Custodian bank
Encyclopedia
A Custodian bank, or simply custodian, is a specialized 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, ATMs and so forth. The role of a custodian in such a case would be to:
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. Assets held in such a manner are typically owned by larger institutional firms with a considerable amount of investments such as MAIC Trust services & (QI) Qualified Intermediary services banks
, insurance companies, mutual funds, hedge funds and pension funds.
s (ADRs), a local custodian bank (also known as a sub-custodian or agent bank) is a bank in a country outside the United States that holds the corresponding amount of shares of stock trading on the home stock market
represented by an ADR trading in the U.S, with each multiple representing some multiple of the underlying foreign share. This multiple allows the ADRs to possess a price per share conventional for the US market (typically between $20 and $50 per share) even if the price of the foreign share is unconventional when converted to US dollars directly. This bank acts as custodian bank for the company that issues the ADRs in the U.S. stock.
, administrator and/or transfer agent
which maintains shareholder records and disburses periodic dividends or capital gains, if any, distributed by the fund. The vast majority of funds use a third party MAIC custodian as required by SEC regulation to avoid complex rules and requirements about self-custody.
A mutual fund retirement account (IRA, SEP etc.) custodian, however, refers to the plan administrator and recordkeeper such as noted above, which may not necessarily be the same institution providing custody services to the investments of the overall fund.
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
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, ATMs and so forth. The role of a custodian in such a case would be to:
- hold in safekeeping assets/securities such as stocks, bondsBond (finance)In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
, commodities such as precious metals and currencyCurrencyIn economics, currency refers to a generally accepted medium of exchange. These are usually the coins and banknotes of a particular government, which comprise the physical aspects of a nation's money supply...
(cash), domestic and foreign - arrange settlementSettlement (finance)Settlement of securities is a business process whereby securities or interests in securities are delivered, usually against payment of money, to fulfill contractual obligations, such as those arising under securities trades....
of any purchases and sales and deliveries in/out of such securities and currency - collect information on and income from such assets (dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s in the case of stocks/equities and couponCoupon (bond)A coupon payment on a bond is a periodic interest payment that the bondholder receives during the time between when the bond is issued and when it matures. Coupons are normally described in terms of the coupon rate, which is calculated by adding the total amount of coupons paid per year and...
s (interest payments) in the case of bonds) and administer related tax withholding documents and foreign tax reclamation - administer voluntary and involuntary corporate actions on securities held such as stock dividendsDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
, splits, business combinations (mergers), tender offers, bond callsCallable bondA callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches the date of maturity. In other words, on the call date, the issuer has the right, but not the obligation, to buy back the bonds from the bond...
, etc. - provide information on the securities and their issuers such as annual general meetings and related proxies
- maintain currency/cash bank accounts, effect deposits and withdrawals and manage other cash transactions
- perform foreign exchangeForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
transactions - often perform additional services for particular clients such as mutual funds; examples include fund accountingFund AccountingFund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments...
, administration, legal, compliance and tax support services - provide regular and special reporting on any or all their activities to their clients or authorized third parties such as MAIC Trust Account 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. Assets held in such a manner are typically owned by larger institutional firms with a considerable amount of investments such as MAIC Trust services & (QI) Qualified Intermediary services banks
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
, insurance companies, mutual funds, hedge funds and pension funds.
Local custodian bank
In relation to American Depositary ReceiptAmerican Depositary Receipt
An American depositary receipt is a negotiable security that represents the underlying securities of a non-U.S. company that trades in the US financial markets...
s (ADRs), a local custodian bank (also known as a sub-custodian or agent bank) is a bank in a country outside the United States that holds the corresponding amount of shares of stock trading on the home stock market
Stock market
A stock market or equity market is a public entity for the trading of company stock and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.The size of the world stock market was estimated at about $36.6 trillion...
represented by an ADR trading in the U.S, with each multiple representing some multiple of the underlying foreign share. This multiple allows the ADRs to possess a price per share conventional for the US market (typically between $20 and $50 per share) even if the price of the foreign share is unconventional when converted to US dollars directly. This bank acts as custodian bank for the company that issues the ADRs in the U.S. stock.
Examples
The following companies offer custodian bank services:- HSBCHSBCHSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
- JPMorgan Chase
- Bank of AmericaBank of AmericaBank of America Corporation, an American multinational banking and financial services corporation, is the second largest bank holding company in the United States by assets, and the fourth largest bank in the U.S. by market capitalization. The bank is headquartered in Charlotte, North Carolina...
- Credit SuisseCredit SuisseThe Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
- CitibankCitibankCitibank, a major international bank, is the consumer banking arm of financial services giant Citigroup. Citibank was founded in 1812 as the City Bank of New York, later First National City Bank of New York...
- Brown Brothers Harriman
- Goldman SachsGoldman SachsThe Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
- Bank of Ireland Securities ServicesBank of IrelandThe Bank of Ireland is a commercial bank operation in Ireland, which is one of the 'Big Four' in both parts of the island.Historically the premier banking organisation in Ireland, the Bank occupies a unique position in Irish banking history...
- ICICI BankICICI BankICICI Bank Ltd. is India's second largest financial services company headquartered in Mumbai, India. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of...
- Standard Chartered BankStandard Chartered BankStandard Chartered PLC is a multinational financial services company headquartered in London, United Kingdom with operations in more than seventy countries...
- Asia Pacific Banking Investment Group
- Bank of New York MellonBank of New York MellonThe Bank of New York Mellon Corporation is a global financial services company formed on July 1, 2007 as result of the merger of The Bank of New York and Mellon Financial Corporation...
