Aug 28, 20223 min read

Information on Custodian, Depositories & Clearing Agents

Custodian

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 necessarily engaged in "traditional" commercial or consumer/retail banking

Custodian banks are often referred to as global custodians if they safe keep 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 banks, insurance companies, mutual funds, hedge funds and pension funds.

Function of Custodian

· Hold in safe keeping 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 and administer related tax withholding documents and foreign tax reclamation.

· Administer corporate actions on securities held such as stock dividends, stock splits, mergers, tender offers, bond calls, etc. Provide information such as annual general meetings and related proxies.

· Maintain currency/cash bank accounts, effect deposits and withdrawals and manage other cash transactions like FX, Fund accounting, administration, legal, compliance and tax support services

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Depositories

· It is a specialist financial organization holding securities such as shares either in certificated or un-certificated (dematerialized) form so that ownership can be easily transferred through a book entry rather than the transfer of physical certificates.

· It allows brokers and financial companies to hold their securities at one location where they can be available for clearing and settlement.

· Clearing and settlement is usually done electronically making it much faster and easier than was traditionally the case where physical certificates had to be exchanged after a trade had been completed.

· A Central Security Depository (CSD) can be national or international in nature, and may be for a specific type of security. Examples of international CSDs include Clear stream (earlier Cedel), Euroclear and SIX SIS and US Depository Trust Company (DTC)

Functions of Depositories

· Safekeeping Securities may be in dematerialized form, book-entry only form, or in physical form immobilized within the CSD.

· Deposit and Withdrawal Supporting deposits and withdrawals involve the relationship between the transfer agent and/or issuers and the CSD. It also covers the CSD's role within the underwriting process or listing of new issues in a market.

· Dividend, interest, and principal processing, as well as corporate actions including proxy voting Paying and transfer agents, as well as issuers are involved in these processes, depending on the level of services provided by the CSD and its relationship with these entities.

· Securities Lending and Borrowing, Matching, and Repo Settlement

· Pledge - Central depositories provide pledging of share and securities.

Clearing Agents

· A clearing house is a financial institution that provides clearing and settlement services for financial and commodities derivatives and securities transactions.

· Transactions undertaken may be executed on a futures exchange or securities exchange, as well as off-exchange in the over-the-counter (OTC) market.

· The executed trade can be handed over to a clearing house, which then steps between the two original traders' clearing firms and assumes the legal counterparty risk for the trade. This process of transferring the trade title to the clearing house is called Novation.

· In the United States, stock clearing can be done by The Depository Trust & Clearing Corporation or Fedwire. In Europe, securities clearing are offered by EMCF, LCH. Clearnet, SIX x-clear and Euro CCP.

Functions of Clearing Agents

· Market monitoring

· Margin monitoring

· Margin requirements

· Margin checks

· Margin calls

· Mark to market calculations

· Risk checks

· Clearing

· Settlement

Corporate actions. https://www.youtube.com/watch?v=V8wKtp4aeQQ&t=2195s

Private Equity-03 https://youtu.be/Wip9pwV7fZU