ETF Dictionary

Custodian Bank

Explaination about Custodian Bank

1. ETF Term: What is Custodian bank?

Custodian banks are supervisory banks assigned by Fund Manager on a contractual basis as the supervisory banks for ETFs.
Custodian banks are financial institutions that are responsible for holding and safeguarding the assets (securities, cash, ) that make up the ETF’s portfolio. The role of custodian banks is vital in ensuring the security and integrity of the assets underlying the ETF. Here are the key roles and responsibilities of custodian banks for ETFs.

They act as the legal owners of these assets on behalf of the ETF.
Bank facilitates the settlement of trading. When the ETF buys or sells securities, its role ensures the smooth transfer of these assets between the ETF and the market.
Managing the cash flows within the ETF and maintaining the liquidity of the ETF.
During the creation and redemption process of ETF shares, custodian banks play a crucial role. They are involved in the transfer of securities when new ETF shares are created or existing shares are redeemed.
Assisting in managing the operational and counterparty risks associated with the ETF. They implement risk mitigation measures to protect the ETF and its investors.
Custodians handle corporate actions such as stock splits, mergers, or other changes that may affect the ETF’s holdings.
Acting as the safekeeping, efficient trading, and overall integrity of the ETF’s assets. Their role is critical in maintaining investor confidence and regulatory compliance within the ETF structure.

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