In finance, a custodian bank, or simply custodian, refers to a financial institution responsible for safeguarding a firm's or individual's financial assets. The role of a custodian in such a case would be the following: to hold in safekeeping assets such as equities and bonds, arrange settlement of any purchases and sales of such securities, collect information on and income from such assets (dividends in the case of equities and interest in the case of bonds), provide information on the underlying companies and their annual general meetings, manage cash transactions, perform foreign exchange transactions where required and provide regular reporting on all their activities to their clients. Custodian banks are often referred to as global custodians if they hold assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks in each market to hold accounts for their underlying clients. Assets held in such a manner are typically owned by pension funds.
In relation to American Depositary Receipts (ADRs), a local custodian 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. This bank acts as custodian bank for the company that issues the ADRs in the U.S. stock market.
Examples
The following companies offer custodian bank services:
Certain financial institutions specialize in the administration and custody of 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.
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