Custodian, as the word suggest, is an entity which acts as the intermediary in the securities transactions business by performing the task of managing the securities on behalf of their clients. A global custodian provides investment administration for investor clients, including processing cross-border securities trades and keeping financial assets secure outside of the country where the investor is located. A sub-custodian is employed by a global custodian as its local agent to provide settlement and custody services for assets that it holds on behalf of investor clients in a foreign market.
Following are the functions performed by custodians in financial markets:
1) Providing safe keeping of the investor's assets. The word safekeeping had its origin in the physical form of securities. Now that securities have been converted into electronic form, custodians do the activity of safekeeping of securities.
2) Custodians handle post trading activity of its clients. This involves making appropriate arrangements for delivery and receipt of cash and securities. Custodians identify saleable position of their clients and then deliver the securities within settlement deadline. Similarly custodians also make cash payments on behalf of their clients. They also carry out same kind of activities with respect to receipt of cash and securities.
3) The custodians keep their clients posted on latest market information on developments and reforms within a particular market. This is part of research and development activity of a custodian
4) Handling of corporate actions is a critical action performed by the custodians. This involves collecting dividend income; interest paid on debt securities and other income payments in the local market. Custodians calculate the entitlement on benefits to be received by their clients as a result of corporate actions. Additionally they carry out reconciliation of corporate benefits and report clients on the differences, if any.
5) Apart from handling securities for their clients, custodian also takes of cash flows of their clients.
6) Monitoring and managing entitlements through corporate actions and voting rights held by the investor in the local market;
7) Custodians carry out the activity of managing tax reclaims and other tax services in the local market for their clients.
8) Ensuring that securities are registered and that transfer of legal title on securities transactions proceeds effectively. This activity of custodians has gone down significantly post dematerialization of shares.
9) Ensuring that reporting obligations to the regulatory authorities, and to other relevant bodies, are discharged effectively
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