Part 23: Custodian

Have you ever wondered, “Where are my securities held?” The answer is with a custodian. Let’s take a closer look at who a custodian is and what role they play in the investment process.

What Is a Custodian?

A custodian is a financial institution that holds and protects your assets, such as stocks, bonds, ETFs, and other securities. Think of it as a bank for your investment assets, one that physically or electronically holds your securities to prevent them from being lost, stolen, or damaged.

The need for custodians arose from a fundamental problem in the financial world: how to securely manage a large volume of securities without the risks of physical ownership. In the past, investors had to keep paper stock certificates, which were vulnerable to being lost, stolen, or damaged. This system was inefficient and lacked a standardized method for tracking ownership and transferring assets during a trade. As financial markets grew in complexity and scale, with millions of transactions happening daily, a centralized and secure solution became highly demanded. Custodians filled this gap by providing a safe, reliable, and efficient system for holding and managing assets, thereby protecting investors and facilitating the work of the modern financial system.

Custodians, who are often large and reputable companies or banks, are subject to strict regulations.

Custodian Services

Beyond its primary function, a custodian can provide a range of other services:

• Transaction Settlement and Reporting | A custodian can carry out the transaction settlement process, ensure compliance with regulatory rules, and provide transaction registration services and reports on the status of assets.
• Administrative and Support Services | Custodians can also administrate accounts, collect and distribute dividends and interest payments, and handle foreign exchange management. They may also provide tax support and prepare the necessary reports.

The fees for a custodian’s services depend on the scope of the services provided and may be based on the value of the assets held.

Custodian vs. Broker

Although both a custodian and a broker play an important role in financial markets, their functions are different.

• Brokers are financial intermediaries that facilitate the buying and selling of securities in the market. They act as agents for investors, executing orders and providing access to various financial markets. Their primary role is to execute your orders and to act as a market maker.
• A custodian’s main function is to hold your assets and ensure their physical or digital security.

Both custodians and brokers are subject to regulatory oversight, but the specific regulations that apply to them can differ.

In addition to our brokerage services, Apricot Capital also provides custody services, ensuring the safety of our clients’ securities.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central Bank of Armenia.

The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.