Notes
1 Custodians are often referred to as “master custodians” because, in order for them to hold and report on the many types of financial assets investors own, a custodial institution will typically require the services of several (or many) subcustodians. For example, it is not practical—and is sometimes not possible, due to local laws and regulations—for a U.S. banking institution to have a custody operation in every country in the world. Instead, the master custodian will enter into agreements with local institutions to act as subcustodians for the master.
2 Unlikely, but hardly unheard-of. Most of the large banks in Houston, Texas collapsed in the 1980s, for example, as did Continental Illinois in Chicago and numerous other banks that proved not to be “too big to fail.” Think Lehman Brothers, National City, Countrywide Financial, and so on.
3 Note that in the event of an IRS audit, the books of the custodian are considered to be the official “book of record” for tax data.
4 The SSAE16 is a thorough report on the internal controls at a custody bank and, effective in mid-2011, replaced the SAS70.
5 To make matters even more complex, there are firms that specialize in investing securities lending proceeds. In other words, these firms take the modest interest we receive for lending our securities and invest it to produce slightly more interest. A very large scandal involved one of these firms, First Capital Strategies, in the mid-1990s.
6 For example, the gigantic public and ...
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