SMU MBA ASSIGNMENTS

Custodial services refer to the safeguarding of securities of a client. The activities relating to custodial services involve collecting the rights benefiting the client in respect to securities, maintaining the securities’ account of the client, informing the clients about the actions taken or to be taken, and maintaining records of the services.

Custodian of services is a person who proposes or carries on the business of providing custodial services. The custodian provides the services to a client. To receive custodial services, the client enters into an agreement with the custodian of securities. The custodian of securities must be registered with the SEBI. The person proposing to carry on business as custodian of securities after the commencement of the SEBI regulations has to send an application to the Board to grant a certificate. The applicant has to provide the necessary information to the Board to receive the certificate of registration. The application without complete information is rejected. However, before rejecting any application, the Board gives an opportunity to the applicant to remove the objection within a specified time.

Custodial services is a new method of services provided to Foreign Institutional Investors (FIIs) and Mutual Funds (MFs) to protect their assets such as security certificates and documents of ownership. Every custodian should have adequate facilities, sufficient capital and financial strength to manage the custodial services.

Roles and responsibilities of custodians

The SEBI regulations prescribe the roles and responsibilities of the custodians. According to the SEBI the roles and responsibilities of the custodians are to:

· Administrate and protect the assets of the clients.

· Open a separate custody account and deposit account in the name of each client.

· Record assets.

· Conduct registration of securities.

· Segregate securities and cash belonging of each client from others including custodian himself.

· Take adequate insurance of risks.

· Maintain records manually or in machine readable form.

· State clearly the method and system of receiving instructions from the client regarding collection, receipt, reporting and delivery of securities.

· Conduct verification of securities and to follow the stated control mechanism.

· Mention specifically the fees charged in the agreement.

· Conduct audit annually.

The custodian should have an adequate internal control system to prevent the manipulation of records and documents, which includes audit for securities and entitlements arising from securities, and held on behalf of the clients. To ensure that securities are protected from theft and natural hazards, the custodian must have appropriate safekeeping measures. On behalf of the client, the custodians have to maintain records and documents such as details of securities, money received and released registration of securities, and all reports submitted to the SEBI.

To monitor the compliance to the SEBI Act, every custodian of securities appoints a compliance officer. The SEBI can ask for any information with respect to any matter relating to the activities of the custodian. The SEBI is authorised to conduct inspection or investigation of accounts, documents or records of the custodians to ensure that the provisions of the SEBI Act and regulations are followed. In case of default, the SEBI can suspend or cancel registration of a custodian.

Every registered custodian must follow the code of conduct prescribed by SEBI. The following are the code of conduct prescribed by SEBI:

· Integrity — The custodian of securities must maintain high standards of integrity and professionalism while discharging duties.

· Prompt distribution — The custodian of securities must be prompt in distributing interests and dividends collected by him, on behalf of his clients on the securities held in custody.

· Infrastructure — The custodian of securities must establish and maintain suitable infrastructure to discharge custodial services to the satisfaction of the clients. The operating procedures and systems of the custodian of securities need to be well documented.

· Accountability — The custodian of securities is responsible for the movement of securities. The movement of securities can be from custody account, deposit and withdrawal of cash from the client’s account. Whenever demanded by SEBI or the client, the custodian of securities must provide the complete audit trail.

· Confidentiality — The custodian of securities has to maintain confidentiality regarding the client.

· Precautions — The custodian of securities must take necessary precautions to ensure that continuity in custodial records is not lost or destroyed. To maintain sufficient backup records, the custodial records are kept electronically.

· Records — The custodian of securities must create and maintain records of securities held in custody appropriately. This must be done to locate securities or obtain duplicate documents easily if the original records are lost due to any reason.

· Cooperation — The custodian of securities must cooperate with other custodial entities and depositories which are necessary for the conduct of business, especially in the areas of inter custodial settlements and transfer of securities and funds.

· Diligence — The custodian of securities must exercise diligence in administrating and safekeeping the client’s assets which are in his custody.