Glossary
Custodian
A financial institution that holds customers' securities and cash for safekeeping and handles settlement and record-keeping.
On this page
A custodian is the institution that actually holds an investor's securities and cash, keeps the official records of who owns what, and handles the plumbing around them: Settlement of trades, collection of dividends and interest, and corporate actions such as splits and mergers. For most individuals the custodian is their brokerage firm; for pension funds, mutual funds and advisers it is usually a large custody bank.
What a custodian does
- Safekeeping. Securities are held electronically, mostly in the custodian's name at a central depository, with the custodian's books recording each client's share.
- Settlement. When you buy a stock, the custodian delivers cash and receives the shares. In the US most trades settle one business day after the trade (T+1) since May 28, 2024.
- Income and corporate actions. Dividends and coupons are credited, proxy votes passed through, and splits or spinoffs reflected in the account.
- Reporting. Statements and tax forms such as the 1099 come from the custodian.
Protections
US broker-dealers must keep customer securities and cash segregated from their own. If a SIPC-member broker fails and customer assets are missing, the Securities Investor Protection Corporation covers up to $500,000 per customer, including a $250,000 limit for cash. SIPC does not protect against market losses, and it generally does not cover crypto assets that are not registered securities. A "custodial account" is a different idea: an account an adult manages for a minor under state law.