Essentially, custodians process trades, hold and tally investments for fund managers. However, custodian banks are increasingly specialised and provide a growing range of services.

These include:

Safekeeping: it originally referred to the safekeeping of securities in the vaults of a bank. Looking after entitlements, in paper or electronic form, remains a core responsibility of custodians.

Settlement: after a bargain is struck on an exchange, custodians play an important role in ensuring that investors get the shares they have paid for and sellers get the money they are owed. In most markets, the actual exchange of cash for securities usually takes place by electronic delivery against payment in commercial or central bank money within a national or international central securities depository, to which custodians are the sole means of access.

Income Collection: custodians ensure that dividends and interest payments on holdings of shares and bonds are collected and paid to investors.

Reporting: custodians deliver regular reports to fund managers on their securities transactions and portfolios.

Corporate Actions: custodians receive notification of corporate actions, like rights issues or takeovers, from registrars. They pass these on to fund managers, and then take responsibility for acting upon the instructions issued by fund managers.

Proxy Voting: custodians exercise voting rights on behalf of fund managers, often according to standing instructions.

Tax Reclaims: custodians are responsible for reclaiming withholding taxes from national tax authorities on behalf of
fund managers under double taxation treaties.

Cash Management: custodians also re-invest the surplus cash of fund managers by placing it on deposit or by investing it in a proprietary or third party money market fund.

Securities Lending: custodians manage the lending for profit of the securities held in the portfolios of fund managers, usually to broker-dealers needing the securities to cover a short position or collateralise a loan.

Performance Measurement: custodians report to fund managers on the performance of their portfolio against appropriate benchmarks.

Fund Administration: custodians provide valuation and other administrative services to fund managers who have funds domiciled in offshore locations.</FONT>

Corporate governance

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Trade settlement


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Global Custody 1999

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