Chapter 6
Custody services
n this chapter we will look at the role of custodians and the services
they provide to their clients. With sophisticated computer systems
and a worldwide network of sub-custodians, global custodians are in
a position to deliver a growing portfolio of services to their clients.
Referred to by global custodians as either core services or value-added
services, the range offered includes:
The safekeeping of securities
The maintenance of multi-currency securities and funds
The settlement of securities trades in domestic and foreign
markets, on a free of payment or delivery versus against payment
The collection of dividends, interest and principal amounts due for
redemption on due date
The exercising or selling of subscription rights and attending to
other corporate actions
The reporting of transactions completed and the periodical
delivery of hardcopy statements of account
Contractual or actual settlement date accounting
Contractual or actual income collection
Terminal or computer-to-computer links to pass on instructions
and retrieve client information from the custodian’s database
Customized multi-currency reporting and performance
Securities borrowing and lending
Assistance with withholding tax claims
Handling/settlement of derivatives
Briefings on specific countries, in particular on emerging
Cash projection and cash management
Ensuring that physical certificates and associated documentation
are in good order.
From a global custodian’s perspective, core services are those which
are so standardized that there is not a great deal of scope for any
particular global custodian to differentiate its service from that of
another global custodian. Any fundamental changes and improve-
ments will affect the industry as a whole.
Value-added services, on the other hand, provide the global
custodians with the opportunity to offer a broader and different
service to their clients, and in so doing, enhance the global
custodians’ standing within the marketplace and improve their fee-
earning capabilities.
Settlement is, as we know, the final transfer of cash from the
purchaser to the seller in exchange for the delivery of the securities to
the purchaser. However, settlement conventions vary widely from
country to country and especially in the areas of physical delivery and
book entry transfer.
To illustrate the difference we can look at the situation for an equity
transaction prior to the introduction of CREST in the UK and at
how the ICSDs settle Eurobonds. In the UK prior to CREST an
investor had to physically lodge the share certificate together with
relevant transfer documentation with a London Stock Exchange
processing office prior to settlement (Figure 6.1).
Eurobonds, held in electronic book entry form by Euroclear and
Clearstream, are settled by Book Entry Transfer (BET). The securities
Clearing, Settlement and Custody128

Get Clearing, Settlement and Custody now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.