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Custodian and Clearing Roles
Securities & Cash Settlement
Learning Outcome
5
Understand securities protection and ownership records.
4
Explain settlement and risk management.
3
Describe how they work together.
2
Understand their main responsibilities.
1
Explain key settlement participants.
Clearing Corporation
Meaning: A Clearing Corporation is an institution that sits between the buyer and the seller in every trade, guaranteeing that both sides of the transaction will be honoured and coordinating the actual settlement of securities and cash.
Example: NSCCL (National Securities Clearing Corporation Limited) clears and settles trades executed on the NSE; CCIL performs the same role for government securities and forex trades.
Roles
Responsibilities
Custodian
Meaning: A Custodian is an institution appointed by a large investor — such as a mutual fund, insurance company, or foreign investor — to hold, safeguard, and manage the settlement of their securities and cash on their behalf.
Example: A custodian bank looking after a mutual fund's securities holdings and handling settlement instructions for all its trades.
Roles
Responsibilities
Depository
Meaning: A Depository is an institution that holds securities in electronic (dematerialised) form and maintains the official record of ownership, transferring securities between accounts when instructed.
Example: NSDL and CDSL in India hold securities electronically on behalf of millions of investors.
Roles
Responsibilities
Summary
5
Their roles reduce risk and improve efficiency.
4
All participants ensure accurate, timely settlement.
3
Depository holds securities and records ownership.
2
Custodian safeguards assets and manages settlement.
1
Clearing Corporation guarantees settlement and manages risk.
Quiz
Which institution maintains the official electronic record of securities ownership?
A. Clearing Corporation
B. Custodian
C. Depository
D. Stock Exchange
Quiz-Answer
Which institution maintains the official electronic record of securities ownership?
A. Clearing Corporation
B. Custodian
C. Depository
D. Stock Exchange
Fund Portfolio Reconciliation &NAV Validation - Custodian and clearing roles
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