A custodian bank is responsible for safeguarding assets, including securities and valuables, on behalf of investors. They also assist in buying and selling assets and managing international situations. Agent banks are a special type of custodian bank that holds shares for American Depository Receipts.
A custodian bank is a financial institution responsible for maintaining and keeping safe the various assets of an investment company. Assets can include any type of security, including stocks or bonds, as well as assets such as jewelry or other valuables. Banks of this type provide services to investors as well as groups of angel investors and even individual investors.
Sometimes simply referred to as custodian, the basic responsibility of the custodian bank is to receive and keep safe the assets delivered by the investor. This includes stocks and bonds. The bank always maintains the ability to grant access to those assets to the investor, as well as to account for the current state of those assets, in terms of their value.
Along with the custody of the assets, a custodian bank also assists in the buying and selling of assets on behalf of the investor. This may include ensuring that all assets purchased are properly received, recorded and accounted for under the terms of the investor’s account. At the same time, the custodian bank is instrumental in the orderly transfer of an asset to the new owner when the investor chooses to sell securities or one of the other types of assets entrusted to the bank.
Because the job of a custodian bank can include the care and management of assets located around the world, it is not unusual for banks of this type to be called global custodians. Often the bank will manage this type of international situation by making use of its own branch system, or by establishing contacts with other custodian banks located in the same country as those assets. While a network of locations may be involved, the escrow process still involves creating a central flow of data regarding the current status of each asset, a situation that allows the asset owner to easily obtain documentation that provides detailed information. especially holdings entrusted to the bank.
A special type of custodian bank is known as an agent bank or sub-custodian bank. This designation is typically associated with banking functions in the United States. In this scenario, the sub-custodian bank is a financial institution that is located outside the borders of the United States or its territories. Its role is especially important when it comes to American Depository Receipts, or ADRs.
The agent bank will hold a set number of shares to correspond to the ADRs traded on a local stock market. This process makes it possible for ADRs to retain a price that is considered conventional by US standards, even if the prices of the shares held by the sub-custodian would not be the same if converted directly at the current exchange rate. This helps keep the trading process simple when dealing with international assets, and is considered one of the most important functions of a custodian bank when it comes to managing any type of security that may be traded on the market.
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