Custodian

custodian is an entity which holds the documentary evidence of the title to property
belonging like share certificates, etc for safekeeping. In Clearing Corporation, custodian
is a clearing member but not a trading member. He settles trades assigned to him by
trading members. He is required to confirm whether he is going to settle a particular trade
or not. If it is confirmed, the Clearing Corporation assigns that obligation to that
custodian and the custodian is required to settle it on the settlement day. If the custodian
rejects (if there are mismatches due to errors in the system the trade, the obligation is
assigned back to the trading member. !nly on receipt of the rejection message, the broker
shall cancel the rejected contract note and issue a fresh contract note bearing a new
number.
" Custodian bank, or simply custodian, is a speciali#ed financial institution responsible
for safeguarding a firm$s or individual$s financial assets and is not likely to engage in
%traditional% commercial or consumer&retail banking such as mortgage or personal
lending, branch banking, personal accounts, "'(s and so forth. 'he role of a custodian
in such a case would be to)
hold in safekeeping assets&securities such as stocks, bonds, commodities such as
precious metals and currency (cash, domestic and foreign
arrange settlement of any purchases and sales and deliveries in&out of such
securities and currency
collect information on and income from such assets (dividends in the case of
stocks&equities and coupons (interest payments in the case of bonds and
administer related ta* withholding documents and foreign ta* reclamation
administer voluntary and involuntary corporate actions on securities held such as
stock dividends, splits, business combinations (mergers, tender offers, bond calls,
etc.
provide information on the securities and their issuers such as annual general
meetings and related pro*ies
maintain currency&cash bank accounts, effect deposits and withdrawals and
manage other cash transactions
perform foreign e*change transactions
often perform additional services for particular clients such as mutual funds+
e*amples include fund accounting, administration, legal, compliance and ta*
support services
provide regular and special reporting on any or all their activities to their clients
or authori#ed third parties such as ("IC 'rust "ccount services for mergers ,
acquisitions payments.
Custodian banks are often referred to as global custodians if they safekeep assets for
their clients in multiple jurisdictions around the world, using their own local branches or
other local custodian banks with which they contract to be in their %global network% in
each market to hold accounts for their respective clients. "ssets held in such a manner are
typically owned by larger institutional firms with a considerable amount of investments
such as ("IC 'rust services , (-I -ualified Intermediary services banks, insurance
companies, mutual funds, hedge funds and pension funds.
Depository:
" depository is an entity where the securities of an investor are held in electronic
form..epositories help in the settlement of the demateriali#ed securities. /ach
custodian&clearing member is required to maintain a clearing pool account with the
depository. He is required to make available the required securities in the designated
account on settlement day.
'he depository runs an electronic file to transfer the securities from accounts of the
custodians&clearing member to that of Clearing Corporation. "s per the schedule of
allocation of securities determined by the Clearing Corporation, the depositories transfer
the securities on the payout day from the account of the Clearing Corporation to those of
members&custodians.
/very investor who wants to hold securities in demateriali#ed form must open an
account with a depository participant (.0 of his choice. 1sually this is done by your
broker on behalf of you. .epository 0articipants (.0s hold accounts with depositories.
2ust as one can hold funds in a bank account and transfer funds across accounts without
actually handling cash+one can hold securities in a depository account and transfer
securities across depository accounts without actually handling share certificates.
'here are two main depositories in India.
3.4ational 5ecurities .epository 6td (NSDL
7.Central .epository 5ervices 6td (CDSL
45.6 is the first and largest depository in India. It established in "ugust 3889. 'he :asic
functions of a depository are
i(aintaining demateriali#ed accounts
ii 'ransfer of shares across .0 accounts and iner;depository transfers
iii Crediting "ccounts in case of Corporate "ctions like .ividend issue, <ights issue etc.
iv 5ome other value added services like managing intermediary accounts for 56: (5tock
6ending and :orrowing, I0!s, 4ational 5avings Certificates etc.
=or more information on 45.6 and C.56 please visit the following websites.
45.6 >ebsite
C.56 >ebsite
<elated posts)
3. 'rade Clearing and 5ettlement in 5tock (arkets
7. =unctions of Clearing :anks ? Clearing :anks at 45/ and :5/
@. 45/ -uotes ? <ecord .ate& :ook Closure .ate&/* .ate&:C 5tart .ate&:C /nd
.ate
A. 45/ -uotes ? !rder :ook
B. <ules to be 6isted on :5/ for Companies "lready 6isted on !ther stock
e*changes