A custodian is a bank or other institution that holds securities on behalf of investors. The tasks performed by a custodian include:
- safekeeping of securities
- delivering or accepting traded securities
- collecting principal, interest, or dividend payments on held securities
Collectively, these services are called custody.
Custodians are typically used by institutional investors who do not wish to leave securities on deposit with their broker-dealers or investment managers. By separating duties, use of custodians reduces the risk of fraud. The custodian independently ensures that the investor has unencumbered ownership of the securities other agents represent to have purchased on their behalf.
If an investor holds foreign securities, their custodian will contract with custodians in foreign countries to provide local custody services. These foreign custodians are called subcustodians.