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Holding and safeguarding financial assets on behalf of their owner.
When an investor buys a security, custody records identify the client's interest and the relevant holding arrangement. The custodian may receive dividends or coupons and process transfers under authorised instructions. Assets can be held through intermediaries, so the legal structure matters. Safeguards, reconciliation and accurate records address misappropriation and operational risk; they do not remove the investment's own market risk.
Suppose a fund buys J$5 million of government bonds. Its investment manager makes the decision, a broker executes the trade, and a custodian records and holds the resulting assets for the fund. If the bonds fall in market value to J$4.8 million, custody has not guaranteed their price. A missing bond or unauthorised transfer would instead raise a safeguarding or recordkeeping issue.
Fed proposes reserve backing and application rules for payment stablecoins