Custodian

Investment funds, pension schemes, insurance companies and individual investors rarely hold securities themselves. Instead, custodians keep them safe, usually in electronic form, and keep detailed records of who owns what.

Custodians typically settle trades, collect dividends and interest, process corporate actions such as share splits and rights issues, handle tax paperwork and provide reports on holdings. Large custodian banks look after many trillions of dollars of assets worldwide.

For example, when a mutual fund buys shares, its custodian receives and holds them, and the fund manager does not have direct access to move them except through authorised instructions.

Separating the custodian from the fund manager is an important safeguard. Client assets are usually held separately from the custodian's own assets, so if the custodian or fund manager runs into financial trouble, investors' assets should be protected and not available to their creditors.

For individual investors, brokers often act as custodians or use a custodian bank to hold clients' investments. Rules on how client assets must be held and protected vary by country.