banks both in the US and abroad they are; Bank of New York Mellon, Citigroup, JP Morgan, and State Street Bank, and Trust Co; Deutsche Bank (Germany), Bank of China (Hong Kong), Credit Suisse and UBS (Switzerland), PNB Paribas (France), Barclays (England).