What is an ETF Custodian?
A custodian is a specific type of financial organization that plays a role in the operations of ETFs – it holds securities on behalf of the ETF Issuer.
A custodian is a specific type of financial organization that plays an important role in the operations of ETFs – it holds the underlying securities on behalf of the ETF Issuer which are then sold to investors and is instrumental in managing the money going in and out of the fund.
A custodian may also perform a few other functions – as a fund accountant striking a NAV for the ETF, and reconciliation agent ensure smooth operation of a fund.
Other services that an ETF custodian might provide to the fund include securities lending and cash management. When an ETF implements a securities lending program (lending shares to the market for shorting at a cost), the proceeds are usually split between the lending agent and the ETF's shareholders, increasing the fund's overall return.
The custodian can also manage an ETF's uninvested cash.
*This article was written in collaboration with Trackinsight.