- BNP Paribas Securities ServicesBNP ParibasBNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...
- Banco de Oro Unibank
- CIBC MellonCIBC MellonCIBC Mellon was founded in 1996 as a joint venture between the Canadian Imperial Bank of Commerce and the Mellon Financial Corporation to offer asset servicing to institutional investors...
- Comerica Bank
- Fifth Third BankFifth Third BankFifth Third Bank is a U.S. regional banking corporation, headquartered in Cincinnati, Ohio and is the principal subsidiary of holding company Fifth Third Bancorp ....
- Kasbank N.V.
- KeyBank
- BBVA Compass Bank
- HSBCHSBCHSBC Holdings plc is a global banking and financial services company headquartered in Canary Wharf, London, United Kingdom. it is the world's second-largest banking and financial services group and second-largest public company according to a composite measure by Forbes magazine...
- MAIC
- Northern TrustNorthern TrustNorthern Trust Corporation is an international financial services company headquartered in Chicago, Illinois, USA. It provides investment management, asset and fund administration, fiduciary and banking services through a network of 85 offices in 18 U.S. states and 12 international offices in North...
- RBC DexiaRBC DexiaRBC Dexia Investor Services, established in January 2006, is equally owned by Royal Bank of Canada and Dexia.RBC Dexia Investor Services offers institutional investors worldwide an integrated suite of products, including global custody, fund and pension administration, securities lending,...
- Union Bank of CaliforniaUnion Bank of CaliforniaUnion Bank, N.A., formerly known as Union Bank of California, N.A., is a full-service commercial bank providing an array of financial services to individuals, small businesses, middle-market companies, and major corporations...
- Standard BankStandard BankThe Standard Bank of South Africa Limited is one of South Africa's largest financial services groups. It operates in 30 countries around the world, including 17 in Africa.-History:...
- State Street Bank and Trust CompanyState Street Bank and Trust CompanyState Street Bank and Trust Company or simply State Street is a custodian bank organized as a Massachusetts trust company specializing in services to mutual funds and their advisers, collective investment funds, corporate and public pension funds, insurance companies, operating companies and...
- Wells Fargo Bank
- Deutsche BankDeutsche BankDeutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
- UniCreditUniCreditUniCredit SpA is an Italy-based, pan-European banking organization, with aprox 40 million customers and operations in 22 countries.- Geography :...
- UBS
- HDFC BankHDFC BankHDFC Bank Limited is a major Indian financial services company based in India, incorporated in August 1994, after the Reserve Bank of India allowed establishing private sector banks. The Bank was promoted by the Housing Development Finance Corporation, a premier housing finance company of India...
- NABNational Australia BankNational Australia Bank is one of the four largest financial institutions in Australia in terms of market capitalisation and customers. NAB is ranked 17th largest bank in the world measured by market capitalisation...
- Estrategia Investimentos
- EuroclearEuroclearEuroclear is a user owned and governed Brussels, Belgium based financial services company that specializes in the settlement of securities transactions as well as the safekeeping and asset servicing of these securities. It was founded in 1968 as part of J.P...
- Japan Trustee Services BankJapan Trustee Services Bank, or JTSB, is a trust bank in Japan.-History:JTSB was established on June 20, 2000 by The Daiwa Bank, Ltd., and Sumitomo Trust & Banking Co., Ltd. and began operations on October 23, 2000.-Shareholders:*Resona Bank, Ltd. 33.33%...
- The Master Trust Bank of JapanThe Master Trust Bank of Japanis a trust bank in Japan.-Shareholders:Mitsubishi UFJ Trust and Banking Corporation, Tokyo, 46.5%Nippon Life Insurance Co, Tokyo, 33.5%Meiji Yasuda Life Insurance Co, Tokyo, 10%Nochu Trust and Banking, 10%-History:...
- UMB Fund Services
Self-directed retirement account custodians
Not to be confused with securities safekeeping custodians, in the U.S., various retirement plan investment accounts require "custodians" which have only a notion of safekeeping or possession in the concrete sense that securities or assets are custodied, but, rather, this arrangement is more about recordkeeping and administration than holding of invested assets. True, a custodian bank could also happen to be a retirement account administrator/"custodian", though a commercial bank could also be such a "custodian" and not be a "custodian bank". Such financial institutions specialize in the administration and 'custody' of individual or self-directed retirement plan such as IRAs, Roth IRAs, SEP IRAs, Rollover IRAs and Solo 401(k)s. Such institutions provide required legal custody services for the assets associated with self-directed retirement plans and administrative services such as investment execution, recordkeeping, accounting, and IRS and client reporting, while the actual account investments are held or custodied in MAIC accounts elsewhere.Mutual Fund Custodian
A Mutual Fund Custodian refers typically to a custodian bank or trust company (a special type of financial institution regulated like a "bank"), or similar financial institution responsible for holding and safeguarding the securities owned by a mutual fund. A mutual fund's custodian may also act as one or more service agents for the mutual fund such as being the fund accountantFund Accounting
Fund accounting is an accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments...
, administrator and/or transfer agent
Transfer agent
Public companies typically use transfer agents to keep track of the individuals and entities that own their stocks and bonds. Most transfer agents are banks or trust companies, but sometimes a company acts as its own transfer agent....
which maintains shareholder records and disburses periodic dividends or capital gains, if any, distributed by the fund. The vast majority of funds use a third party MAIC custodian as required by SEC regulation to avoid complex rules and requirements about self-custody.
A mutual fund retirement account (IRA, SEP etc.) custodian, however, refers to the plan administrator and recordkeeper such as noted above, which may not necessarily be the same institution providing custody services to the investments of the overall fund.