A custodian in a financial market is the one who holds the securities, for safekeeping and clearing, on behalf of its customers who are trading members in a market (brokers). The custodian, as registered by Sebi, settles a trade on behalf of its client, a trading member. They take the burden from the individual investor and help them to avoid the hassle while trading in the stock market. A custodian holds security either in its electronic form (dematerialized or demat) or in its physical form.
What are the functions of a custodian?
- Providing administrative services such as tax reporting, fund accounting, etc
- Tracking the stocks in which the money is invested
- Collecting payments such as dividends, interest payments or acknowledging a bonus issue
- Communicating the significant decisions that are taken by the company in which money is invested
- Performing various buy and sell transactions, taking delivery and foreign exchange transactions
- Reporting the status of assets and moving funds
At any point in time, the custodian does not become the owner of the asset. They act on behalf of their clients & charge additional fees for the same.
There are also Global custodians who have clients from all over the world. Some of the famous global custodians are BNP Paribas Securities Services, Citigroup, etc.
Who are the custodians in India?
Some of the registered custodians in India are
- Kotak Mahindra Bank Limited
- Axis Bank Ltd
- DBS Bank India Ltd
- The Hongkong and Shanghai Banking Corporation Ltd.
- State Bank of India (SBI)
- JP Morgan Chase Bank, N.A.
- Stock Holding Corporation of India Ltd. (SHCI)
- Yes Bank Limited
- Standard Chartered Bank
- Edelweiss Custodian Services Limited
The wholesome list of all the registered custodians is available on the SEBI website
Custodian vs. Depository
A depository has the legal ownership and more control over the asset as compared to a custodian who is not a legal owner. He acts on behalf of his clients.
The depository participant acts as an agent between the depositories and the investors. All the D.P.s are registered under NSDL (National Securities Depository Limited) and CDSL (Central Depository Services India Ltd.)